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Rating Action:

Moody's assigns Ba3 corporate family to AWAS and a Ba2 rating to the Term Loan

17 May 2010

New York, May 17, 2010 -- Moody's Investors Service assigned a Ba3 Corporate Family Rating ("CFR") to AWAS Aviation Capital Limited ("AWAS"), as well as a Ba2 rating to the company's proposed $530M six-year Secured Term Loan issuance.

The rating reflects AWAS' monoline nature, asset impairments, aggressive growth strategy and reliance on secured funding. The rating also considers the company's strong capital levels, relatively well-balanced risk exposures (geographic, aircraft and customer), and experienced management team.

The monoline nature of AWAS' operations represents a key constraint on the rating. Although the company has benefited from growth in emerging markets air travel, the airline industry is cyclical in nature. The current down cycle has been accompanied by weakened aircraft demand, lower lease renewal rates and declines in aircraft utilization levels. These conditions have led to declining aircraft values, resulting in AWAS recording sizeable asset impairment charges during the past two years, determined under IFRS accounting rules that are more stringent in this regard than U.S. GAAP. These factors have imposed lower profitability on the firm, and also have potential adverse consequences for access to funding, in Moody's view.

AWAS' high projected growth rate, manifest by its relatively large order book and increasing new aircraft deliveries over the next few years, is an important risk factor influencing the rating. In Moody's experience, rapid growth implies increased lease placement and funding related risks, as aircraft are generally acquired on a speculative basis. Like other industry participants, AWAS has successfully placed most upcoming new deliveries (through mid-2011), but maintaining this posture in the face of rising aircraft deliveries could become challenging if demand factors stall or weaken unexpectedly. Moody's also notes that there are risks associated with remarketing or sale of older aircraft as the company continues to transform the composition of its fleet through new aircraft acquisitions.

In addition, AWAS' dependence on secured debt results in a high level of encumbered assets that limits the firm's financial and operational flexibility. Market sensitivity regarding expected volatility of aircraft leasing rates and utilization increases the risk of interruption of the firm's access to funding. As a partially offsetting strength, AWAS has maintained a satisfactory capital position, aided by supportive parent, Terra Firma Investment Group. Furthermore, AWAS' improved debt maturity profile subsequent to the Term Loan issuance, associated repayment of certain debt facilities with near-term maturities, as well as expected working capital support from Terra Firma, mitigate liquidity concerns. As AWAS has historically generated limited internal capital, the rating incorporates Moody's expectation that management will continue to rely on Terra Firma while also employing prudent capital and liquidity strategies.

The company's concentrated ownership structure provides additional uncertainty regarding the stability of AWAS' franchise-building, capital and liquidity management efforts going forward. Given Terra Firma's ownership of the company, monetization of this investment could impact AWAS' credit profile.

AWAS' proposed Term Loan is rated Ba2, one notch above the CFR. This reflects the Term Loan facility's stronger LTV coverage in comparison with most of the firm's other secured debt, as well as a maximum 65% loan-to-value (LTV) covenant and additional operational covenant enhancements that also protect creditors. Moody's notes that the magnitude of the notching uplift assigned to the new loan is affected by the presence of another sizeable debt facility that, in Moody's estimation, also provides strong creditor protections. Together, this facility and the new loan represent nearly 40% of the AWAS' total indebtedness. If AWAS were to increase the proportion of secured debt that features similar asset protection and terms as the proposed transaction, the ratings for all such secured debt would likely converge with the firm's corporate family rating because the differentiation among creditors would be lower.

The rating outlook is stable, based on our expectations that the company is reasonably well-positioned to profitably grow its leasing operations in an improving operating environment and that leverage, liquidity and access to capital will continue to be carefully managed.

The principal methodology used in rating AWAS is analyzing the Credit Risks of Finance Companies, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Rating Methodologies sub-directory.

AWAS Aviation Capital Limited, headquartered in Dublin, Ireland, is a major owner and lessor of commercial aircraft.

New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Olga Khodosh
Associate Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba3 corporate family to AWAS and a Ba2 rating to the Term Loan
No Related Data.
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