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I AGREE
02 Apr 2012
London, 02 April 2012 -- Moody's Investors Service has today assigned a (P)Ba1 rating to the proposed
EUR234.4 million Exchangeable Notes to be issued by a Special Purpose
Vehicle in Malta ('Lufthansa Malta Blues LP', or 'the
Issuer') with a maturity in 2017. The Notes will be exchangeable
into the shares of JetBlue (rated B3, stable outlook), in
which Deutsche Lufthansa AG ('Lufthansa') retains a 15.9%
stake. The Issuer is expected to purchase the shares of JetBlue
common stock from Deutsche Lufthansa in an amount equal to 73%
of the notes proceeds to be funded with a pro rata amount of the notes
proceeds; it will then lend the remaining 27% of the notes
proceeds to Deutsche Lufthansa pursuant to an intercompany loan.
The Issuer will use the interest payments received from Deutsche Lufthansa
under the intercompany loan to make interest payments on the Notes.
Moody's issues provisional instrument ratings in advance of the final
sale of securities and these ratings reflect Moody's preliminary credit
opinion regarding the transaction only. Upon a conclusive review
of the final documentation, Moody's will endeavour to assign a definitive
rating to the notes. A definitive rating may differ from a provisional
rating.
RATINGS RATIONALE
Lufthansa's current ratings reflect in part its diversified route
network as well as the diversity of its business segments, and its
solid liquidity position. However, the ratings also reflect
the recent weakening in credit metrics in FY2011 on account of higher
fuel prices as well as the increase in the pension deficit, and
our cautious outlook for the industry at this time. We expect the
recent volatility in fuel prices in recent months will hamper industry
profitability if prices remain near current levels.
The rating of the notes, at the same level as the Corporate Family
Rating for Lufthansa, reflects the fact that the Notes are to benefit
from a full and unconditional guarantee from Deutsche Lufthansa AG,
while the guarantee itself will rank pari passu with unsecured obligations
of Lufthansa. Moody's understands that the exchange is at
the sole discretion of the bondholder, while Lufthansa will retain
a cash settlement option. If the exchange option is not exercised,
the bonds will mature in 2017 at par plus accrued interest.
Moody's notes that Lufthansa's metrics deteriorated in 2011,
partly as a result of higher fuel costs in the second half of the year,
as well as the increase in the pension deficit. The company's
reported operating result fell from EUR1.02 billion in 2010 to
EUR820 million in 2011. On an adjusted basis, gross leverage
remains somewhat below 5x, which we consider to be at the upper
limit for the rating. We further note the company's own forecast
for 2012 that the operating result could fall to the mid three digits,
which would imply a moderate further weakening in metrics, all other
things being equal. This reflects also the company's forecast
for a potential fuel bill of EUR7.5 billion in 2012 (versus EUR6.3
billion in 2011) based on a fuel price of USD122 per barrel. However,
we also note the high level of uncertainty in forecasts at this time.
In general, Moody's believes that the company retains limited
flexibility within the current rating category, and we will monitor
developments with regards to fuel costs and demand in the course of 2012.
The company's liquidity remains solid, based on cash and equivalents
of EUR4.1 billion as of FYE2011, undrawn committed short-term
credit lines of EUR2.1 billion, and short-term debt
of EUR616 million as of FYE2011. We note that the company retains
a minimum liquidity target of EUR2.3 billion.
The stable outlook reflects the expectation that Lufthansa should be able
to maintain solid liquidity and appropriate credit metrics for the rating
category in the near term. However, the weakening of credit
metrics in 2011 has weakened its Ba1 rating positioning and the company
now has less flexibility to withstand a deterioration in its profitability
beyond the central scenario indicated by management. While we view
it as unlikely in the near-term, for positive pressure on
the rating or outlook, we would expect to see gross leverage remain
close to or below 4x with RCF/Net debt remaining at least at 25%.
Downward pressure on the rating or outlook could occur if gross leverage
were to remain above 5x on a continued basis.
The principal methodology used in rating Lufthansa and Lufthansa Malta
Blues LP was the Global Passenger Airlines Industry Methodology published
in March 2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Deutsche Lufthansa AG, headquartered in Cologne, Germany,
is the leading European airline in terms of revenues. In FY2011
it reported revenues and an operating result of EUR28.7 billion
and EUR820 million, respectively. Lufthansa Malta Blues LP,
the issuing entity for the proposed notes, is a limited partnership
registered in Malta.
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For ratings issued on a program, series or category/class of debt,
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Richard Morawetz
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns a (P)Ba1 rating to Lufthansa's Exchangeable Bonds
No Related Data.
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