New York, September 21, 2020 -- Moody's Investors Service, ("Moody's") has
confirmed the Baa3 backed long-term issuer rating of AerCap Holdings
N.V. (AerCap) and the Baa3 senior unsecured ratings of subsidiaries
AerCap Ireland Capital D.A.C., AerCap Global
Aviation Trust (senior unsecured shelf (P)Baa3) and International Lease
Finance Corporation. The company's outlook is negative.
This concludes Moody's review of AerCap's ratings initiated
on 1 June 2020 to evaluate the impact of the global downturn in air travel
on the company's credit profile.
The disruption in air travel globally is related to the coronavirus pandemic,
which Moody's regards as a social risk under its environmental,
social and governance (ESG) framework, given the substantial implications
for public health and safety.
Confirmations:
..Issuer: AerCap Holdings N.V.
....Backed LT Issuer Rating, Confirmed
at Baa3
....Backed Junior Subordinated Regular Bond/Debenture
(Foreign Currency), Confirmed at Ba2 (hyb)
..Issuer: AerCap Ireland Capital D.A.C
....Backed Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Confirmed at Baa3
....Backed Senior Unsecured Shelf (Foreign
Currency), Confirmed at (P)Baa3
..Issuer: AerCap Global Aviation Trust
....Backed Junior Subordinated Regular Bond/Debenture
(Foreign Currency), Confirmed at Ba1 (hyb)
....Senior Unsecured Shelf (Foreign Currency),
Confirmed at (P)Baa3
..Issuer: International Lease Finance Corporation
....Pref. Stock, Confirmed at
Ba2 (hyb)
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Baa3
..Issuer: Delos Finance SARL
....Backed Senior Secured Bank Credit Facility
(Foreign Currency), Confirmed at Baa2
..Issuer: ILFC E-Capital Trust I
....Backed Pref. Stock, Confirmed
at Ba1 (hyb)
..Issuer: ILFC E-Capital Trust II
....Backed Pref. Stock, Confirmed
at Ba1 (hyb)
Outlook Actions:
..Issuer: AerCap Holdings N.V.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: AerCap Ireland Capital D.A.C
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: AerCap Global Aviation Trust
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: International Lease Finance Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Delos Finance SARL
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: ILFC E-Capital Trust I
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: ILFC E-Capital Trust II
....Outlook, Changed To Negative From
Rating Under Review
RATINGS RATIONALE
Moody's has confirmed AerCap's long-term ratings after considering
the company's strengthened liquidity position and effective liquidity
management during the downturn in the commercial aviation sector,
its large and diverse fleet and base of airline customers, and improved
capital cushion. AerCap's history of strong profitability
and cash flow, as well as its superior competitive positioning within
the commercial aircraft leasing sector underscore its solid performance
prospects once air travel volumes and leased aircraft demand rise in connection
with a recovery in the aviation sector, which Moody's estimates
will occur in 2023. Credit challenges include AerCap's higher
investment in less-liquid widebody aircraft than most peers,
debt-to-equity leverage above the median of investment grade
rated peers, and the severe downturn in the aviation sector that
has resulted in lower demand for leased aircraft as well as increased
risks to earnings, cash flow, liquidity and capital position.
In recent months AerCap has bolstered its liquidity cushion in response
to the downturn in the aviation sector and in light of the company's
sizeable debt maturities and aircraft purchase commitments. As
of 30 June 2020, AerCap reduced capital expenditure commitments
by $2.6 billion in 2020 and $2.7 billion in
2021, raised $3 billion in new funding including through
two senior notes issuances of $1.25 billion each,
tendered for $1.5 billion of outstanding debt and redeemed
early its $1 billion notes maturing in October. On a 31
August 2020 pro forma basis, Moody's estimates that AerCap
has over 230% liquidity coverage of liquidity uses (12 months),
which is a significant improvement from Moody's estimated coverage
of approximately 150% at 1 June 2020 when the company's ratings
were placed on review. Still, as of 30 June reflecting debt
tenor, AerCap has sizeable maturities of senior unsecured debt of
approximately $3.2 billion in 2021 and $3.9
billion in 2022, which together with purchase commitments of $2.2
billion and $3.0 billion in 2021 and 2022, respectively,
represent significant demands on the company's liquidity resources.
Aercap has availability under two multi-year revolving credit agreements
totaling $4.95 billion and also has about $1.0
billion of availability under secured facilities to fund its fleet and
capital expenditures. AerCap ended Q2 2020 with about $27
billion of unencumbered aircraft, which provide an important source
of secondary liquidity support, even though the decline in aircraft
values and trading levels during the downturn have reduced their liquidity.
Moody's expects that AerCap will continue to prioritize maintaining
strong liquidity above its normal target of 1.2x coverage for the
duration of the downturn in the aviation sector.
A credit challenge for AerCap and other aircraft leasing companies is
navigating the unprecedented decline in the aviation sector that has accompanied
the global coronavirus pandemic. Moody's expects that air passenger
demand will recover strongly toward 2019 levels during 2023, but
during the interim weak airline performance will result in higher lease
defaults and lower leased aircraft utilization and lease rates,
negatively affecting lessors' rental revenues, earnings and cash
flows through 2022. As a result of these challenges, Moody's
has lowered its assessment of aircraft lessors' operating environment
to Ba1 from Baa2 to reflect lower expected industry stability.
Lessors have accommodated airlines by agreeing to short-term deferrals
of a portion of lease payments in exchange for repayment with interest
on an agreed schedule. As of 30 June 2020, AerCap had agreed
with airline customers to temporarily defer rental collections of about
$430 million, which represented about 9% of the company's
annual lease revenues. Moody's expects that many weakened
airlines will press for extensions of existing rent deferral agreements
and repayment schedules, extending the temporary weakening of AerCap's
operating cash flow. Revenue declines associated with defaulted
leases and the increased difficulty of redeploying aircraft into alternate
lease arrangements given the weak demand environment will further weaken
operating cash flows until leased aircraft demand strengthens as air travel
volumes recover.
In recent years, AerCap has reduced its residual risk exposure on
older and out of production aircraft, but it maintains a more significant
investment in less liquid wide-body aircraft than most peers,
which increases its overall lease residual risks compared to lessor fleets
with a higher proportion of more liquid narrow-body aircraft.
At 30 June 2020, 49% of AerCap's fleet by net book
value were wide-body aircraft, though Moody's estimates
that over 60% of these are younger than five years in age,
including popular Boeing 787 and Airbus A350 models, and are subject
to leases that mature after the anticipated 2023 recovery in the aviation
sector, which are important risk offsetting considerations.
AerCap's $37.2 billion fleet of 931 aircraft at 30
June 2020 had an average age of 6.4 years which compares to a rated
peer median of 6.3 years and an average remaining lease term of
7.3 years, which is above the rated peer median of 6.8
years. Because of the longer average lease terms of AerCap's
fleet, Moody's estimates that the proportion of AerCap's
fleet with leases maturing during the downturn is materially lower than
other rated aircraft leasing companies. This results in proportionately
less rent revenue roll-off during the downturn compared to peers
and less aircraft remarketing risk during distressed sector conditions,
even considering anticipated revenue deterioration from lease defaults.
However, a relatively high proportion of leases maturing during
the downturn relate to less liquid wide-body and older vintage
aircraft, increasing remarketing risks. Overall, Moody's
expects that downside risks to AerCap's revenues, cash flow
and earnings should be manageable.
AerCap has an adequate capital cushion, though certain peers maintain
lower leverage. AerCap's ratio of debt to tangible net worth
(including Moody's adjustments) was 3.1x at 30 June 2020,
which is higher than the investment-grade peer median of 2.8x;
on a net-debt basis the ratio measures 2.8x. By AerCap's
own measure, the company's leverage declined to 2.5x
at quarter end, lower than its target of 2.7x. In
Moody's view, AerCap has less cushion to absorb deterioration
in aircraft values that could result in impairment charges compared to
certain of its peers. An offsetting consideration is Moody's
expectation that AerCap will generate strong cash flows once the recovery
in air travel demand brightens prospects for new aircraft investment and
leasing opportunities.
Moody's expects that leasing will remain an important source of aircraft
acquisition capital for the airline industry and that recovery will provide
new leasing opportunities that will help to revive AerCap's cash
flows and earnings. AerCap has a strong history of committing its
aircraft into productive leases well in advance of delivery of new aircraft
and maturity of leases on existing owned and managed aircraft.
Moody's expects that AerCap will be able to generate operating results
that support its current ratings as the recovery strengthens in 2023.
A credit strength recognized in AerCap's ratings is its strong competitive
position as the largest lessor globally, which provides benefits
in terms of relationships with airlines and aircraft manufacturers.
Because of its global scale and well-established marketing,
risk management and technical abilities, AerCap is able to pursue
more complex, higher yielding lease transactions and to respond
more proactively when airline customers fall behind in rental payments
compared to smaller, less established competitors, in Moody's
view.
AerCap's negative outlook reflects Moody's expectations of a more
extended and weaker recovery in air travel that results in higher risks
to earnings, cash flow, liquidity and capital positions.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's rating action reflect the negative effects
on AerCap of the breadth and severity of the shock, and the deterioration
in credit quality, profitability, capital and liquidity it
has triggered.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A ratings upgrade is unlikely over the next 12-18 months,
given the negative outlook, but AerCap's ratings could be
upgraded if: 1) AerCap generates consistently stronger and more
stable profitability and cash flow ratios compared to peers, 2)
the company continues to demonstrate effective liquidity management during
the aviation sector disruption as well as post-recovery,
3) fleet residual value risks and composition are well managed including
through the downturn, and 4) the company's debt-to-tangible
net worth leverage ratio declines to less than 3.0x.
AerCap's ratings could be downgraded if: 1) liquidity in relation
to expenditures and debt maturities (one-year horizon) declines
to less than 150%, 2) revenues weaken and costs increase
to the extent that the company will be unable to generate materially positive
profits and operating cash flow by the end of 2023; 3) debt-to-equity
leverage increases more than Moody's expects due to high impairment charges;
4) the company's competitive positioning otherwise weakens.
The principal methodology used in these ratings was Finance Companies
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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issued on a support provider, this announcement provides certain
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support provider and in relation to each particular credit rating action
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rating assigned, and in relation to a definitive rating that may
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review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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Mark L. Wasden
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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Ana Arsov
MD - Financial Institutions
Financial Institutions Group
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Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
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