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Rating Action:

Moody's downgrades LATAM's 2015-1 EETC: Class A to B3, Class B to Ca; outlook negative

28 May 2020

New York, May 28, 2020 -- Moody's Investors Service ("Moody's") downgraded its ratings of the Enhanced Equipment Trust Certificates ("EETCs") of LATAM Airlines Group, S.A. ("LATAM"), LATAM Pass Through Certificates, Series 2015-1: Class A issued by LATAM Pass Through Trust 2015-1A to B3 from Baa2 and Class B issued by LATAM Pass Through Trust 2015-1B to Ca from Ba1 (together, the "Certificates"). The corporate family rating of LATAM was downgraded to Ca on May 26th following its filing for reorganization under Chapter 11 of the US Bankruptcy Code earlier that day and was withdrawn subsequently. The ratings outlook on the EETC issuers and the EETC ratings is negative. Today's actions conclude the review for downgrade initiated on March 17, 2020 and continued on May 6, 2020. The company rejected the Certificates in its bankruptcy filing.

The spread of the coronavirus outbreak, the deteriorating global economic outlook, low oil prices and asset price declines are sustaining a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The passenger airline industry is one of the sectors most significantly affected by the shock given its exposure to travel restrictions and sensitivity to consumer demand and sentiment. Passenger demand is currently down by more than 90% across most of the world, excluding a few countries in Asia. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Price (aircraft value) discovery in the market is currently scant as few transactions are taking place, providing limited content for aircraft appraisers to provide reliable estimates of aircraft market values. The current circumstances will cause some to promote steep haircuts to pre-coronavirus aircraft values.

On its surface, the rejection of the EETC transaction by LATAM, which was unexpected, is a stark indicator of the market disruptive impact of the coronavirus crisis on airlines' need for aircraft, at least in the near term. It is also a likely an example of how airlines that choose to reorganize may use the current environment to gain leverage in negotiations with lenders and aircraft owners given the current limited demand for aircraft. Values realized in upcoming months if aircraft are sold could trail current expectations, even for more attractive models that would otherwise be in demand if not for the coronavirus, like the A321-200s, 787-9s and A350-900s that comprise the collateral for the LATAM EETC. The aircraft have an average age of 4.9 years. The wide-bodies are the most fuel-efficient in the fleet. The 787-9s are powered by the Rolls Royce Trent 1000 engine, which has had durability issues that have reduced the on-wing time versus the design specifications. This has negatively impacted the utilization of the company's 787s, as has been the case for all Rolls-powered 787s, increasing costs and adversely impacting this model's market value.

The negative outlook considers the relationship between expected loss and the resolution of the rejection of the EETCs, including whether the controlling party will repossess and look to sell the aircraft or renegotiate the EETC's payment terms in order to not have to repossess and sell the aircraft in this anemic market. The negative outlook also captures the current high uncertainty of aircraft values.

Downgrades:

..Issuer: LATAM Pass Through Trust 2015-1A

....Senior Secured Enhanced Equipment Trust, Downgraded to B3 from Baa2

..Issuer: LATAM Pass Through Trust 2015-1B

....Senior Secured Enhanced Equipment Trust, Downgraded to Ca from Ba1

Outlook Actions:

..Issuer: LATAM Pass Through Trust 2015-1A

....Outlook, Changed To Negative From Rating Under Review

..Issuer: LATAM Pass Through Trust 2015-1B

....Outlook, Changed To Negative From Rating Under Review

RATINGS RATIONALE

The B3 rating assigned to the Class A certificates reflects the increased risk because of the rejection of the transaction and the potential for a negotiated change to the transaction's payment terms or a repossession and subsequent delay in monetizing the aircraft because of current paucity of demand for aircraft. The Ca rating on the Class B certificates reflects the likelihood of a less than full recovery given the rejection of the transaction, current market conditions, and the potential for payment terms to be renegotiated in lieu of repossession. Moody's had assumed equity cushions of about 35% and 25% before priority claims when it previously downgraded the ratings on May 6th, reflecting the following valuation assumptions for aircraft: $37 million for the 2015 vintage A321-200s, $98 million for the 2015 787-9s, and $101 million for the 2015 vintage A350-900s. The timing of monetization of the aircraft or renegotiation of terms relative to a recovery in passenger demand will impact the ultimate recovery of the obligations.

A default on the rated certificates is defined as non-payment of scheduled interest or non-payment of remaining principal at the legal final maturity dates (August 15, 2029 for the Class A, and August 15, 2025 for the Class B). The separate 21-month liquidity facilities will now be utilized to fund interest payments, including the May 15, 2020 installment that LATAM did not make when due, absent the company curing the missed payment.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Changes in the ratings of the LATAM EETCs can result from declines in Moody's estimates of aircraft values and/or the company curing the missed payment and agreeing to observe the original payment schedule going forward.

The methodologies used in these ratings were Enhanced Equipment Trust and Equipment Trust Certificates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125852, and Passenger Airline Industry published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091811. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

LATAM Airlines Group S.A (LATAM) is a Chile-based airline holding company formed by the business combination of LAN Airlines S.A. of Chile and TAM S.A. (TAM) of Brazil in June 2012. LATAM is the largest airline group in South America, with a local presence for domestic passenger services in six countries (Brazil, Chile, Peru, Ecuador, Argentina and Colombia). The company also provides intraregional and international passenger services and has a cargo operation that is carried out using belly space on passenger flights and dedicated freighter service. In 2019, LATAM generated $10 billion in net revenue and carried more than 74 million passengers and 904,000 tons of cargo.

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 debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating 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. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jonathan Root, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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