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Rating Action:

Moody's downgrades some ratings for Spirit AeroSystems (CFR to Ba3); affirms Baa3 first lien rating and assigns Ba2 to new second lien notes

14 Apr 2020
NOTE: On April 16, 2020, the headline and press release were corrected as follows: in the headline, the rating action on the Baa3 first lien rating was changed to “affirms”; in the second sentence of the first paragraph of the press release, the rating action on the Baa3 senior secured debt rating was changed to “affirmed”; and in the debt list, the second heading was changed to “Affirmations.” Revised Release follows.

Review for downgrade concluded; outlook negative

New York, April 14, 2020 -- Moody's Investors Service ("Moody's") downgraded certain of its ratings for Spirit AeroSystems, Inc. ("Spirit"), including the company's corporate family rating (CFR, to Ba3 from Ba2) and probability of default rating (to Ba3-PD from Ba2-PD), and the senior unsecured debt rating (to B1 from Ba2). Moody's affirmed its Baa3 senior secured debt rating and assigned a Ba2 rating to the company's new senior secured second lien notes, the net proceeds from which will primarily be used to pay down revolver borrowings. The company's SGL-3 speculative grade liquidity rating remains unchanged. Today's actions conclude the review for downgrade that began on December 20, 2019. The ratings outlook is negative.

RATINGS RATIONALE

The downgrades primarily reflect Moody's expectation that the coronavirus outbreak will meaningfully disrupt commercial air traffic for at least the balance of 2020 and into 2021, if not beyond. This will result in deferred aircraft orders and reduced manufacturing throughout for Spirit and the broader commercial aerospace supply chain. Over the next few years, Moody's anticipates lower production rates than previously contemplated for key narrowbody platforms such as the 737 MAX and A320, and important widebody platforms such as the 787, 777, 767, A350 and A330. These lower rates will pressure Spirit's earnings and cash flow profile and will result in a set of key credit metrics more consistent with the revised Ba3 rating level once the industry begins to normalize again.

The Ba3 corporate family rating broadly reflects Spirit's considerable scale as a strategically important supplier in the aerostructures market, as well as the company's strong competitive standing supported by its life-of-program production agreements and long-term requirements contracts on key Boeing and Airbus platforms. These considerations are tempered by a high degree of platform and customer concentration, and associated financial and operational risk relating to both the MAX production halt and the coronavirus crisis, with particular acuteness of adverse impact in the first half of 2020 and a slow recovery thereafter.

The Baa3 rating for Spirit's senior secured notes due 2026 reflects the security pledge that was recently granted to holders of this debt consistent with the underlying terms and conditions of their related bond indenture, including the provisioning of such security interest on an equal and ratable basis with lenders under Spirit's revolving and term loan credit agreement to the extent awarded thereto, which has now occurred. The Ba2 rating for the new senior secured second lien notes reflects their second priority claim in substantially all assets of the company, behind the aforementioned first lien claims but ahead of unsecured creditors with respect to value realized therefrom in the context of the company's consolidated capitalization. The B1 rating for the company's senior unsecured notes, which do not benefit from the same negative pledge provisions that 2026 noteholders did, reflect the unsecured nature of these claims behind a large and growing amount of secured obligations and the likelihood that recovery rates for these unsecured creditors will be well below that of secured creditors in a distress scenario.

The rapid and widening spread of the coronavirus outbreak, the deteriorating global economic outlook, falling oil prices and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The aerospace sector has been adversely affected by the shock given its exposure to the airline industry and the heightened volatility of the same to consumer demand and market sentiment. More specifically, Spirit's weakening financial flexibility and exposure to commercial aerospace leave it vulnerable to shifts in market sentiment in these unprecedented operating conditions, and the company remains vulnerable to the outbreak continuing to spread. 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 actions reflect the impact on Spirit of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

The negative outlook incorporates Moody's expectation of fundamentally lower production rates for the majority of Spirit's commercial aerospace platforms over the next few years. This will result in meaningful revenue and earnings pressures and an across-the-board weakening of key credit measures.

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

Factors that could lead to an upgrade of ratings include an improved liquidity profile characterized by expectations of consistent positive free cash generation, substantial cash balances and near-full availability on the revolving credit facility. Expectations of more steady and predictable operating performance, and less volatile earnings and cash flows would also be prerequisites for any ratings upgrade.

Factors that could lead to a ratings downgrade include if the MAX grounding continues into late-2020 or Spirit and Boeing do not resume production in the second half of 2020. Unanticipated cancellations or deferrals of MAX orders by airline customers beyond what is already contemplated or an expectation of further weakening in the earnings and/or cash flows of Spirit could also result in downward ratings pressure. Failure to restore and maintain a healthy level of unused availability under the committed bank revolving credit facility or an anticipated breach of financial covenants could result in downward ratings action.

The following is a summary of today's rating actions:

Issuer: Spirit Aerosystems, Inc.

Assignments:

..Issuer: Spirit Aerosystems, Inc.

....Senior Secured Regular Bond/Debenture (Local Currency), Assigned Ba2 (LGD3)

Affirmations:

..Issuer: Spirit Aerosystems, Inc.

....Senior Secured Regular Bond/Debenture, Affirmed Baa3 (LGD2)

Downgrades:

..Issuer: Spirit Aerosystems, Inc.

....Corporate Family Rating (Local Currency), Downgraded to Ba3 from Ba2, previously on review for Downgrade

....Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD, previously on review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to B1 (LGD5) from Ba2 (LGD3), previously on review for Downgrade

Outlook Actions:

..Issuer: Spirit Aerosystems, Inc.

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

Headquartered in Wichita, Kansas, Spirit AeroSystems, Inc., is a subsidiary of publicly traded (NYSE: SPR) Spirit AeroSystems Holdings, Inc. The company designs and manufacturers aerostructures for commercial aircraft. Components include fuselages, pylons, struts, nacelles, thrust reversers and wing assemblies, principally for Boeing but also for Airbus and others. Revenues for the last twelve months ended December 31, 2019 were approximately $7.9 billion.

The principal methodology used in these ratings was Aerospace and Defense Industry published in March 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108840. 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 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/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 outcome 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.

Eoin Roche
Vice President - Senior Analyst
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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