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Rating Action:

Moody's rates Air Canada's Series 2013-1 EETC, A tranche at Baa3, B tranche at B1, C tranche at B3

24 Apr 2013

Ratings assigned to approximately $715 million of new EETCs

New York, April 24, 2013 -- Moody's Investors Service assigned Baa3, B1 and B3 ratings, respectively, to the Class A, Class B and Class C Pass Through Certificates, Series 2013-1 (the "Certificates") of the Air Canada 2013-1 Pass Through Trusts that Air Canada will establish. Moody's rates Air Canada's Corporate Family rating at Caa1 and changed the outlook to positive on April 8, 2013.

Issuer: Air Canada 2013-1 Pass Through Trusts

..Assignments:

....Senior Secured Enhanced Equipment Trust, A Tranche, Assigned Baa3

....Senior Secured Enhanced Equipment Trust, B Tranche, Assigned B1

....Senior Secured Enhanced Equipment Trust, C Tranche, Assigned B3

..Outlook

....Assigned Positive

RATINGS RATIONALE

The ratings of the Certificates consider the credit quality of Air Canada as conditional buyer under the Conditional Sale Agreements ("CSAs") with 12 year terms, the instruments whose cash flows will fund the distributions to Certificate holders. The ratings also reflect Moody's opinion of the importance of the five Boeing B777-300ER aircraft to be financed by this transaction to Air Canada's long-haul network strategy and the international interests (security interests recognized by the Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (together "Cape Town")) that the CSAs and Trust Indentures create pursuant to Cape Town, which became part of Canadian federal, and applicable provincial and territorial law on April 1, 2013. The ratings also consider the collateral protection of the equipment notes, the ability of the included liquidity facilities to defer, if not prevent, an A or B tranche Certificate default, the cross-default and cross-collateralization of the CSAs and the equipment notes and the applicability of Cape Town's Alternative A. The assigned ratings reflect Moody's opinion of the ability of the Pass-Through Trustees to make timely distributions of interest and the ultimate distribution of principal on the final scheduled regular distribution dates of May 15, 2025, May 15, 2021 and May 15, 2018 for the A, B and C Certificates, respectively.

Any combination of future changes in the underlying credit quality or ratings of Air Canada, unexpected changes in Air Canada's route network that de-emphasizes long-haul operations, unexpected material changes in the market value of the B777-300ER or court rulings or changes to Canadian law that weaken or remove Cape Town or Alternative A could cause Moody's to change its ratings of the Certificates.

Transaction Structure

Loxley Aviation Ltd., a new special purpose entity ("SPE") has been created to facilitate Air Canada's inaugural offering of Enhanced Equipment Trust Certificates ("EETCs"). The SPE will issue equipment notes that the Pass Though Trusts will purchase with the Certificate proceeds. The SPE will use the equipment note proceeds plus the initial purchase installments paid by Air Canada under the CSAs to purchase the Boeing B777-300ER aircraft that the Certificates will finance. Air Canada will assign its purchase rights for the aircraft to the SPE and, simultaneously upon the delivery of the aircraft, purchase each aircraft from the SPE under a CSA. The payments under the CSAs are sized to fund the interest and principal payments due on the equipment notes, which in turn are sized to fund the scheduled distributions of the Certificates.

The payment waterfall of the transaction provides for interest to be distributed on the preferred pool balance(s) of the junior tranche(s) before the distribution of principal to the A tranche. Amounts due under the respective Certificates will be subordinated to any amounts due on the separate Class A and Class B Liquidity Facilities ("Liquidity Facility"). There is no liquidity facility for the C tranche. Natixis S.A., acting through is New York Branch ((P)A2, stable) will provide the separate liquidity facility for each of the Class A and Class B Certificates and will also act as the Depositary, which holds the Certificate proceeds for the benefit of certificate holders pending the delivery of each aircraft in the transaction. Moody's Depositary Minimum Threshold and Liquidity Provider Minimum Threshold Ratings for this transaction are P-1 and Baa2, respectively.

The Collateral

The five newly-manufactured Boeing B777-300ER aircraft, each configured with 458 seats across three classes of service will comprise the collateral for this financing. At 775,000 pounds, each aircraft will have the highest MTOWs (Maximum Take-Off Weights) of the 777 family of aircraft, extending the payload versus other -300ERs with lower MTOWs. Air Canada will use these -300ERs on some of its densest long-haul routes. As these will be the youngest of the large long-haul aircraft in the fleet for years to come, we believe that there is a high probability that Air Canada would affirm its obligations under the CSAs pursuant to Cape Town if faced with a future insolvency scenario. The five aircraft will represent about 20% of the 23 B777 family of aircraft that Air Canada will have in its fleet as currently structured.

Loan-to-Value

Moody's uses its estimates of current market value when assessing the loan-to-value ("LTVs") of an EETC financing, which are typically more conservative than the LTVs based on the lower of mean or median of the appraisals included in the offering memorandum. This is the first EETC that Moody's has been asked to rate that includes the Boeing B777-300ER. Moody's estimates the initial loan-to-value of the A, B and C tranches at about 51%, almost 74%, and about 86%, respectively, based on its estimates of current market values. The peak LTVs including a small benefit for the transaction's cross-collateralization are about one to three points higher than the initial levels and occur at the first distribution date of May 15, 2014. These compare to LTVs of 48.9%, 69.5% and 82.3% per the offering memorandum, which are calculated using appraisers' views of base values.

The principal methodology used in this rating was the Enhanced Equipment Trust and Equipment Trust Certificates Methodology published in December 2010 and the Global Passenger Airlines Industry Methodology published in May 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Saint-Laurent, Quebec, Air Canada is the largest provider of scheduled passenger services in Canada with leading market shares domestically (55% market share of available seat miles, 39% of AC's passenger revenues), in US/ Canadian trans-border (35% market share, 20% of revenues) and internationally (37% market share, 41% of revenues). In conjunction with its regional partners (Jazz and Sky Regional), Air Canada carries approximately 34 million passengers annually with more than 1,500 daily departures to about 180 destinations worldwide. Air Canada also provides cargo and tour operator services. Revenue for 2012 was C$12 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's rates Air Canada's Series 2013-1 EETC, A tranche at Baa3, B tranche at B1, C tranche at B3
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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