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
