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Rating Action:

Moody's rates Allegiant Travel Company; CFR of Ba3, stable outlook

15 Feb 2011

$125 million senior secured bank credit facility rated Ba3

New York, February 15, 2011 -- Moody's Investors Service assigned debt ratings to Allegiant Travel Company ("Allegiant"): Corporate Family and Probability of Default ("CFR" and "PDR" respectively) each of Ba3 and a Speculative Grade Liquidity rating of SGL-2. The outlook is stable. Moody's also assigned a Ba3 rating to the planned $125 million first lien senior secured bank credit facility due 2017 ("Credit Facility") for which Allegiant has scheduled a public bank meeting for February 17, 2011. Moody's expects Allegiant to apply the Credit Facility proceeds to the repayment of mortgages on some of its existing MD-80 aircraft. The remainder will be used for general corporate purposes including for the announced refit to standardize the interiors of the MD 80 fleet and induction costs of the Boeing 757 aircraft that Allegiant is committed to purchase.

Assignments:

..Issuer: Allegiant Travel Company

.... Corporate Family Rating, Assigned Ba3

.... Probability of Default Rating, Assigned Ba3

.... Speculative Grade Liquidity Rating, Assigned SGL-2

....Senior Secured Bank Credit Facility, Assigned Ba3, 50 - LGD4

....Outlook, Stable

RATINGS RATIONALE

"The Ba3 Corporate Family Rating anticipates that Allegiant will sustain the profitability of its differentiated scheduled airline model as it continues to grow," said Moody's Airline Analyst, Jonathan Root. The low capital intensity of the company's MD-80 aircraft, the significant labor cost advantage of the current workforce, and the established business model providing service between small cities and certain leisure destinations with limited direct competition provide the foundation for Allegiant to achieve relatively strong profit margins and good positive free cash flow generation for an airline, notwithstanding its low fare pricing model. The demonstrated financial results since 2008, good liquidity and the expectation that Allegiant will not change its business model significantly mitigate the downwards pull of the factors that typically strain an airline's credit profile including high capital intensity, fuel price volatility, intense price competition, low barriers to entry and economic cycles. "The company's historical financial results, industry leading unit costs (ex-fuel) and credit metrics that are generally stronger than the Ba rating category provide sufficient cushion for maintaining the Ba credit profile should actual results trail the company's projections," continued Root. These factors also help mitigate ratings pressure of Allegiant's relatively small size, limited operating history and lower yields that are a function of its price-driven business model that targets leisure travelers. The Ba3 rating also considers the execution risk inherent in the company's current growth plan, including the introduction of B-757 aircraft service to Hawaii, now unlikely to commence before the second half of 2012, as well as expansion of the number of cities served in the continental U.S. and the lack of a fuel hedging program.

The SGL-2 rating reflects good liquidity, characterized by a sufficient cash balance relative to revenues and anticipated free cash flow generation, tempered by a lack of external liquidity and no unencumbered assets. Unrestricted cash exceeds debt and Moody's anticipates that it will continue to do so, even after the closing of the Credit Facility. Moody's expects that Allegiant's current cash commitments will be covered by the Credit Facility proceeds, operating cash flows and cash on hand.

The stable outlook reflects Moody's belief that the resiliency of the company's business model will allow it to maintain its credit profile as it executes its growth plan and in the face of the current pressure on jet fuel prices. The outlook could be changed to positive if Allegiant was to sustain a strong credit metrics profile while expanding its footprint in the continental U.S. and introducing service to Hawaii. Sustaining Funds from operations + Interest to Interest above 7.0 times and Debt to EBITDA below 2.0 times for an extended period would place positive pressure on the ratings. The outlook could be changed to negative or the ratings downgraded if the execution of its growth plan, particularly Hawaii service, leads to meaningfully weaker credit metrics, such as Funds from operations + Interest to Interest of below 4.5 times or Debt to EBITDA of above 3.0 times. Sustained higher fuel prices that cause Allegiant, which hedges the exposure to higher fuel costs by reducing capacity rather than with financial derivatives, to significantly reduce its capacity could also pressure the ratings as could a change in financial policy that results in larger returns to shareholders in exchange for higher leverage.

The last rating action was the June 4, 2010 withdrawal of the previously assigned ratings.

The principal methodology used in this rating was Global Airlines, published in March 2009.

Allegiant Travel Company, headquartered in Las Vegas, Nevada, operates a low-cost passenger airline marketed to leisure travelers in small cities, selling air travel both on a stand-alone basis and bundled with hotel rooms, rental cars and other travel related services.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Jonathan Root
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's rates Allegiant Travel Company; CFR of Ba3, stable outlook
No Related Data.
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