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Rating Action:

Moody's upgrades AerCap Holdings to Baa3 with a stable outlook

14 Feb 2017

New York, February 14, 2017 -- Moody's Investors Service upgraded the corporate family ratings of AerCap Holdings N.V. to Baa3 from Ba1 and also upgraded the senior unsecured debt ratings of AerCap's subsidiaries (see the complete list of affected ratings below). The outlook for the ratings is stable. This concludes Moody's review of AerCap's ratings initiated on 17 November 2016.

RATINGS RATIONALE

Moody's upgrade of AerCap's ratings is based on the company's strengthened competitive positioning in commercial aircraft leasing, improving fleet composition, and effective liquidity and lease risk management in advance of the increase in the company's scheduled deliveries of new aircraft from Boeing and Airbus over the next three years. The upgrade also reflects Moody's expectation that AerCap will continue to generate profitability and cash flows that compare favorably to peers while maintaining adequate capital strength and a strong liquidity runway.

Since acquiring International Lease Finance Corp. in 2014, AerCap has solidified its position as a leader in the commercial aircraft leasing sector. The company owns over 1,000 aircraft on lease to nearly 200 airlines globally. At 30 September 2016, AerCap also had an order book of 439 new aircraft featuring the newest fuel-efficient technologies that will renew and grow its fleet, reinforcing its importance to airlines and aircraft manufacturers. Moody's believes that AerCap's presence in the sector provides competitive benefits in terms of access to airlines, ability to structure larger, more profitable transactions, and obtain favorable pricing and terms from aircraft manufacturers.

AerCap is improving its fleet risk profile, strengthening its financial and operational stability. In the last two years, AerCap has aggressively sold older model aircraft and acquired newer ones, reducing impairment risk. Delivery of new aircraft over the next few years will also reduce the risk profile of the company's fleet, reducing weighted average fleet age to 6.0 years by 2020 from 7.6 years at 30 September 2016 and extending fleet average remaining lease term, which improves the predictability of the firm's operating performance. Nearly 93% of AerCap's anticipated revenues through 2019 were committed as of September 30, 2016, reflecting strong performance committing future new aircraft deliveries to leases. A change in AerCap's fleet management strategy that resulted in the company owning a larger proportion of higher risk, less liquid aircraft would be viewed negatively by Moody's.

AerCap has maintained strong liquidity leading up to an increase in new aircraft deliveries over the next three years. The company's ratio of liquidity sources to debt service and capital expenditures (12 months) measured 1.5x at 30 September 2016, above its 1.2x target. AerCap had $12.3 billion of liquidity at 30 September 2016, including cash, committed borrowing availability and estimated operating cash flow, which provides the company ample resources to manage debt maturities and capital expenditures over the coming year. Moody's expects that AerCap's strong forward lease commitment status will help the company access credit markets to fund its aircraft acquisitions. AerCap's purchase commitments nevertheless remain significant, underscoring the speculative nature of its aircraft procurement strategy and the associated lease-up and funding risks. Additionally, AerCap's reliance on secured debt is high for its assigned rating and is therefore a constraint on further upward rating potential.

AerCap's operating results compare favorably to industry peers, helped by high average yields and a cost of funds lower than peer average. AerCap's ratio of pre-tax earnings to average managed assets through the first three quarters of 2016 was lower than in 2015, as expected, reflecting in part the loss of revenues from aircraft sold to manage fleet risks, lower sale gains and higher impairment expense. As portfolio growth resumes with increased aircraft deliveries and lower anticipated portfolio sales, Moody's expects that AerCap will maintain profitability above the peer median. However, while not expected, a rapid increase in AerCap's rate of growth would increase the firm's operating and funding risks, potentially negatively affecting its ratings.

AerCap maintains an adequate capital profile, though certain peers have lower leverage. The company's ratio of tangible common equity to tangible managed assets, including Moody's hybrid equity adjustment for its $1.5 billion of subordinated debt, measured 20.2% at 30 September 2016, which is consistent with the Baa3 rating. By its own measure of net debt/adjusted tangible net worth, AerCap has maintained leverage at the low end of its own target range of 2.7x - 3.0x. We expect that the company will be able to maintain its target leverage based upon anticipated earnings, cash flow and capital formation, and balanced approach to share repurchases. Permanently lower leverage would improve AerCap's potential for a higher rating.

Moody's could upgrade AerCap's ratings if the company: 1) increases and maintains a ratio of tangible common equity to tangible managed assets materially above 20%; 2) meaningfully reduces concentrations in its top ten airline customers; 3) reduces secured debt/gross tangible assets to 20% or less; and 4) maintains strong liquidity and pre-tax profitability above the peer median.

Moody's could downgrade AerCap's ratings if the company's operating prospects unexpectedly weaken, liquidity weakens in relation to upcoming expenditures, the company pursues a strategy that increases fleet residual risks, or its leverage increases materially from the current level.

Rating actions include the following:

Issuer: AerCap Holdings N.V.

..Upgrades:

.... Corporate Family Rating, Upgraded to Baa3 Stable from Ba1, Rating Under Review

..Outlook Actions:

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

Issuer: AerCap Ireland Capital Designated Activity Company

..Upgrades:

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 Stable from Ba1, Rating under Review

....Backed Senior Unsecured Shelf, Upgraded to (P)Baa3 from (P)Ba1

..Outlook Actions:

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

Issuer: AerCap Global Aviation Trust

..Upgrades:

....Backed Junior Subordinated Regular Bond/Debenture, Upgraded to Ba2 (hyb) from Ba3 (hyb)

....Backed Senior Unsecured Shelf, Upgraded to (P)Baa3 from (P)Ba1

..Outlook Actions:

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

Issuer: International Lease Finance Corporation

..Upgrades:

....Preferred Stock, Upgraded to Ba2 (hyb) Stable from Ba3 (hyb) Rating under Review

....Senior Secured Regular Bond/Debenture, Upgraded to Baa2 Stable from Baa3, Rating under Review

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 Stable from Ba1, Rating under Review

..Outlook Actions:

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

Issuer: Delos Finance SARL

..Upgrades:

....Backed Senior Secured Bank Credit Facility Rating, Upgraded to Baa2 Stable from Baa3, Rating under Review

..Outlook Actions:

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

Issuer: Flying Fortress Holdings, LLC

..Upgrades:

....Senior Secured Bank Credit Facility Rating, Upgraded to Baa2 Stable from Baa3 Rating under Review

..Outlook Actions:

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

Issuer: ILFC E-Capital Trust I

..Upgrades:

....Preferred Stock, Upgraded to Ba2 (hyb), Stable from Ba3 (hyb), Rating under Review

..Outlook Actions:

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

Issuer: ILFC E-Capital Trust II

..Upgrades:

....Preferred Stock, Upgraded to Ba2 (hyb), Stable from Ba3 (hyb), Rating under Review

..Outlook Actions:

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

The principal methodology used in these ratings was Finance Companies published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

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

Robert Young
MD - Financial Institutions
Financial Institutions 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

No Related Data.
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