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
