British Airways' first enhanced equipment trust certificates (EETC) offering, which will pre-fund 14 new Airbus and Boeing aircraft, has been rated by Moody's Investors Service and Fitch Ratings today.
The Class A and Class B certificates have been rated "A" and "BBB-", respectively, by Fitch. Moody's Investors Service assigned "Baa1" and "Ba1" ratings, respectively, to the Class A and Class B certificates, Series 2013-1. Moody's corporate family rating for BA is "B1" and the outlook is positive
The $721.6 million Class A certificates will mature in June 2024, while the $207 million Class B certificates will mature in June 2020.
According to Fitch, BA's EETC structure "largely follows" the US EETC template with aircraft collateral and loan-to-values (LTV) comparable with recent offerings.
The proceeds of the proposed financing will be used to pre-fund the purchase of six Boeing 787-8s, six Airbus A320s, and two Boeing 777-300ERs, scheduled to be delivered between June 2013 and June 2014.
The aircraft will be funded with Japanese operating leases with call options. If JOLCO equity is unavailable for an aircraft, a finance lease will be put in place, says Fitch.
The proceeds will initially be held in escrow by Landesbank Hessen-Thuuringen Girozentrale, the designated depository, until the aircraft are delivered.
The A-tranche will feature an 11-year tenor and an initial loan-to-value of 55.2%. Fitch calculates the initial LTV at 56.3% using its own depreciation assumptions. The B-tranche will feature a seven-year tenor and an initial prospectus LTV of 70.6%. Fitch says the initial B-tranche LTV is 72.5%.
The ratings reflect Moody's opinion of the "high likelihood of timely payments of interest and the ultimate payment of the pool balances" on the respective final scheduled regular distribution dates for the A and B tranches. The ratings also reflect Moody's opinion of the corporate credit quality of BA and the "importance" of the aircraft collateral to the company's long-term network strategy. Moody's believes that an administration of BA is a low-probability event
Fitch indicates the ratings are supported by a "strong collateral package consisting of all new-delivery Tier 1 aircraft, an 18-month liquidity facility and cross-collateralisation/cross-default features".
The 787-8s, which represent 54.7% of the collateral pool, received a 20% value stress reflecting Fitch's view of the 787-8 as a top quality aircraft. "The superior operating economics and lack of available near-term delivery slots for the 787 series should support market values for the foreseeable future," says Fitch.
The 777-300ERs, which represent 25.5% of the collateral pool, received a 25% haircut, or the mid-point of the Tier 1 stress range. Fitch considers the 777-300ER a "solid Tier 1 aircraft", but applies a harsher stress level to account for the "greater historical volatility" experienced by widebody jets compared with popular narrowbodies. "With an average age of 3.7 years, the 777-300ER is relatively young in its life cycle, with no replacement aircraft in near to intermediate term," says Fitch.
The A320, which compromise 19.8% of the collateral pool, also received a 25% haircut. Although Fitch considers the A320 to be a "top-quality aircraft due to its wide user base and significant market penetration", the ratings agency applied the middle of the Tier 1 stress range to "reflect recent market weakness in A320 lease rates and a relatively high number of aircraft listed as parked" compared with the 737-800.