Moody's Investors Service has downgraded the corporate family and probability of default ratings of Global Aviation Holdings (GAH), the parent company of World Airways and North American Airlines, to "Caa3" from "B3", while its senior secured first lien was lowered to "Caa1" from "Ba3".
The outlook has been changed to "rating under review" from "stable".
Moody's says the downgrades follow GAH's disclosure in its Securities and Exchange 10-Q filing on 15 August that it has "elected to defer the semi-annual interest payment on its 14% first lien senior secured notes due August 2013". The interest payment was scheduled to be paid on the day of the filing.
GAH attributed the deferral to its taking advantage of the "30-day grace period provided by the indenture's terms", in order to seek relief on the sole financial covenant, a minimum consolidated net cash flow covenant.
Moody's downgrade of the first lien senior secured rating to "Caa1" reflects the ratings agency's belief that this obligation could experience a "modest loss of principle as the withholding of the interest payment signals that this instrument may be subject to a restructuring".
The downgrades also consider Moody's belief that demand from GAH's government and commercial customers will be soft in the next 12 months because of "weaker in theatre demand and declining global economic activity".
This outlook, says Moody's, will compound pressure on GAH's "current weak operating performance, even if it achieves the about $30 million of cost reductions that it is currently pursuing" in conjunction with the further amendment of the financial covenant.