NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings for Virgin Australia Holdings Limited's (VAH, not rated) enhanced equipment notes series 2013-1 as follows:
--Class A notes with an expected maturity of October 2023 at 'A';
--Class B notes with an expected maturity of October 2020 at 'BB+';
--Class C notes with an expected maturity of October 2018 at 'B+';
--Class D notes with an expected maturity of October 2016 at 'B'.
The final legal maturities for the class A and B notes are scheduled to be 18 months after the expected maturities.
The ratings reflect the application of Fitch's criteria for rating aircraft enhanced equipment trust certificates (EETC). Key ratings considerations include the quality of the aircraft collateral, significant overcollateralization, the Australian and New Zealand insolvency regimes coupled with the transaction's underlying structure, the liquidity facilities, VAH's credit quality, and various additional structural elements.
Fitch also noted such positive credit factors as low balloon payments for all tranches, short remaining expected maturities for the subordinated classes of notes, and rapid amortization of the notes resulting in significant expected LTV improvements for all tranches within the next several years.
VA 2013-1 is the first EETC-type transaction relying on the Australian insolvency regime, which is different in key aspects compared to Section 1110 and the Cape Town Convention (CTC, which incorporates most elements of Section 1110 protection in countries that have ratified the treaty) legal frameworks seen in most EETCs. Even though Australia signed the CTC into law in late June of 2013, its implementation was not completed prior to the issuance of the notes.
The CTC rules do not apply retroactively and Fitch expects VA 2013-1 notes will be governed under the Australian insolvency law until maturity. New Zealand is a CTC signatory and the CTC covers the six aircraft in this transaction that are leased in New Zealand. Fitch believes Australia's legal framework, combined with the structure of this transaction, create a situation similar to Section 1110/CTC as it allows creditors access to collateral in the event of insolvency.
KEY RATING DRIVERS
The A-tranche rating is primarily driven by a top-down analysis which evaluates the level of overcollateralization and likely recovery in a stress scenario. In the year since this transaction was launched market values for the collateral aircraft (777-300ER, 737-800 and 737-700) have performed in line with Fitch's expectations. As a result, stress case LTVs (the primary senior tranche ratings driver) have not changed materially.
The maximum LTV of 95.1%, produced by Fitch's stress scenario, remains unchanged from the prior year and is in line with Fitch's initial expectations, implying an adequate amount of cushion for senior tranche certificate holders. The ratings are also supported by a strong collateral package consisting of Tier 1 aircraft with vintages ranged from 2003 to 2011, an 18-month liquidity facility provided by Natixis ('A'/'F1'; Stable Outlook by Fitch), and cross-collateralization/cross-default features.
The rating for the subordinated tranches are driven by Fitch's view of the VAH's corporate credit profile, a high affirmation factor, availability of the liquidity facility for the Class B notes, collateral coverage and the rights of each subordinated class note holders to purchase all of the senior notes in certain cases. The ratings are also supported by seniority of interest payments for all subordinated notes over the principal distributions to the senior notes.
Each note is fully cross-collateralized, and all indentures are fully cross-defaulted from the date of the issuance of each applicable note. Fitch believes these provisions in VA 2013-1, which are standard enhancements of the modern EETC template, increase the likelihood that VAH would affirm these notes and the underlying aircraft and continue to make payments on the notes in the case of in the case of administrative proceedings. Taken together, these provisions treat all the aircraft as one pool of assets as the collateral supporting this transaction.
Fitch does not expect positive rating actions for the senior tranche. Potential ratings concerns for the senior tranche primarily consist of unexpected declines in aircraft values. Values for the 777-300ER could potentially be impacted by the introduction of the A350-1000 and 777-9X; similarly the 737-800 could be affected by the A320 NEO and 737 MAX. Fitch does not expect these risks to have a material impact in the near-to-intermediate term. The ratings of the subordinated tranches are influenced by Fitch's view of VAH's corporate credit profile. A negative rating action could be considered if VAH's credit profile weakens in Fitch's view.
For more information on the transaction and the ratings see Fitch's report, 'Virgin Australia Enhanced Equipment Notes, Series 2013-1 - Presale Report' (Oct. 8, 2013), at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Aircraft Enhanced Equipment Trust Certificates' (Sept. 12, 2013).
--'Corporate Rating Methodology' (May 28, 2014).
Applicable Criteria and Related Research:
Rating Aircraft Enhanced Equipment Trust Certificates
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage