(The following statement was released by the rating agency)
Oct. 2 - Standard & Poor's Ratings Services today assigned its 'B-' issue rating to DAE Aviation Holdings Inc.'s proposed $520 million secured term loan due 2018. Standard & Poor's assigned a '3' recovery rating to the loan, indicating that we expect lenders will receive a meaningful (50%-70%) recovery in the event of payment default. We are also affirming our 'CCC' issue rating and '6' recovery rating on the company's unsecured notes. The '6' recovery rating indicates our expectation of negligible (0%-10%) recovery. See the recovery report on DAE Aviation to follow this report for the full recovery analysis.
The company also plans to enter into a new $150 million asset-based loan (ABL) revolving credit facility due 2017 (not rated), that will replace the existing $100 million revolver ($65 million outstanding as of June 30, 2012) due 2013. The company will use the proceeds from the new term loan to refinance the existing $470 million term loan due 2014, pay related fees and expenses, and provide additional cash liquidity. Both the revolver and term loan will be due six months before the August 2015 maturity of the company's unsecured notes, if the notes are not refinanced before that date.
If the refinancing is completed on terms substantially similar to those presented, we expect to affirm the corporate credit rating and revise the outlook to stable from negative. In July 2012, we revised the outlook to negative because of concerns about liquidity, primarily covenant compliance and expected negative free cash flow for 2012, as well as large upcoming debt maturities in the next three years. The new facility will reset covenants to provide a 25%-30% cushion to management's most recent forecast, alleviating that concern. Free cash flow is also likely to be better than we had expected as a result of a recent win of a large completions contract that has favorable cash flow characteristics. The refinancing also extends the maturity of the revolver and term loan by more than a year, but the $325 million of notes are still due in 2015. Overall, we believe the refinancing and other developments will enable us to revise our liquidity assessment to "adequate" from "less than adequate." Although debt will increase modestly, credit ratios still support our "highly leveraged" financial risk profile.
RELATED CRITERIA AND RESEARCH
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Standard & Poor's Standardizes Liquidity Descriptors For Global Corporate Issuers, July 2, 2010
-- Key Credit Factors: Methodology And Assumptions On Risks In The Aerospace And Defense Industries, June 24, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 RATINGS LIST DAE Aviation Holdings Inc. Corporate Credit Rating B-/Negative/-- New Ratings Standard Aero Ltd. DAE Aviation Holdings Inc.
$520 mil. sec term loan due 2018 B-
Recovery Rating 3 Ratings Affirmed DAE Aviation Holdings Inc. Senior Unsecured CCC Recovery Rating 6
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at . All ratings affected by this rating action can be found on Standard & Poor's public Web site at . Use the Ratings search box located in the left column.
Primary Credit Analyst: Christopher A Denicolo, CFA, New York (1) 212-438-1449;
Secondary Contact: Chris Mooney, CFA, New York (1) 212-438-4240;
firstname.lastname@example.org (Reporting By Hilary Russ)