-- On Oct. 5, 2012, Dublin-based aircraft lessor AWAS Aviation Capital Ltd. converted $800 million of shareholder loans into equity.
-- We are raising our ratings, including raising the corporate credit rating to 'BB+' from 'BB', and removing ratings from CreditWatch.
-- The outlook is stable, reflecting our expectation that AWAS' financial profile will remain relatively consistent into 2013.
Rating Action On Oct. 8, 2012, Standard & Poor's Ratings Services raised its ratings on AWAS Aviation Capital Ltd., including raising the corporate credit rating to 'BB+' from 'BB', and removed the ratings from CreditWatch, where we placed them with positive implications on Oct. 5, 2012.
The conversion of shareholder loans has reduced AWAS' debt to capital by about 8% to the high-70% area from the mid-80% area. The company's debt leverage had been among the highest of its rated peers, and the conversion of shareholder loans into equity narrows the gap somewhat. However, because the company will still carry a heavy debt burden, which we expect to increase as it uses debt to fund new aircraft deliveries, we expect funds from operations (FFO) to debt to remain at about 9%.
The ratings on AWAS reflect its position as a large provider of aircraft operating leases and its diversified fleet and airline customer base. Limiting credit considerations include exposure to cyclical demand and lease rates for aircraft, a weaker financial profile than some of its competitors, and a substantial percentage of encumbered assets, constraining options for raising capital. The ratings incorporate our expectations that these trends will continue over the next several quarters. Standard & Poor's characterizes AWAS' business risk profile as "satisfactory," its financial risk profile as "significant," and its liquidity as "adequate" under our criteria.
The outlook is stable. We expect AWAS' financial profile to remain relatively consistent into 2013, with higher earnings and cash flow offsetting incremental debt to fund new aircraft deliveries. We could lower the ratings if AWAS completed a large debt-financed aircraft portfolio acquisition or debt-financed dividend to its owners, causing FFO to debt to decline to the mid-single-digit percent area. We do not foresee an upgrade given the company's ownership structure--it is owned by funds managed by private equity firm Terra Firma and Canada Pension Plan Investment Board (CPPIB). We typically do not rate transportation equipment lessors owned by private equity higher than 'BB+' because of financial policy concerns.
Related Criteria And Research 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List Upgraded; Removed From CreditWatch To From AWAS Aviation Capital Ltd. Corporate Credit Rating BB+/Stable/-- BB/Watch Pos/-- Senior Secured BBB BBB-/Watch Pos
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