CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to American Airlines Pass Through Trust Certificates, Series 2013-1:
--$119.8 million class C certificates (C-tranche) with an expected maturity of July 2018 'CCC'.
Fitch has also placed the AA 2013-1 class C certificates on Rating Watch Positive reflecting Fitch's expectation that the tranche will likely be upgraded once American Airlines Inc. (AA; rated 'D') exits from Chapter 11 and completes its proposed merger with US Airways (LCC; rated 'B+', Outlook Positive).
Fitch assigned a rating of 'BBB+' to the AA 2013-1 A-tranche and a rating of 'B' to the B-tranche in March of this year. For more information regarding the AA 2013-1 transaction please see Fitch's press release titled 'Fitch Rates American Airlines Inc.'s Proposed 2013-1 EETC Class A Certs 'BBB+' & Class B Certs 'B' dated March 5, 2013 at www.fitchratings.com.
KEY RATING DRIVERS
The 'CCC' rating represents a four notch uplift from AA's current IDR of 'D'. Fitch typically assigns ratings on EETC C-tranches of 1 to 2 notches above the IDR of the underlying airline. However, in this case, Fitch believes that a higher number of notches is more appropriate given the inherent credit quality of the class C certificates based on both the strength of the underlying collateral, AA's better than expected operating profile during Chapter 11, and the fact that the aircraft have been affirmed. These factors are offset by the general uncertainty of the bankruptcy process and the absence of a liquidity facility.
Transaction Overview
The C-tranche will be sized at $119.8 million, and will feature a 5.1 year bullet maturity. It will constitute roughly 15% of the total debt raised in this transaction, which is roughly in line with most recent C-tranche issuances.
The initial C-tranche loan to value (LTV) based on Fitch's aircraft values (provided by an independent third party appraiser) is 90.3%, which is comparable to the LCC 2012-1 and CAL 2012-3 C tranches that Fitch rated in 2012. The Base LTV is expected to rise slowly throughout the deal (due to the bullet maturity), reaching a max of 94.3%. As with subordinate tranches in most EETCs, the AA C-tranche will not feature a liquidity facility, and will be the first loss piece for this pool.
As part of its reorganization plan, AA financed 13 aircraft through the 2013-1 EETC transaction, making it the first EETC issued while an airline is operating under Chapter 11 court supervision. Accordingly, the new equipment notes (and thereby the certificates) will qualify as 'post-petition' secured DIP financing as per the court-approved DIP order, and thereby grant creditors stronger downside protection while AA is still in Chapter 11. These stronger provisions are not incorporated in Fitch's ratings, as they 'fall-away' upon emergence when the contractual terms revert to standard EETC documentation, which forms the basis of Fitch's ratings analysis.
The collateral package is comprised predominantly of Tier 1 (93% of collateral value) and Tier 2 aircraft, includes the following fleet types, all of which are core to AA's fleet, on a standalone basis, and Fitch expects also when combined with LCC.
--Four Tier 1 777-300ERs (2013 deliveries) representing 73% of initial collateral value;
--Eight Tier 1 737-800s (seven 2000 vintage; one 2001 vintage) representing 20% of initial collateral value;
--One Tier 2 777-200ER (2000 vintage) representing 7% of initial collateral value.
Post-Petition Status: Under the proposed AA 2013-1 EETC transaction, AA will re-execute new equipment notes (in the form of mortgage) underlying the new certificates to be issued by a newly formed trust while AA is under court supervision. Consequently, the new equipment notes (and thereby the certificates) will qualify as 'post-petition' secured DIP financing as per the court-approved DIP order. Creditors in the AA 13-1 EETC will not only continue to hold a first priority claim to the pledged assets, but also continue to have their debt-service payments qualify as an 'administrative expense' similar to holders of the existing EETCs that have been affirmed and therefore, also been elevated to an administrative expense status.
Standard EETC Structural Enhancements (Upon Emergence): Once AA emerges from Chapter 11 (expected later this year), Section 1110 and the standard features of the EETC template will govern the certificates. Similar to other recent EETCs, AA 2013-1 includes a dedicated liquidity facility provided by Natixis for both class A and B certificate holders that guarantees three consecutive interest payments over a period of 18 months in a potential default scenario. AA 2013-1 also includes the customary cross-collateralization and cross-default features that treat all aircraft as one pool of assets and limit AA's ability to cherry-pick assets within a EETC in a future bankruptcy.
RATING SENSITIVITIES:
The Rating Watch Positive on the AA 2013-1 C-tranche reflects Fitch's expectations that the certificates will be upgraded upon American's emergence from Chapter 11 bankruptcy and completes its proposed merger with US Airways.
Fitch has assigned the following ratings:
American Airlines Pass Through Trusts 2013-1
--Series 2013-1 class C certificates 'CCC'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Aircraft Enhanced Equipment Trust Certificates' (Sept. 14, 2012);
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 13, 2012).
Applicable Criteria and Related Research:
Rating Aircraft Enhanced Equipment Trust Certificates
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688711
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792506
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.