DBRS Morningstar Places Voyager Aviation Under Review with Negative Implications

DBRS, Inc. (DBRS Morningstar) has placed the ratings of Voyager Aviation Holdings, LLC (Voyager or the Company), including its Long-Term Issuer Rating of BB and Long-Term Senior Debt rating of BB (low), Under Review with Negative Implications. Concurrently, DBRS Morningstar also placed the ratings of the Company’s wholly owned subsidiary, Voyager Finance Co. (VFC), including its Long-Term Issuer Rating of BB and Long-Term Senior Debt rating of BB (low), Under Review with Negative Implications. The one-notch differential between the Long-Term Issuer Ratings and the Long-Term Senior Debt ratings reflects the substantial encumbrance of the Company’s aircraft portfolio as collateral for secured funding. The Intrinsic Assessment (IA) for the Company is BB, while its Support Assessment is SA3. The Support Assessment for VFC is SA1.

KEY RATING CONSIDERATIONS
The Under Review with Negative Implications status considers the significant headwinds and uncertainties facing the global aviation industry, as a result of the Coronavirus Disease (COVID-19) outbreak and the potential for these conditions to negatively impact Voyager’s credit profile. Across the globe, airlines have seen an unprecedented rapid decline in aviation travel and passenger revenue, which will lead to an increase in airlines seeking rental deferrals from lessors, as well as a rise in airline insolvencies pressuring aircraft lessor performance. Indeed, the International Air Transport Association’s (IATA) most recent assessment of the impact of coronavirus on global aviation forecasted a 37% year-on-year decline in passenger volumes and a reduction in airline passenger revenue of up to $252 billion, or a 44% decline from 2019 estimates. Evidencing the severity of the pandemic, this forecast is materially worse than IATA’s worst-case Excess Spread Scenario forecast from early March. While Voyager’s customer base is predominately comprised of flag carriers and large national airlines, the customer concentration within the modestly sized aircraft portfolio exposes Voyager to potential losses should an airline customer default or rent deferrals be requested from a material portion of the customer base. Although the Company has no scheduled lease expirations until 2022, DBRS Morningstar considers the challenging operating environment as making aircraft placement difficult for lessors should an aircraft be returned early or need to be repossessed.

During the review, DBRS Morningstar will consider developments relative to the coronavirus outbreak, including the expected depth and length of the outbreak and its ongoing impact on the global aviation industry. This assessment will include the outlook for passenger demand and the status of travel restrictions put in place by governments. DBRS Morningstar will also look to airline announcements regarding route networks, flight schedules and fleet adjustments in assessing the demand for aircraft. Recent announcements of government aid packages may provide relief for airlines, but details regarding the form and distribution of the support remains uncertain. The review will consider these factors and the implications for Voyager’s near-term financial performance and credit profile.

At December 31, 2019, Voyager had 18 aircraft in its portfolio with seven customers across six countries. The Company’s debt-to-equity was reasonable at 3.8x and the Company’s next debt maturity is August 2021.

The Under Review with Negative Implications status is generally resolved with a rating action within three months. However, if heightened market uncertainty and volatility persists, DBRS Morningstar may extend the Under Review status for a longer period of time.

RATING DRIVERS
Given the current review status, a ratings upgrade is unlikely over the medium-term. Ratings would be downgraded should the challenging operating environment created by the coronavirus outbreak become more prolonged than anticipated, leading to a sustained meaningful reduction in demand for air travel. Further, ratings would be downgraded should Voyager experience notable and sustained rent deferrals that pressure cash flow generation, or if revenue generation is impacted by a customer default or early lease terminations. Ratings could be maintained at their current levels should progress with dealing with the coronavirus pandemic provide visibility to improving passenger travel volumes that would reduce the likelihood of rent deferrals or early lease terminations.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financials, 24 September 2019 (https://www.dbrsmorningstar.com/research/350802/global-methodology-for-rating-non-bank-financial-institutions), which can be found on our website under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Company Documents, IATA Reports, and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited (DBRS Morningstar) for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this issuer took place on June 6, 2019, when the ratings and Stable trend were confirmed.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: David Laterza, Senior Vice President, Head of Non-Bank FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of North American FIG
Initial Rating Date: April 9, 2018

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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