DBRS Morningstar Upgrades Voyager Aviation Holdings, LLC Long-Term Issuer Rating to B (low), Trend Stable

DBRS, Inc. (DBRS Morningstar) has upgraded the Long-Term Issuer Rating of Voyager Aviation Holdings, LLC (Voyager or the Company), along with its primary debt issuing subsidiary, Voyager Finance Co. to B (low) from ‘SD’. The trend on all ratings is Stable. Voyager’s Intrinsic Assessment (IA) is B (low) and its Support Assessment is SA3 resulting in the Company’s final rating being equalized with its IA.

KEY RATING CONSIDERATIONS
The ratings action considers Voyager’s modest franchise in a niche market of commercial aircraft leasing and its aircraft portfolio of largely young, widebody aircraft that are on long-term lease with flag carriers. Also, the ratings action factors in the Company’s improved leverage profile following the May 2021 debt restructuring as well as modest near-term funding requirements given the largely matched funding base. Ratings also take into account Voyager’s weak earnings generation ability, highly concentrated customer base, and narrow funding profile.

The Stable trend considers DBRS Morningstar’s view that the global aviation industry’s recovery from the Coronavirus Disease (COVID-19) pandemic is underway but will be a gradual and uneven recovery with international, long-haul travel the last market segment to recover. We see Voyager’s strengthened balance sheet following the debt restructuring as well as modest near-term lease expirations and debt maturities as affording the Company the time necessary to strengthen the Company’s franchise and scale while rebuilding its earnings through this challenging operating environment.

RATING DRIVERS
Further development of the franchise that includes growth in the aircraft portfolio, as well as diversification of the customer base, while maintaining sound credit and asset performance would result in a ratings upgrade. Sustained positive operating leverage resulting in consistent earnings generation and diversification of funding, including lower asset encumbrance, would also result in ratings upgrade of the ratings.

Given the concentrated customer base, any meaningful customer default or restructuring resulting in a material loss would result in a ratings downgrade. A sustained, material increase in leverage or inability to secure financing to capitalize on opportunities to acquire aircraft would lead to a ratings downgrade.

RATING RATIONALE
Voyager has a modest franchise that focuses on operating a portfolio of mostly young, technologically advanced in-demand widebody aircraft on long-term leases. We see Voyager as having acceptable technical and asset management capabilities in wide-body aircraft across both Airbus and Boeing models. With a portfolio of 18 aircraft and a net book value of $1.6 billion, at June 30, 2021, Voyager is smaller than many other global lessors. Over time, we anticipate that Voyager will broaden its portfolio to include in-demand narrowbody aircraft, which comprise the largest component of the global commercial aircraft fleet. A successful execution of this strategy would be positive for the credit profile of Voyager.

We view Voyager’s strengthened capitalization following the debt restructuring as affording the Company the time necessary to navigate the challenging operating environment while strengthening its franchise and rebuilding earnings. Voyager’s tangible common equity-to-tangible asset ratio was a solid 18.3% at June 30, 2021.

Voyager’s earnings generation ability is weak, having been impacted by the pandemic, elevated costs, as well as the portfolio repositioning initiative completed in 2019. Voyager reported an $82.4 million loss in 1H21, reflecting a 36% year-on-year decline in rental revenues, a $30.5 million asset impairment charge, a notable increase in the reserve for doubtful accounts, as well as higher other expenses largely driven by non-recurring costs associated with the restructuring. This loss follows annual losses in both 2020 and 2019. With the challenging operating environment, DBRS Morningstar sees Voyager as facing a gradual rebuild of its earnings ability. However, the addition of five aircraft on sale-leaseback with Breeze Airlines beginning in early 2022 should contribute to the initial stages of the rebuild.

While modest in size, Voyager’s aircraft portfolio is comprised of young widebody aircraft with long attached leases to flag or sovereign-backed carriers, which in the current challenging environment has been a positive for the risk profile. The Company’s risk profile also benefits from the absence of a new aircraft order book, as well as minimal aircraft placement risk over the near term with the Company’s next lease expiration not scheduled until late 2022. However, the portfolio continues to be more concentrated by customer, geography and aircraft type than many of its industry peers, which exposes Voyager to potential losses should an airline customer default or rent deferrals be requested from a material portion of the customer base. Indeed, Voyager has three Boeing 777-300ERs on least to Philippine Airlines (PAL), which filed for bankruptcy protection in September 2021, and accounted for approximately 20% of the Company’s rental revenue. Following negotiations, Voyager will be taking back one of the aircraft from PAL, which Voyager is already deep in the remarketing process while the remaining two aircraft will remain in PAL’s resized fleet. We view the proposed outcome from the PAL bankruptcy as neutral to Voyager’s credit profile given the disjointed market for widebody aircraft as a result of the pandemic.

Voyager’s funding profile is considered narrow given its reliance on secured forms of wholesale funding. While funding is limited, we do note that the Company’s secured debt generally has an amortization profile that is closely aligned with the lease revenue generated by the aircraft collateralizing the debt. Given its modest near-term funding requirements, including the absence of an order book, we see liquidity as reasonable. At June 30, 2021, Voyager had $32.2 million of cash on its balance sheet.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (September 2, 2021): https://www.dbrsmorningstar.com/research/383936/global-methodology-for-rating-non-bank-financial-institutions. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 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 for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies/principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision, Specifically, the “Global Methodology for Rating Non-Bank Financial Institutions” (September 2, 2021) was utilized to evaluate the Issuer and the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” (February 3, 2021) was used in assessing potential ESG implications for the ratings.

The last rating action on this issuer took place on May 11, 2021, when the Long-Term Issuer Rating was downgraded to SD and the Long-Term Debt rating was lowered to ‘D’.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: David Laterza, Senior Vice President, Head of Non-Bank FIG, Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG, Global 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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