Fitch Ratings has downgraded the long-term issuer default ratings (IDRs) of Voyager Aviation and Voyager Finance to 'C' from 'CCC', reflecting its views that a "default or default-like process has begun", following the lessor's 17 February announcement that it had reached an agreement with its shareholders and a group of senior unsecured noteholders.
The parties have agreed to commence a restructuring of the $415 million 8.5% senior unsecured notes due August 2021.
Fitch has also downgraded the senior secured debt ratings of notes issued by Voyager's subsidiaries to 'CCC'/'RR1' from 'B'/'RR1' and the senior unsecured debt rating to 'C'/'RR6' from 'CC'/'RR6'.
Fitch deems this proposal as a distressed debt exchange under the agency's criteria. The notes' restructuring will result in some economic loss to the creditors, compared with the original contractual terms. It will be conducted to avoid bankruptcy, similar insolvency proceedings or traditional payment default.
If such a restructuring took place, Fitch would expect to classify the event as a distressed debt exchange and downgrade the ratings to 'RD'.
The restructuring of the notes will comprise extinguishing of current senior unsecured debt in exchange for newly issued $150 million 8.5% senior secured notes due 2026 (2026 Notes); $200 million liquidation preference of preferred equity; and 100% of the pro forma common equity of the company, which will be subject to dilution by a post-restructuring management incentive plan.
Current shareholders will receive $15 million of additional 2026 Notes as consideration for Voyager's equity. The terms of the proposed debt exchange would address Voyager's near-term debt maturities and, if successful, would provide modest liquidity relief.
Absent a restructuring or another form of refinancing, Fitch does not believe that Voyager will have sufficient liquidity to repay the unsecured bonds in full at the August 2021 due date. Voyager's funding access has been adversely affected by pressures on its credit and liquidity profile, combined with the wider challenges faced by the commercial aviation sector.
Fitch anticipates that Voyager will have sufficient near-term liquidity to continue its operations uninterrupted, given $14 million in unrestricted cash on the balance sheet at 30 September 2020 and cash inflow from the conversion of the company's operating lease on two Boeing 747-8F aircraft with AirBridgeCargo Airlines to a finance lease from an operating lease at the end of the fourth quarter and in January 2020.
The ratings agency notes the company does not have significant operational liquidity needs given the lack of forward purchase commitments. Also, contractual lease revenues are sufficient to service secured debt and fund operating expenses, absent material lessee defaults or deferrals.
It continues to expect a slow recovery for the aircraft leasing sector following the unprecedented downturn in commercial aviation, driven by a dramatic decline in global air traffic due to the coronavirus pandemic. The coronavirus spread has resulted in a prolonged worldwide grounding of the majority of commercial passenger aircraft, leading to widespread rent deferral requests and numerous airline bankruptcies, which will pressure earnings for the company relative to historical levels.
Voyager's fleet consists of 18 aircraft with an average age of 5.6 years and an average remaining lease term of 6.6 years, largely unchanged since the beginning of 2020.
All of the company's customers were current on their lease agreements in the third quarter, except for Philippine Airlines (PAL, Not Rated), which announced its restructuring in November 2020, says Fitch.
The exposure to PAL, which is Voyager's largest customer, is somewhat mitigated by the nature of the company's secured funding agreements. For example, Voyager does not grant payment deferrals without the secured lender's participation and consent, who would then typically agree to loan modifications to accommodate updated cash flows from the customers. Given the secured funding agreement, Voyager delayed secured debt amortisation payments totalling $11.8 million related to aircraft on lease to PAL during the first nine months of 2020.
Since the pandemic onset, Voyager refinanced its April 2020 senior secured debt maturity by entering into another senior secured agreement. The next senior secured debt tranche matures in 2022. The company expects that all of its near term senior secured obligations, including interest payments and debt amortisation, will be serviced by committed lease revenues.
The 'CCC'/'RR1' ratings assigned to senior secured facilities reflect Fitch's expectation of strong recovery prospects for the secured debtholders under a stress scenario given the collateral backing the debt.
The 'C'/'RR6' ratings assigned to the senior unsecured debt reflects Fitch's expectation of poor recovery prospects for the unsecured debtholders in a stress scenario as outlined under Fitch's criteria for non-bank financial institutions.
Voyager's guarantee supports the IDR and ratings on the senior unsecured notes issued by Voyager Finance. They are therefore equalised with the IDR and senior unsecured debt ratings of Voyager, respectively.
An upgrade is unlikely until the company successfully completes the proposed debt restructuring. Thereafter, Fitch would reevaluate the company's credit profile, and the magnitude of any rating action would depend on the terms of the refinancing, the resolution of the restructuring of the three Boeing 777-300ERs leased to PAL and the performance of other airline customers.