On March 25, 2021, KBRA affirmed the A- issuer and senior unsecured debt ratings for Aviation Capital Group (ACG). The Outlook on the ratings is Negative.
KBRA stated that ACG’s ratings reflect the company’s long track record of stable profitability, strong market position, experienced management team, well-diversified customer base, focus on liquid, young aircraft, prudent risk management, and a conservative debt-to-tangible equity leverage at 2.0x (net debt-to-tangible common equity at 1.8x) as of December 31, 2020. These strengths are balanced by weakened profitability metrics as a result of increased off-lease aircraft (10% of net book value as of December 31, 2020), increased non-accruals, lower gain on sale of aircraft, lease restructuring and impairment charges (albeit lower in 2020 versus 2019) driven by the severe impact the Covid-19 pandemic has had on ACG’s airline customers and aircraft demand.
Operating cashflows have also been negatively affected by a decline in revenue, lease payment deferrals and delinquencies, and airline defaults. These challenges are mitigated by ACG’s strong liquidity, as of December 31, 2020, of unrestricted cash of $595.0 million and undrawn committed revolving credit facility of approximately $2.0 billion as well as a $600.0 million intercompany line of credit with 100% owner, Tokyo Century Corporation, as well as continued access to the capital markets. ACG’s largely unencumbered asset base ($10.6bn unencumbered assets) can also provide additional liquidity if need be. In addition, ACG significantly reduced committed capex in the near-to-medium term which reduces liquidity needs and aircraft placement risk.