Lunar 1 has fallen back to earth as Fitch Ratings downgrades the class A, B, and C notes issued by Lunar Aircraft 2020-1 Limited (Lunar) and assigned all of them a negative rating outlook.
The rating actions reflect the termination of purchase agreements to novate six aircraft in the pool prior to the delivery expiry date of November 23, 2020 and the resulting higher concentration risks with less diversification from an aircraft, airline lessee and regional exposure perspective, all compared with closing.
Looking forward, four aircraft remaining in the pool have leases maturing in the next twelve months, and were they to be sold, it would result in further elevated concentration risks with just eight aircraft left in the pool at that point in time. The actions incorporate the ongoing deterioration of all airline lessee credits backing the leases in the pool, downward pressure on certain aircraft values, Fitch's updated assumptions and stresses, and resulting impairments to modelled cash flows and coverage levels.
On July 20 Fitch placed all classes on rating watch negative due to the uncertainty surrounding the non-novation of these six aircraft. Further, on July 30 a notice confirmed the redemption of these aircraft and stated that the applicable amount attributable to each undelivered aircraft will be used to prepay the notes without premium.
“To reflect today's global recessionary environment and the impact on airlines backing these pools, Fitch updated rating assumptions for both rated and non-rated airlines with a vast majority of ratings moving lower, which was a key driver of the rating actions along with modelled cash flows.
Furthermore, recessionary timing was brought forward to start immediately at this point in time. This scenario further stresses airline credits, asset values and lease rates immediately while incurring remarketing and repossession cost and downtime, at each relevant rating stress level. Previously, Fitch assumed that the first recession commenced six months from either the transaction closing date or date of subsequent reviews,” the ratings agency said announcing the move.