Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) of Voyager Aviation Holdings, LLC (Voyager) and Voyager Finance Co. to 'RD' (Restricted Default) from 'C', following the completion of the company's debt restructuring on May 10, 2021, which Fitch viewed as a distressed debt exchange (DDE). Subsequent to the DDE, Fitch has upgraded Voyager and Voyager Finance Co.'s IDRs to 'B' from 'RD'. The Rating Outlook is Stable.
Concurrently, Fitch has upgraded the unsecured debt rating on the $6.2 million of notes maturing in August 2021 to 'CCC+'/'RR6' from 'C'/'RR6'. Fitch has also upgraded the existing senior secured debt ratings held by Voyager's subsidiaries to 'BB'/'RR1' from 'CCC'/'RR1'.
Fitch has subsequently withdrawn the ratings of the existing senior secured debt held by Voyager's subsidiaries for commercial purposes.
The rating downgrade to 'RD' reflects Fitch's view that the exchange of 98.5% (approximately $409.1 million) of Voyager's $415.3 million of senior unsecured notes maturing in August 2021 for $147.3 million of newly issued senior secured notes maturing in May 2026, approximately $197 million of cumulative perpetual preferred shares and all common equity of the company represents a DDE, as outlined in Fitch's "Distressed Debt Exchange Criteria". Fitch states that it believes the debt exchange resulted in some economic loss to the creditors, compared with the original contractual terms, and was conducted to avoid bankruptcy, similar insolvency proceedings or a traditional payment default.
The subsequent upgrade of the IDRs to 'B' reflects Voyager's business model of owning and leasing predominantly young, widebody aircraft; its long-term lease contracts and corresponding cash flows; improved leverage following the DDE and the lack of immediate funding needs.
Rating constraints include Voyager's largely secured funding profile, limited liquidity, relatively short track record, and smaller and less liquid fleet of widebody aircraft, when compared with other aircraft lessors focused on more broadly utilized/traded narrowbody aircraft, which results in meaningful lessor concentrations.
Fitch estimates Voyager's leverage, measured as debt to tangible equity, will be 1.8x after giving effect to the restructuring (and treating the preferred securities as equity); down from 3.8x as of Dec. 31, 2020. Pro forma leverage falls within Fitch's 'bb' quantitative leverage benchmark range of 0.6x-5.5x for balance sheet intensive finance and leasing companies with an operating environment score in the 'bb' category. Fitch believes the low leverage is appropriate given Voyager's concentrated lease portfolio.
Fitch anticipates that Voyager will have sufficient near-term liquidity to continue its operations. At Dec. 31, 2020, the firm had $38 million in unrestricted cash on the balance sheet, no order book and a debt amortization profile which closely matches lease revenue. Fitch expects Voyager will have unrestricted cash in the range of $40 million-$45 million at closing of the restructuring and will repay the remaining $6.2 million of senior unsecured notes with cash on hand prior to their maturity on Aug. 15, 2021. After restructuring, Fitch estimates Voyager's scheduled principal payments will total $141 million in 2021 as of Dec. 31, 2020. Fitch believes contractual lease revenues are sufficient to service secured debt and fund operating expenses, absent material lessee defaults or deferrals.
The Stable Outlook reflects Fitch's expectation that Voyager's credit metrics will be able to withstand possible headwinds from the exposure to PAL, the resolution of which could negatively affect the company's future cash flows and result in possible impairment charges which could erode equity, thus increasing leverage. Fitch notes the exposure to PAL is somewhat mitigated by the nature of the company's secured funding agreements, whereby Voyager does not grant payment deferrals or restructure leases without participation and consent of the secured lenders, which have historically agreed to loan modifications to accommodate updated cash flows from the customers.
The ratings of the existing senior unsecured notes are two notches below Voyager's IDR reflecting poor recovery prospects in a stress scenario, as all aircraft collateral is pledged to other bankruptcy-remote secured borrowing facilities.
The senior secured facility rating is three notches above Voyager's IDR reflecting outstanding recovery prospects for secured debtholders under a stress scenario given the collateral pledged to the facilities.