Reuters logo
Fitch Assigns First-Time 'B-' Rating to Transportation Partners; Outlook Stable
May 17, 2017 / 3:05 AM / 7 months ago

Fitch Assigns First-Time 'B-' Rating to Transportation Partners; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, May 16 (Fitch) Fitch Ratings has assigned an initial Long-Term Issuer Default Rating (IDR) of 'B-' to Transportation Partners Pte. Ltd. (TP) and an expected rating of 'B-(EXP)/RR4' to the company's proposed issuance of US dollar denominated senior unsecured notes. The Rating Outlook is Stable. A full list of rating actions is at the end of this release. KEY RATING DRIVERS IDR AND SENIOR DEBT The 'B-' IDR is supported by TP's relatively young and liquid commercial aircraft portfolio; cash flow generation supported by solid lease yields; adequate interest coverage of near-term debt obligations; and low leverage for the rating. The IDR is constrained by elevated key-man risk linked to one of TP's co-founders; weaker corporate governance relative to larger, listed peers; material customer concentrations related to Lion Air Group and its affiliates; funding and placement risks associated with TP's outsized order book which can be placed with the Lion Air Group of airlines for their external financing; an untested credit risk management framework relative to peers; and lack of financial performance track record through credit and aviation cycles. Rating constraints applicable to the aircraft leasing industry more broadly include the monoline nature of the business; vulnerability to exogenous shocks; potential exposure to residual value risk; sensitivity to oil prices; reliance on wholesale funding sources; and increased competition. Elevated key-man risk resides with one of TP's co-founders, Rusdi Kirana, who is also the co-founder and co-owner of Jakarta-based airline, Lion Air. While key-man risk is not uncommon for aircraft lessors rated by Fitch, Kirana is actively involved in all aspects of TP's business, including advising management on the strategic direction and providing oversight of the business, which includes TP and its largest customers (airlines affiliated with Lion Air Group). Fitch believes TP has a weaker corporate governance framework, as evidenced by a lack of independent director membership and numerous related party transactions. The Chief Executive Officer and Chief Financial Officer roles are also currently being shared on an interim basis, but are expected to be filled during the course of 2017. Fitch would view a strengthened corporate governance framework favorably. TP's fleet totaled 65 aircraft, 10 engines and 1 helicopter, as of Dec. 31, 2016. The aircraft portfolio primarily comprised narrowbody and turboprop aircraft with an average age of 2.5 years, which is among the lowest when compared to aircraft lessors rated by Fitch. The ATR72-500/600 aircraft, which represented 63.5% of TP's total net book value (NBV), have experienced a resurgence in orders over the past few years primarily driven by favorable operating economics. Though viewed by Fitch as niche, these planes have an established operator base, and, compared to regional jets, ATRs are more fuel efficient and less exposed to technological disruption. TP's near-term performance and growth is expected to be supported by modest additional ATR deliveries, but in the medium- to longer-term, Fitch expects the fleet to evolve as the lessor expands further into widely-utilized aircraft, as evidenced by TP's impending deliveries of current and next-generation Boeing B737 and Airbus A320 family aircraft. Still, the order book is aggressive, in Fitch's view, and as of Dec. 31, 2016 represented 475 aircraft with staggered deliveries through 2035, translating to 731% growth of the existing fleet. TP has the option to not take deliveries, electing to place its near-term deliveries with Lion Air Group's airlines for their external financing. As of Dec. 31, 2016, TP's portfolio was highly concentrated in Lion Air Group and its affiliates. TP's asset quality performance has been solid to date, as the firm has not taken an impairment charge on its portfolio. Nevertheless, the firm's financial performance and credit risk management framework have not been tested through a credit cycle given its inception in 2011. TP's lessee concentrations represent a constraint to the IDR, due to the non-investment grade credit profile of many of its airlines, though not uncommon among aircraft lessors. Management is seeking to diversify its customer base through the placement of its order book deliveries with third-party airlines in the medium term. However, Fitch believes there is execution risk with the ability of TP to successfully diversify away from affiliate airlines, as well as the competitiveness of the overall aircraft leasing environment, which could pressure lease pricing, and ultimately earnings in the medium term. The company has been profitable since inception with growing lease revenue and stable lease yields. In 2016, TP reported favorable net income margins (NIMs) relative to peers, which are attributed to the combination of higher lease yields and relatively lower funding costs associated with its secured funding profile. Fitch believes TP's favorable lease yields also correspond to asset and/or lessee risk associated with the company's turboprop aircraft which are often leased to smaller, regional airlines. Nevertheless, Fitch expects current NIMs and interest coverage metrics will normalize to 15.8% and 3x, respectively in the medium term, as the firm shifts its funding profile toward unsecured funding, which is relatively more expensive compared to securitizations, and other forms of secured funding. Given operating cash flow generation is supported by long-term contractual lease terms, TP has sufficient liquidity and cash balances to support near-term debt maturities. However, Fitch believes TP remains exposed to potential funding risk associated with its sizeable order book commitments, with deliveries through 2035 which total $28.1 billion. Leverage, calculated as total debt to tangible equity, was 3.28x as of Dec. 31, 2016. This ratio is expected to remain relatively stable, as cash flow from underlying lease payments is used to repay outstanding secured borrowings to deleverage the balance sheet, but will be offset by additional borrowings as TP funds its order book over time. Fitch believes TP's leverage is consistent with the assigned rating given the company's monoline business model, as well as its current revenue and customer concentrations. The proposed issuance of USD denominated unsecured debt is rated 'B-(EXP)/RR4', equalized with TP's IDR of 'B-', reflecting the firm's predominately secured funding profile and Fitch's expectations for average (i.e. 31%-50%) recovery prospects for unsecured debtholders in a stressed scenario. The Stable Outlook reflects Fitch's expectations of stable operating cash flow generation supported by solid lease yields; maintenance of a portfolio of relatively young, liquid aircraft; and relatively low leverage for the rating. RATING SENSITIVITIES IDR AND SENIOR DEBT TP's ratings could be positively influenced by an improved corporate governance framework; the ability to place the order book deliveries in a manner that provides additional geographic and/or lessee diversification, provided such actions do not adversely affect underwriting or pricing terms; demonstration of credit risk and residual value management; improved scale efficiencies; increased funding flexibility; and maintenance of leverage below 3.0x. The IDR could be adversely affected by credit deterioration of underlying lessees, particularly those which represent a meaningful portion of TP's portfolio; maintenance of leverage above 5.0x over the long term; inability to fund and place order book deliveries; rapid expansion that is not accompanied by consistent underwriting standards and commensurate growth in capital levels and staffing; deterioration in residual value realizations and/or an increase in impairments; or the inability to successfully navigate market downturns. The ratings of the proposed unsecured debt are sensitive to changes to TP's IDR and the level of unencumbered balance sheet assets relative to outstanding debt. The unsecured debt ratings could be notched from the IDR should secured debt increase and/or the level of unencumbered assets decrease to such an extent that expected recoveries on the senior unsecured debt were adversely affected. TP is a specialized aircraft leasing company formed in 2011 and based in Singapore. The company has a narrowbody and turboprop portfolio totaling 65 aircraft on lease with total assets amounting to $2.3 billion, as of Dec. 31, 2016. Fitch has assigned the following ratings: Transportation Partners Pte. Ltd. --Long-Term IDR at 'B-'; --Senior unsecured debt at 'B-(EXP)/RR4'. The Rating Outlook is Stable. Contact: Primary Analyst Johann Juan Director +1-312-368-3339 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Katie Chen Director +886 2 8175 7614 Committee Chairperson Meghan Neenan, CFA Managing Director +1-212-908-9121 Date of Relevant Rating Committee: May 4, 2017 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below