Ratings agencies S&P and Moody’s both revised the corporate credit rating of Dubai Aerospace Enterprise (DAE), the Middle East’s biggest aircraft lessor, based on the “successful” integration of Dublin-based Awas, which DAE acquired last year.
S&P said on Friday it upgraded DAE to BB+ from BB previously, and affirmed the company’s stable outlook. In a separate ratings note earlier this week, Moody’s said it affirmed the Ba2 corporate family rating of DAE and the Ba3 senior unsecured rating of DAE Funding, and revised the outlook of the ratings to positive, from stable.
The acquisition of Awas last August swelled DAE’s portfolio to almost 400 aircraft. “We believe DAE has successfully integrated AWAS Aviation Capital operations,” S&P said. “The combined company has reported solid financial results since the acquisition, therefore, we are upgrading DAE to BB+ from BB.”
Mergers between aircraft lessors generally face limited integration problems, S&P noted in its report, however, the Awas acquisition prsented a higher than usual level of risk because the combined entity would continue to have most of its operating staff in Dublin, while certain executive functions would be based in Dubai.
“Almost a year later, the integration appears to have been successful despite DAE’s decision to shift more functions and personnel to Dubai,” the report said.
The stable outlook “reflects our expectation that DAE’s credit metrics will remain relatively stable through 2019, with EBIT [earnings before interest and tax] interest coverage of around 2x and a funds from operations-to-debt ratio of about 10 per cent,” S&P added.
Moody’s affirmed DAE’s ratings “based on the company’s franchise strength as a top ten global aircraft leasing company, its unique access to capital and customers in the UAE that differentiates its business proposition, and its effective management of aircraft fleet and airline credit risks,” it said.
“Additionally, DAE’s profitability during the last two quarters, reflecting combined operations with Awas, compares well with rated peers in the commercial aircraft leasing sector.”
In May, DAE executed a new $800 million unsecured credit facility that expands its access to alternate liquidity and strengthens its liquidity “runway”, Moody’s added. The additional borrowing capacity should improve DAE’s liquidity coverage ratio to about 70 per cent, up from 44 per cent at the end of March.
DAE said in July its board of directors and shareholders approved a bond repurchase programme of up to $300m (Dh1.1bn), as the company looks to further strengthen its financial position to expand its fleet.
“Our bonds, in our opinion, are currently trading at prices and spreads not consistent with the company’s market position and strong credit profile,” said DAE managing director Khalifa Al Daboos, in a statement to media.