Moody's upgrades DAE on improved funding

Dubai lessor's corporate family rating upgraded to 'Baa3' from 'Ba1'

Credit ratings agency Moody's upgraded Dubai Aerospace Enterprise (DAE)'s corporate family rating to 'Baa3' reflecting the company's improved funding structure and liquidity.

In addition to the investment upgrade from Ba1, the agency changed its outlook of the Dubai plane lessor to stable from 'rating under review'. Moody's also upgraded the senior unsecured rating of subsidiary DAE Funding LLC to 'Baa3' from 'Ba2.'

In addition to DAE's improved funding structure and liquidity, Moody's said "lower leverage, and further progress obtaining repayment of a large loan to its shareholder, the Investment Corporation of Dubai (ICD)", underpinned it rating action. The Baa3 rating, Moody's said, incorporates its "expectation that DAE will obtain repayment of its loan to its shareholder."

Last year, DAE committed to deliver more than $1.75 billion (Dh6.4bn) in aircraft assets. It increased its managed portfolio to more than 125 aircraft valued at $3.5bn. The lessor also issued $1.9bn of new unsecured debt.

“We have worked assiduously over the last two years to position our franchise to be rated as an investment grade company," Firoz Tarapore, chief executive of DAE, said in a separate statement.

"DAE's senior unsecured debt is now rated investment grade by three major US credit rating agencies. This will enable us to further solidify our top 10 franchise, accelerate our growth ambitions and strengthen our liquidity and capital position”.

DAE has increased its funding diversification by issuing a higher ratio of unsecured debt and reducing encumbered assets, a move that improves its ability to finance and manage the composition of its fleet, Moody's said.

The company's ratio of secured debt to tangible assets improved, declining to 27 per cent at September 30, 2019 from 35 per cent at December 31 2018.

DAE has more than doubled its revolving credit borrowing capacity since mid-2018.

"Moody's expects that DAE will manage its debt maturities to avoid concentrations that could increase its refinancing risks," and the state-owned lessor will continue to maintain "adequate" capital strength as it pursues "modest" fleet growth, according to the report.

Moody's could upgrade its ratings if DAE generates profitability that compares well with investment-grade peers, it said.

In terms of the climate-change concerns surrounding the aviation industry, Moody's said it expects DAE will pursue aircraft investments that reflect the shifting operating priorities of airlines to address environmental concerns.

Some credit challenges facing DAE include that the plane lessor does not currently have new aircraft orders with plane makers, relying instead on sale leaseback and trading activities to replenish its fleet, the agency said.

The ratings reflect "the company's asset and risk management strengths, the earnings and funding advantages associated with the company's unique access to capital and customers in the United Arab Emirates, and its balanced aircraft fleet composition," Moody's said.