Fitch Ratings - Chicago - 13 May 2019: Fitch Ratings has affirmed the ratings on the enhanced equipment trust certificates (EETCs) class A and B issued by Hawaiian Airlines (HA) Pass Through Trust Series 2013-1. A complete list of rating actions follows at the end of this release.
KEY RATING DRIVERS
Senior EETC tranche ratings are primarily based on a top-down analysis of the level of overcollateralization featured in the transaction. The ratings also incorporate the structural benefits of section 1110 of the bankruptcy code, and the presence of an 18-month liquidity facility.
Fitch's stress case utilizes a top-down approach assuming a rejection of the entire pool of aircraft in a severe global aviation downturn. The stress scenario incorporates a full draw on the liquidity facility, an assumed 5% repossession/remarketing cost, and a 30% stress to the value of the aircraft collateral.
The 30% value haircut corresponds to the low end of Fitch's 30%-40% 'A' category stress level for Tier 2 aircraft. The collateral pool in this transaction consists of six 2013 and 2014 vintage A330-200s. Fitch views the A330-200 as a Tier 2 aircraft.
Since Fitch's previous review, loan-to-value (LTV) ratios have experienced an insignificant increase. Faster-than-anticipated depreciation of the A330-200s was mostly offset by principal amortization such that the class A certificates continue to pass the agency's 'A' level stress test with a limited amount of headroom, supporting the 'A-' rating on the senior tranche. Per Fitch's appraisal data, base values for 2013-2014 vintage A330-200s declined by roughly 8% over the past year (outpacing the agency's standard 6% annual depreciation rate). Meanwhile, principal amortization decreased the outstanding debt by about 6.8%, leading to relatively stable LTV ratios.
The 'BBB-' rating for the class B certificates is based on Fitch's bottom-up approach. Notching consists of +2 notches for the affirmation factor (maximum is 2 notches) and +1 notch for the benefit of a liquidity facility. Subordinated tranches can achieve an additional notch of uplift if recovery is expected to remain above 91% through the life of the transaction. In this case recovery prospects do not support an additional notch of uplift. Note that the class B certificates were previously Under Criteria Observation due to an update to Fitch's EETC criteria that occurred last year. The update effected how Fitch looks at recovery for subordinated tranches. In this instance, the criteria change had no impact on the rating outcome.
Fitch considers the Affirmation Factor for this pool of aircraft to be high as the A330s in this transaction, representing a significant portion of Hawaiian's relatively small fleet, as well as being key to its Asian operations. Hawaiian retired the last of its 767s in the first quarter of 2019 meaning that the A330 will be the only aircraft in its fleet that can serve Asia and Australia.
The 'A-' rating on the class A certificates is one notch below the rating on many comparable class A certificates issued by other airlines. The one notch differential is primarily driven by the collateral pool's reliance on a single asset type that Fitch views as being weak relative to more in-demand aircraft models featured in other EETC transactions. The HA 2013-1 collateral consists of 6 A330-200s, which Fitch considers to be a high-quality Tier 2 asset, whereas many comparable transactions predominantly feature tier 1 assets, which the agency views to be lower risk.
The 'BBB-' rating on the class B certificates represents a three-notch uplift from Hawaiian's IDR of 'BB-' (maximum uplift is four notches). The rating is in line with the B tranche ratings of certain American Airlines class B certificates, which Fitch views as having similar affirmation factors and recovery prospects. American Airlines is also rated 'BB-'. The class B certificates are rated one notch below certain B certificates in certain other American airlines EETCs where recovery prospects are higher.
Fitch's key assumptions within the rating case for the issuer include a harsh downside scenario in which HA declares bankruptcy, chooses to reject the collateral aircraft, and where the aircraft are remarketed in the midst of a severe slump in aircraft values.
A tranche ratings are primarily driven by the underlying collateral. The ratings could be considered for a negative action if declines in base value for the A330-200 outpace Fitch's expectations. A positive rating action is not expected at this time.
The subordinate tranche ratings are directly linked to Hawaiian's IDR. If Hawaiian were upgraded to 'BB' the ratings would likely be upgraded commensurately. However, if HA were downgraded to 'B+' the ratings could be maintained at 'BBB-' as Fitch's EETC criteria allows for a wider notching differential for subordinated tranches for airlines rated in the 'B' category.
LIQUIDITY AND DEBT STRUCTURE
Both the 'A' and 'B' tranches feature an 18-month liquidity facility provided by Natixis, which Fitch rates 'A+'/'F1'/Stable.
SUMMARY OF FINANCIAL ADJUSTMENTS
No material adjustments were made.