Fitch Upgrades British Airways 2013-1 Class B Certificates, Affirms Class A Certificates
KEY RATING DRIVERS
The 'BBB+' rating for the B-tranche is reached by notching up from BA's 'BB+' corporate IDR. The three notch uplift is based on Fitch's view that the underlying collateral pool features a high affirmation factor (i.e. the likelihood that BA would affirm these aircraft if it were to enter administration) and the presence of an 18 month liquidity facility provided by Landesbank Hessen-Thuringen Girozentrale ('A+/F1+'/Outlook Stable). The affirmation factor for this pool is considered high as all three aircraft types in the transaction (A320s, 777-300ERs, and 787-8s) are core to BA's fleet plan. Fitch believes that the likelihood of these aircraft being affirmed in a restructuring scenario effectively reduces the B-tranche probability of default compared to BA's credit profile.
The A-tranche rating is primarily driven by a top-down analysis which evaluates the level of overcollateralization and likely recovery in a stress scenario. In the time since the previous rating action, values for the collateral aircraft have not deviated materially from Fitch's prior expectations.
The maximum loan to value (LTV) produced by Fitch's stress scenario is 90.8%, which implies a significant amount of cushion for senior tranche certificate holders. The ratings are also supported by a strong collateral package consisting of new-delivery Tier 1 aircraft, an 18-month liquidity facility, cross-collateralization/cross-default features, and Fitch's assessment of the UK insolvency regime. The rating incorporates a secondary dependence on the credit quality of BA as the obligor under the leases.
Key assumptions included in Fitch's rating case include current base values for the collateral aircraft provided by an independent appraiser. Depreciation rates and value stresses incorporated into Fitch's base and stress case scenario are in line with those used for similar Tier 1 assets as described in Fitch's EETC criteria.
Senior tranche ratings are primarily based on a top-down analysis based on the value of the collateral. Therefore, a negative rating action could be driven by an unexpected decline in collateral values beyond those that Fitch has assumed in its analytical models. Within a rating category, Fitch may also adjust the senior tranche ratings based on various factors including the issuer's underlying credit quality. Fitch could consider upgrading the senior tranche to 'A+' if BA's IDR is upgraded to 'BBB-'.
Subordinated tranche ratings are based off of the underlying airline IDR. Fitch could downgrade the B tranche by one notch if BA's IDR is downgraded to 'BB'. However, the subordinated tranche may not be upgraded if BA's IDR were to be upgraded, as Fitch expects some ratings compression as the airline IDR moves up the rating scale.
FULL LIST OF RATING ACTIONS
British Airways Pass Through Trust Series 2013-1
--Class A certificates affirmed at 'A';
--Class B certificates upgraded to 'BBB+' from 'BBB'.