OREANDA-NEWS. Fitch Ratings has placed Switzerland-based business jet owner and operator VistaJet Group Holding SA's (VistaJet) Long-term Issuer Default Rating (IDR) of 'B' on Rating Watch Negative (RWN).

Fitch has also placed the 'B'/'RR4' rating of the USD300m 7.75% notes due 2020 on RWN. The notes are co-issued by VistaJet's 99.5%-owned subsidiaries, VistaJet Malta Finance P.L.C. and VistaJet Co Finance LLC and are unconditionally and irrevocably guaranteed by VistaJet and its key subsidiaries.

The RWN is driven by Fitch's expectation that VistaJet's funds from operations (FFO) gross leverage will be substantially higher than the negative guidelines for the ratings. This reflects lower than expected utilisation of aircraft and the effect on cash flows of a depreciation of the EUR to USD exchange rate, as the company continues to expand its fleet at a fast rate.

The resolution of the RWN will reflect our revised expectations for VistaJet, taking into account the 1Q16 outturn, including the contribution of US and China operations, aircraft utilisation (hours per aircraft), aircraft yield (USD per hour flown) and the ongoing effect of a weak euro. We may downgrade the rating if our expectations for VistaJet's credit metrics remain sustainably weaker than the current rating guidance. The review of the Recovery Rating on the notes will also reflect the increasing proportion of secured debt.

KEY RATING DRIVERS
Weaker 2015 Outturn vs Expectations
Fitch expects VistaJet's financial performance for 2015 to be substantially weaker than our previous rating case. The large proportion of unhedged euro-denominated receipts has resulted in a large reduction in its USD-reported revenues, with only limited offset from its European cost base and reduced fuel costs. Furthermore, we expect that VistaJet will struggle to offset the depreciation of the euro with higher fees per hour. We expect FFO fixed charge cover of about 2.2x and FFO gross adjusted leverage of about 11.6x for full year 2015, substantially weaker than our negative guidelines of 8.0x for FFO gross adjusted leverage. We expect leverage to peak in 2016 due to the large debt-funded fleet expansion.

Start-Up Delays
VistaJet has experienced delays in commencing domestic operations in China and a lower than expected start in the US. Delays to permits have resulted in some planes being non-operational, reducing the average number of hours flown per aircraft, with revenue growth falling behind fleet growth. However, permit issues have now been overcome, and the company has reached a critical mass and is gaining momentum with US domestic sales. As a result, we expect the number of hours flown per aircraft to increase in 2016.

Uncertain Effect of Economic Pressures
VistaJet's rating incorporates Fitch's expectation that the company will grow strongly, expanding its fleet to nearly 80 planes by the end of 2017, from 57 at December 2015. A reduction in demand for executive jet purchases, driven by weakening economic growth, adds uncertainty to demand for VistaJet's services, in our view.

Performance in 2016 Key
As a result of its high rate of expansion, VistaJet's cash flow measures are subject to lag compared with its capital structure, as aircraft and matching leverage will be on balance sheet before the aircraft start to make a meaningful contribution. VistaJet's forward sales are reliant on having aircraft in place and operational before the hours can be sold. The company has a backlog of USD812m committed sales between 2016-2019. We expect the early 2016 operating performance to allow us to reset our forecasts for VistaJet, including taking a view on the lasting impact of the adverse factors experienced in 2015.

Liquidity Requirements Stretching
VistaJet generates strong operational cash flow, but this is offset by the need for additional capital in relation to its large aircraft purchasing programme, and the rapid amortisation of its aircraft related debt. The company retains access to aircraft financing, based on its aircraft valuations. VistaJet will need to raise additional cash to offset equity paid for new aircraft and the amortisation of the aircraft financing, either through increased operational cash flow, additional loan drawings or aircraft sales which are subject to market valuation. We expect headroom under its covenants to tighten, which may also affect its access to funding.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Number of aircraft in operation at the end of 2016 (72) and 2017 (80).
- Revenue per hour (aircraft only), and average utilisation per aircraft comparable with 2014.
- Continued on-balance sheet funding of new aircraft through finance leases.
- Variable costs such as fuel, ground handling, catering, etc. to grow in line with growth in total hours flown.
- No dividend pay-out.

RATING SENSITIVITIES
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- FFO gross leverage sustainably above 8.0x (2014: 8.7x), decline in FFO interest below 2.0x (3.8x), or a reduction in the company's contracted revenues to below 40% of total revenues (56%).
- The notes' rating may also be downgraded if our expectation for recovery rates fall below 31%.

Positive: The ratings are on RWN and therefore we do not anticipate events leading to an upgrade. Future developments that may nonetheless, individually or collectively, lead to an upgrade include:
- FFO gross leverage consistently lower than 6.0x, FFO interest above 3.0x along with no significant deterioration in the company's premium profit margins and high revenue visibility.

LIQUIDITY
We view VistaJet's liquidity position as satisfactory, but in need of continued availability of external funding to cover planned aircraft acquisitions and debt amortisation. At end-2015, VistaJet had readily available cash and cash equivalents of USD37.8m, compared with short-term debt of about USD200m. VistaJet funds almost all of its aircraft assets through finance leases, which have a regular amortisation schedule, combined with operating cash flow, working capital and equity released from aircraft sales.

FULL LIST OF RATING ACTIONS

Vistajet Group Holdings SA
Long-term IDR 'B' on RWN

Vistajet Malta Finance P.L.C.
Senior unsecured USD300m notes due 2020 rating 'B'/Recovery Rating 'RR4' on RWN

Vistajet Co Finance LLC
Senior unsecured USD300m notes due 2020 rating 'B'/Recovery Rating 'RR4' on RWN