CHICAGO—(BUSINESS WIRE)—Fitch Ratings has affirmed the ratings on the certificates issued by British Airways Pass Through Trust Series 2013-1 as follows:

—Class A certificates at ‘A’;

—Class B certificates at ‘BBB+’.

KEY RATING DRIVERS

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 93.6%, which implies a material amount of cushion for senior tranche certificate holders. The maximum LTV in Fitch’s stress scenario has increased incrementally from our last formal review, in part due to a higher stress rate incorporated into our analysis for the 777-300ERs in this portfolio. The higher stress rate reflects some pressures that have been seen in the 777 market over the past year. 777-300ERs make up roughly 25% of this portfolio, with the remainder consisting of 787-8s and A320-200s.

The ratings are also supported by a strong collateral package consisting of 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 British Airways (BA) as the obligor under the leases.

The ‘BBB+’ rating for the B-tranche is reached by notching up from BA’s corporate Issuer Default Rating of ‘BB+/Outlook Positive. 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.

KEY ASSUMPTIONS

Key assumptions included in Fitch’s rating case include current base values for the collateral aircraft provided by independent appraisers. 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.

RATING SENSITIVITIES

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. The IDR of the underlying airline acts as a secondary factor. Therefore if BA were upgraded into investment grade and levels of overcollateralization in the transaction remained strong, Fitch could upgrade the senior tranche to ‘A+’.

Subordinated tranche ratings are based off of the underlying airline IDR, however, due to ratings compression as the corporate IDR moves up the rating scale, Fitch does not expect to upgrade the B tranche into the ‘A’ category if BA were upgraded to ‘BBB-’. If Fitch were to downgrade BA to ‘BB’, it would likely downgrade the B tranche commensurately.

Additional information is available at ‘www.fitchratings.com’.

Applicable Criteria

Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)

https://www.fitchratings.com/site/re/885629

Rating Aircraft Enhanced Equipment Trust Certificates (pub. 29 Sep 2016)

https://www.fitchratings.com/site/re/887869

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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014259

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014259

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