Fly Leasing's (FLY) Unsecured Rating Boosts to 'B2' at Moody's
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Moody's Investors Service upgraded Fly Leasing (NYSE: FLY) (FLY) senior unsecured rating to B2 from B3 and affirmed the company's B1 corporate family rating. Moody's also assigned a B2 rating to FLY's proposed $400 million senior notes issuance and a (P)B2 rating to the company's new senior unsecured shelf. The outlook for FLY's ratings is stable.
RATINGS RATIONALE
Moody's upgraded FLY's senior unsecured rating to reflect the improved asset coverage of unsecured obligations. Since the beginning of the year, FLY has built a base of high quality, unencumbered aircraft using proceeds from its December 2013 $300 million senior notes issuance and cash from subsequent liability and portfolio management actions. Moody's expects that FLY will continue to increase the number of unencumbered aircraft in its fleet as it deploys proceeds of its proposed $400 million senior notes toward additional aircraft acquisitions.
FLY's affirmed B1 corporate family rating reflects the company's modest competitive positioning in the commercial aircraft leasing business, fleet composition that includes a high, though declining percentage of older and out-of-production aircraft, and lessee concentration. Though FLY's proposed issuance of senior notes will help to further reduce the proportion of secured financing in its funding structure, the high level of the firm's encumbered assets remains a rating constraint. Additionally, the new debt issuance will increase FLY's pro forma leverage ratio (debt/equity) to nearly 4x from 3.3x at June 30, 2014, but Moody's expects that the company will manage its leverage within a range acceptable for the assigned rating as it pursues portfolio growth.
The B2 rating assigned to FLY's proposed notes is based upon terms and ranking that are consistent with the company's existing unsecured debt. The rating is one-notch lower than FLY's corporate family rating of B1, reflecting Moody's view that FLY's senior unsecured creditors have less certain recovery prospects in the event of default than the firm's senior secured creditors.
The stable outlook reflects Moody's view that the company will continue to execute on its portfolio renewal strategy and that leverage and liquidity will continue to be carefully managed.
Moody's could upgrade FLY's ratings if the company achieves further meaningful funding diversification, including reduced reliance on secured financing, and if the company's leverage (D/E) declines to less than 3.5x.
FLY's ratings could be downgraded if its leverage increases above pro forma levels, or if its profitability and liquidity positions weaken materially.
Ratings affirmed:
Corporate Family Rating: B1
Ratings upgraded:
Senior unsecured: to B2 from B3
Senior Unsecured shelf: to (P)B2 from (P)B3
Subordinated: to (P)B3 from (P)Caa1
Cumulative Preferred Stock: to (P)Caa1 from (P)Caa2
Non-Cumulative Preferred Stock: to (P)Caa2 from (P)Caa3
Ratings assigned:
Senior Unsecured: at B2
Senior Unsecured shelf: at(P)B2
Subordinated: at(P)B3
Cumulative Preferred Stock: at(P)Caa1
Non-Cumulative Preferred Stock: at (P)Caa2
The principal methodology used in this rating was Finance Company Global Rating Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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