S&P Upgrades AerCap Holdings (AER) to 'BBB-'; Outlook Stable

Standard & Poor's Ratings Services said today that it has upgraded AerCap Holdings N.V. to 'BBB-' from 'BB+'. The outlook is stable.

At the same time, we either raised or affirmed our issue-level ratings on the company's debt.

"We are upgrading AerCap because the company's credit metrics have improved over the last year--specifically its FFO-to-debt ratio has increased to around 11% and its debt-to-capital ratio has declined to the mid-70% area as of Dec. 31, 2015--reaching levels that we had previously indicated could support an upgrade," said Standard & Poor's credit analyst Betsy Snyder. The company's credit metrics weakened following its May 14, 2014, acquisition of International Lease Finance Corp. (ILFC). Since then, the company has benefited from its reduced debt (following its partial repayment in 2015), stronger earnings and cash flow, and the substantial proceeds it has received from aircraft sales. Our ratings also incorporate our assumption that management will undertake a moderate level of share repurchases, including the $400 million program the company recently announced. We expect that AerCap's credit metrics will remain relatively consistent through 2017, with its increased earnings and cash flow offsetting the incremental debt it will take on to fund its new aircraft deliveries (which the company already has commitments for).

The stable outlook reflects our expectation that AerCap's credit metrics will remain relatively consistent through 2017 as increased earnings and cash flow offset the company's assumption of incremental debt to fund its new aircraft deliveries. Our ratings on the company also incorporate a moderate level of share repurchases. We anticipate that the company's debt-to-capital ratio will remain in the mid-70% area while its FFO-to-debt ratio remains around 10% over this period.

Although unlikely, we could lower our ratings on AerCap over the next 18-24 months if we believe that the company will undertake a larger-than-expected level of share repurchases, or if it acquires a large debt-financed aircraft portfolio, causing its debt-to-capital ratio to increase to the high-70% area.

Although unlikely, we could upgrade AerCap over the next 18-24 months if its debt-to-capital ratio declines to the low-70% area and its FFO-to-debt ratio reaches 12%. This could occur if the company's earnings and cash flow are stronger than we had anticipated, which could be caused by increased demand and/or lease rates, or if the entity's debt levels are lower than we had expected.

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