Air Canada Provides First Quarter Preliminary Results And Updated Full Year 2013 Guidance


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So Dagger - where will AC be looking for debt financing? Will it be secured debt? What is the purpose (fleet renewal/current or maturing debt refinance/other)? What rates can AC reasonably expect to pay (LIBOR + .........)?

Air Canada Provides First Quarter Preliminary Results and Updated Full Year 2013 Guidance

MONTREAL, April 22, 2013 /CNW Telbec/ - Air Canada today provided preliminary results for the first quarter of 2013:

  • Adjusted net loss of approximately $143 million versus an adjusted net loss of $162 million in the first quarter of 2012
  • Net loss of approximately $260 million versus a net loss of $274 million in the first quarter of 2012
  • Operating loss of approximately $106 million versus an operating loss of $91 million in the first quarter of 2012
  • EBITDAR (earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent) of approximately $145 million versus $174 million in the first quarter of 2012

Air Canada is issuing this news release pursuant to its obligations under applicable Canadian securities laws to enable it to disclose this information in meetings as it explores a range of debt financing opportunities.

http://aircanada.mediaroom.com/index.php?s=43&item=634

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So Dagger - where will AC be looking for debt financing? Will it be secured debt? What is the purpose (fleet renewal/current or maturing debt refinance/other)? What rates can AC reasonably expect to pay (LIBOR + .........)?

Air Canada Provides First Quarter Preliminary Results and Updated Full Year 2013 Guidance

MONTREAL, April 22, 2013 /CNW Telbec/ - Air Canada today provided preliminary results for the first quarter of 2013:

  • Adjusted net loss of approximately $143 million versus an adjusted net loss of $162 million in the first quarter of 2012

  • Net loss of approximately $260 million versus a net loss of $274 million in the first quarter of 2012

  • Operating loss of approximately $106 million versus an operating loss of $91 million in the first quarter of 2012

  • EBITDAR (earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent) of approximately $145 million versus $174 million in the first quarter of 2012

Air Canada is issuing this news release pursuant to its obligations under applicable Canadian securities laws to enable it to disclose this information in meetings as it explores a range of debt financing opportunities.

http://aircanada.mediaroom.com/index.php?s=43&item=634

They are very close to doing US equipment trust certificates for fleet acquisition now that Canada has ratified the Cape Town accord.

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http://www.montrealgazette.com/business/aerospace/Canada+considers+country+first+backed+bond/8281829/story.html


Air Canada considers country’s first jet-backed bond
Airlines have issued $77 billion of asset-backed bonds since 1987 to finance jet purchases, according to JPMorgan Chase & Co. research
BY FREDERIC TOMESCO AND CECILE GUTSCHER, BLOOMBERG NEWSAPRIL 23, 2013
8281830.jpg
Air Canada’s debt is rated B- by Standard & Poor’s, and its senior notes are rated B2 by Moody’s Investors Service, five levels below investment grade. Photograph by: Tyler Anderson, Tyler Anderson

MONTREAL — Air Canada is considering the country’s first securitization of planes after it gained access this month to a financing technique that has been used by U.S. rivals for two decades.

Canada’s largest carrier is exploring a securitization, spokeswoman Isabelle Arthur said yesterday after the company reported preliminary first-quarter results almost two weeks ahead of schedule. The Montreal-based carrier is looking to finance four Boeing Co. 777 aircraft that will be shipped this year and another one scheduled for delivery in 2014.

Airlines have issued $77 billion of asset-backed bonds since 1987 to finance jet purchases, according to JPMorgan Chase & Co. research. The enhanced equipment trust certificates allow junk-rated airlines to issue investment-grade debt at lower yields, and transfer the burden of jet purchases to the bond market. Canada’s Federal government approved the Cape Town Convention and Aircraft Protocol in December, paving the way for Canadian carriers to tap the EETC market starting April 1.

“The EETC market is a very attractive option for them,” said Chris Murray, an analyst at PI Financial Corp., said in a telephone interview yesterday from Toronto. “They have the five new aircraft coming in and they have some high-yield debt callable later this year, and they may be looking at putting financing in place to replace some of that debt.”

COST SAVINGS

Air Canada’s $600 million of 9.25 per cent five-year notes issued in 2010 are callable May 23, according to Bloomberg data. The securities yield 6.21 per cent, after rising from a one-year low of 6.04 per cent reached on April 3. A year ago they yielded 10.68 per cent.

The airline would save at least 1.5 percentage points by issuing an aircraft securitization maturing in 10 years or more, according to Bloomberg Industries data. Air Canada’s debt is rated B- by Standard & Poor’s, and its senior notes are rated B2 by Moody’s Investors Service, five levels below investment grade. Among U.S. rivals, Delta Air Lines Inc. has a similar rating from Moody’s, and a step higher from S&P.

Boeing’s 777 jetliners carry catalogue prices from $258.8 million to $315 million each, depending on the variant and its range, though airlines typically negotiate discounts.

Securitization works by transferring some of the cost of buying jets to specially created trusts that issue bonds, which in exchange get a first claim on the planes and collect principal and interest payments from the airline.

‘POPULAR PLANE’

“The Boeing 777 is a very popular plane and that’s what investors will focus on,” Bloomberg Industries analyst George Ferguson said yesterday. “Investors will look past Air Canada at the quality of the aircraft inside the structure.”

The average coupon on EETCs, senior and junior-ranking portions, has fallen to 4.74 per cent this year from 5.82 per cent in 2012, according to Bloomberg Industries.

“EETCs would perhaps give them access to a cheaper form of financing as a result of the recent adoption of the Cape Town accord by Canada,” Darren Kirk, senior credit officer at Moody’s in Toronto, said yesterday in a phone interview. “EETCs have been the preferred mechanism of how to finance these new planes for a lot of airlines.”

American Airlines, under bankruptcy protection, sold investment-grade debt due 2025 with a 4 per cent coupon this year, the average coupon paid by companies rated 13 levels higher. The securities were used to purchase eight of Boeing 737-823 aircraft and one Boeing 777-223ER plus four 777-323ER planes due to be delivered between April and July, the company said in a March 12 statement.

SECTOR RETURNS

Elsewhere in credit markets, the extra yield investors demand to own the debt of Canadian investment-grade corporations rather than the federal government head unchanged yesterday from April 19 at 124 basis points, or 1.24 percentage points, according to Bank of America Merrill Lynch’s Canada Corporate Index. Yields fell one basis point to 2.69 per cent.

Spreads on provincial bonds were unchanged at 78 basis points, while yields were little changed at 2.45 per cent, according to the Bank of America Merrill Lynch Canadian Provincial & Municipal Index.

Corporate bonds have returned 2.4 per cent this year, while provincial bonds have gained 1.45 per cent and federal-government securities have added 1.16 per cent, Bank of America Merrill Lynch index data show.

The Bank of Canada will auction C$3.3 billion ($3.2 billion) of 1.5 per cent notes tomorrow. The securities mature in August 2015.

STOCK DROPS

Air Canada’s widely traded Class B stock fell 13 per cent to C$2.62 in Toronto yesterday, the largest one-day decrease since October 2009. The company reported a preliminary loss for the first quarter of about C$143 million, wider than analysts estimated, hurt by impairment costs and flight cancellations caused by bad weather.

Air Canada’s stock, which had more than tripled in the year before yesterday’s announcement, “is particularly vulnerable to negative surprises,” Walter Spracklin, an analyst at RBC Capital Markets in Toronto, said yesterday in a note to clients. The “unexpected profit warning is an example of this risk.”

Air Canada filed for bankruptcy in April 2003 after failing to gain enough cost cuts from unions to cope with rising fuel costs and falling demand for travel in the wake of the Sept. 11 terrorist attacks in the U.S.

Since emerging from bankruptcy in 2004 and listing shares in 2006, Air Canada has been the least efficient of major North American airlines, according to data compiled by Bloomberg Industries. Cost for each seat flown a mile, an industry benchmark, amounted to 18.5 cents at Air Canada last year, the highest annual average among 14 airlines tracked by Bloomberg.

Air Canada probably had adjusted net debt of C$3.99 billion as of March 31, the carrier said yesterday. That’s down from C$4.38 billion a year earlier.

“The EETC market is now available to Canadian airlines to fund purchases of aircraft at lower interest rates than other forms of financing,” PI Financial’s Murray said. Following Air Canada’s deal, “a number of other Canadian airlines may consider the EETC market for future aircraft purchases.”

© Copyright © The Montreal Gazette
Edited by dagger
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EETC's it is...

http://www.newswire.ca/en/story/1151791/air-canada-announces-private-offering-of-enhanced-equipment-trust-certificates

These are actually Higher MTOW aircraft than AC's other 12 77W.

Here are the rates

http://www.newswire.ca/en/story/1152313/air-canada-announces-pricing-of-private-offerings-of-enhanced-equipment-trust-certificates

The talk is that the rates on the three securities being issued will be in a range between 4.125% and 6.625%. In 2010, in a three-part US$1.1-billion financing, Air Canada paid an average of around 10%. In both deals the investors were offered secured securities – though security on aircraft is more tangible and more liquid.


U.S.$424,389,000 of 4.125% Air Canada Pass Through Certificates, Series 2013-1, Class A
U.S.$181,881,000 of 5.375% Air Canada Pass Through Certificates, Series 2013-1, Class B
U.S.$108,264,000 of 6.625% Air Canada Pass Through Certificates, Series 2013-1, Class C

MONTREAL, April 24, 2013 /CNW Telbec/ - Air Canada announced today that its previously announced private offering of two tranches of enhanced equipment trust certificates, which priced today, has been supplemented by a concurrent offering of an additional tranche of certificates, which also priced today. The three tranches of certificates have a combined aggregate face amount of U.S.$714,534,000.

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The market! Share price keeps dropping.

The market was accustomed to ever rising prices and most brokers had bullish targets for the year that have been drawn down a bit. That's why the price fell - that and because all stocks got a shellacking last week due to signs of slowing growth in China and stagnation in Germany.

That being said, AC ended up five cents yesterday to 2.94.

The bigger takeaway is that AC will save tens of millions of dollars in interest per year as a result of being able to access EETCs. It's good for all carriers, but especially one with a less than stellar credit rating. WS, for example, can borrow at the bank at very low rates, so the spread between conventional borrowing and EETCs would not be as large for it (though still worth pursuing). For AC, the difference might be 2-5 percentage points. On a refleeting with 787s and a narrowbody, the savings would be enormous. I usually criticize the feds so it's only fair I give them credit for adopting Cape Town and in this case, adopting the language most favorable to the EETC bondholders in a bankruptcy

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Air Canada launches pass-through financing for new airplanes

By Thursday, Air Canada, the country’s largest airline, will have joined the ranks of North American carriers that have issued pass-through certificates, a creative way to finance the purchase of new aircraft on considerably more advantageous terms than otherwise would be the case.

The talk is that the rates on the three securities being issued will be in a range between 4.125% and 6.625%. In 2010, in a three-part US$1.1-billion financing, Air Canada paid an average of around 10%. In both deals the investors were offered secured securities – though security on aircraft is more tangible and more liquid.

The financing comes a few weeks after Ottawa allowed Canadian airlines to finance in such a manner. (On its 2010 financing, Air Canada was also innovative — the collateral for the deals, known as second lien notes, were routes to and gates at certain foreign airports.)

Specifically Ottawa enacted (on April 1) the so-called Cape Town Convention, which specifies that within 60-days after an insolvency-related event at Air Canada, the lenders can take possession. The technique has been available to U.S airlines for about two decades and was most recently used by American Airlines when in March 2013 it raised US$663.4-million from the sale of two tranches of enhanced equipment trust certificates.

Air Canada’s US$714-million issue was launched Wednesday by the airline and four U.S. agents: Morgan Stanley; Credit Suisse, Citigroup and Deutsche Bank.

Given the amount of structuring involved there are lots of moving parts:

  • Purchase price. In all, Air Canada is buying five brand new airplanes that have an appraised value of US$866-million. Determining the appraised value is complicated: In its offering memorandum Air Canada used three estimates while the rating agency, S&P, which incorporated different assumptions, determined another. Given that Air Canada is raising a total of US$714-million, the rest of the “purchase price “ (US$152-million) is coming from Air Canada, presumably in the form of cash on hand. In effect Air Canada makes a down payment when each aircraft is delivered. The first plane is expected in June; the last next February.
  • Credit rating. S&P has rated one of the pass-through certificates as A-, the other as BB, while the Class Cs are rated B. All three are rated higher than the B-rating S&P accords to Air Canada.
  • Three classes of certificates. The Class As (which have a principal value of US$424-million) have an expected maturity of May 2025; the Class Bs (US$182-million) are set to mature in May 2021 and the Class Cs (US$108-million) in May 2018. On this deal, news about the Class Cs was delayed until interest in the As and Bs was assessed. The fact that they are being issued is a sign that the deal has attracted considerable interest, but, like a regular asset-backed securitization, the final “legal maturities” for the Class As and Class Bs will be 18 months after those two dates.
  • Loxley Aviation. This newly formed company (it’s actually a Canadian-based charitable trust with no equity) will acquire the five Boeing aircraft being “conditionally” sold to Air Canada. Presumably, when the conditions are lifted, Air Canada will “actually” own the aircraft — though its required to keep making the payments. Loxley will issue equipment notes that will be bought by the three pass-through trusts that issue the pass-through certificates. The notes are cross-collateralized and cross defaulted, which S&P argues “increases the likelihood that Air Canada would cure any defaults.” In turn, the pass-through certificates will be bought by qualified institutional buyers mostly based in the U.S., though non-U.S. based investors can also participate.
  • Natixis. A liquidity provider that will cover up to three semi-annual interest payments – if required. Natixis, a bank, is based in France – though the bank’s New York branch is the actual provider.
  • Loan to Value ratios. For the Class A certificates the initial L-to-V ratio will be 48.9%, for the Class B certificates the initial ratio is 69.5%, for the Class C’s the L-to-V is 82.5%. The 18% — or UDS$152-million – comes from Air Canada. In a bankruptcy, the Class As have priority.
  • The money flow. Each six months Air Canada will make the scheduled payments to Loxley which, in turn, will pay the three trusts, which in turn will pay the equipment trust certificate holders.

http://business.financialpost.com/2013/04/24/air-canada-pass-through-financing/

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