KEY RATING DRIVERS
The programme ratings and the US dollar certificates' ratings issued under the programme are driven solely by DAE's Long-Term Issuer Default Rating (IDR) of 'BBB-'. This reflects Fitch's view that default of these senior unsecured obligations would reflect the default of DAE in accordance with the agency's rating definitions.
Fitch has given no consideration to any underlying assets or any collateral provided, as the agency believes that DAE Sukuk's ability to satisfy payments due on the certificates will ultimately depend on DAE satisfying its unsecured payment obligations to the issuer under the transaction documents described in the prospectus.
In addition to DAE's propensity to ensure repayment of the sukuk, in Fitch's view, DAE would also be required to ensure full and timely repayment of DAE Sukuk's obligations due to its various roles and obligations under the sukuk structure and documentation, especially - but not limited - to the features explained below.
- On each periodic distribution date, DAE as the service agent will apply amounts standing to the credit of a collection account (comprising all revenues in respect of the Wakala portfolio, including rental payments (pursuant to the underlying lease agreement with a lessee) and payment of any profit amount (as defined in the Murabaha agreement) (together the Wakala portfolio revenues) as paid by DAE (acting in its relevant capacities under the servicing agreement and the Murabaha agreement, as applicable, into the collection account)) in payment into the transaction account of an amount that is intended to be sufficient to fund the periodic distribution amount payable by the trustee under the certificates. Fitch notes that DAE can take other measures to ensure that there is no shortfall and that funding of the principal payment and the portfolio income is paid in full, and in a timely manner.
- On the scheduled dissolution date of the certificates, the aggregate amounts of the deferred sale price then outstanding, if any, shall become immediately due and payable by DAE; and the trustee will have the right under the purchase undertaking to require DAE (in its capacity as obligor) to purchase all of its rights, benefits, entitlements, title and interests in, to and under the Wakala assets. The exercise price payable by DAE (acting in its capacity as obligor) to the trustee in respect of the Wakala assets, together with the aggregate amounts of the deferred sale price then outstanding, if any, are intended to fund the dissolution distribution amount payable by the trustee under the certificates.
- The dissolution distribution amount equals (a) the sum of: (i) the outstanding face amount of such certificates; and (ii) any accrued but unpaid periodic distribution amounts for such certificates; or (b) such other amount specified in the applicable pricing supplement as being payable upon any dissolution date.
- The exercise price equals to the aggregate of: (a) the aggregate face amount of the certificates then outstanding on the relevant dissolution date; plus (b) an amount equal to all accrued and unpaid periodic distribution amounts (if any) relating to the certificates; plus (c) to the extent not previously satisfied in accordance with the service agency agreement, an amount equal to the sum of any outstanding (i) amounts repayable in respect of any liquidity facility; and (ii) any service agency liabilities amount; plus (d) without double counting, an amount representing any amounts payable by the trustee (in any capacity) under the transaction documents; plus (e) without double counting, any other amounts payable on redemption of the certificates as specified in the applicable pricing supplement; less (f) the aggregate amounts of deferred payment price then outstanding (if any) on the relevant dissolution date.
- In the event of total loss, if there is a short fall from the insurance proceeds, DAE will be required to pay for the shortfall.
- The payment obligations of DAE (in any capacity) under the transaction documents will be direct and unconditional, and shall at all times rank at least equally with all other unsecured and unsubordinated obligations of DAE, present and future.
The documentation includes a negative pledge provision that is binding on DAE, as well as financial reporting obligations, covenants, and a cross-acceleration clause. The documentation does not contain a change-of-control clause.
The transaction will be governed by English law. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating on the certificates reflects the agency's belief that DAE would stand behind its obligations.
When assigning ratings to the certificates to be issued, Fitch does not express an opinion on certificates' compliance with sharia principles.
TRUST CERTIFICATE ISSUANCE PROGRAMME
The expected rating of the trust certificate issuance programme and certificates issued under the programme are principally sensitive to changes in DAE's Long-Term IDR. The ratings could also be sensitive to changes to the roles and obligations of DAE under the sukuk's structure and documents.
DAE's Long-Term IDR
Factors that could, individually or collectively, lead to negative rating action/downgrade:
a slower-than-expected recovery in air traffic as a result of prolonged impact from the coronavirus pandemic, leading to higher airline insolvencies, reduced propensity for government support, and increased capital-market volatility, thus limiting financing availability well into 2021. The magnitude of rating actions under such a scenario would be influenced by the extent to which DAE's liquidity coverage ratio is expected to fall below 1.0x, or by our expectation whether DAE's leverage will approach or exceed 3.0x.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A near-term upgrade is unlikely in view of the current Negative Outlook on the rating. However, the Rating Outlook could be revised to Stable if the health crisis eases in or before 2021 and is met with a general resumption of air travel and broader economic activity towards pre-coronavirus levels, combined with maintenance of liquidity coverage above 1.0x, and leverage in line with the company's 3x target.
The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [ https://www.fitchratings.com/site/re/10111579 ]
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Link to Rating Actions: Rating Actions
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Additional information is available on www.fitchratings.com
© Press Release 2020