Fitch cuts Air Canada 2017-1 certificates

Fitch Ratings said it lowered Air Canada 2017-1’s AA certificates to AA- from AA. The agency maintained the rating watch on Air Canada’s 2017-1 class AA and A certificates and affirmed its other enhanced equipment trust certificate ratings.

Lower asset values and increased value stress assumptions drove the downgrade. Fitch said the downgrade also reflects an increased level of risk for all aviation industry ratings due to the pandemic’s effects.

“The 2017-1 class AA and class A certificates remain on RWN due to the transaction’s exposure to the Boeing 737 MAX, which remains grounded. Fitch’s view is that the 737 MAX remains a tier 1 piece of collateral despite its near-term uncertainty,” the agency said in a press release.

Fitch noted the transaction documents stipulate that if an aircraft remains grounded by a government authority for two full years, it would be considered an event of loss. If an event of loss occurs, the airline must redeem all the equipment notes issued concerning such aircraft. “In this case, if Air Canada does not return the 737 MAX to commercial service by early March, the company would be forced to redeem the MAX-related equipment notes,” Fitch said.

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