TEXT-S&P affirms LM U.S. Member LLC (Landmark Aviation) 'B-' rating

Fri Dec 7, 2012 12:58pm EST

Dec 7 - Overview
     -- Landmark Aviation plans to acquire First Aviation Services using the 
proceeds from additional bank debt and an equity contribution from its sponsor.
     -- We are affirming our ratings, including the issue and recovery ratings 
on the enlarged credit facilities.
     -- The stable outlook reflects our expectation that credit ratios will 
remain quite weak but improve gradually over the next year mostly as a result 
of earnings growth as high capital expenditures will constrain free cash flow. 
 

Rating Action
On Dec. 7, 2012, Standard & Poor's Ratings Services affirmed its ratings on LM 
U.S. Member LLC (Landmark Aviation), including the 'B-' corporate credit 
rating. The outlook is stable.

At the same time, we are affirming our 'B-' issue rating and '3' recovery 
rating on the company's first-lien credit facility, which consists of a $75 
million revolver due 2017 and a $320 million term loan due 2019, which is 
being increased from $260 million. The '3' recovery rating indicates our 
expectation of meaningful (50%-70%) recovery in the event of payment default. 
We also affirmed our 'CCC' issue rating and '6' recovery rating on the $160 
million second-lien term loan that matures in 2020, which is being increased 
from $130 million. The '6' recovery rating indicates our expectation for 
negligible (0%-10%) recovery.

Rationale
Our ratings on Landmark Aviation reflect our expectations that leverage will 
be largely unchanged, but still very high, following the proposed mostly 
debt-financed acquisition of First Aviation Services Inc. (FAS; not rated) 
from a subsidiary of Goldman Sachs for an undisclosed amount. The company 
plans to finance the acquisition with the proceeds from an equity contribution 
from its sponsor, the Carlyle Group, a $60 million add-on to the existing 
first-lien term loan, and a $30 million add-on to the existing second-lien 
term loan. The higher margins at FAS and the equity contribution from Carlyle 
will offset the higher bank debt and operating leases, resulting in credit 
measures for 2013 being unchanged from our previous expectations (debt to 
EBITDA above 7x and funds from operations to debt less than 10%) and 
supporting our "highly leveraged" financial risk profile assessment.

The acquisition of FAS is a modest positive to Landmark's competitive 
position, but it is not enough to change our "weak" business risk assessment. 
FAS is the newest fixed-base operation (FBO) with the largest contiguous ramp 
at Teterboro Airport in New Jersey, which is by far the largest business 
aviation airport in the U.S. (more than twice as large as the next largest in 
White Plains, N.Y.). The acquisition will fill what was an obvious hole in 
Landmark's FBO network, but Landmark will still remain the third-largest FBO 
(by locations) in North America. FAS will be the company's largest site, 
contributing about 10% of expected 2013 revenues. FAS also has higher margins 
than Landmark, partly because of higher fuel margins, which should result in a 
modest increase in consolidated margins. We view Landmark's management and 
governance as "fair" under our criteria.

Liquidity
We assess Landmark Aviation's liquidity as "adequate," pro forma for the 
proposed transaction. We expect sources of liquidity to exceed uses by at 
least 1.2x over the next 12 months, the minimum level for adequate designation 
under our criteria. We also expect that sources would exceed uses even if 
EBITDA were to decline by 15%.

We expect cash to be minimal, pro forma for the proposed transaction, but the 
company will have access to a $75 million revolving credit facility that 
matures in 2017, which we expect to be initially undrawn.

Landmark has relatively high capital spending requirements in 2013 and 2014 to 
improve and expand certain locations. Therefore, free cash flow will be modest 
for the next few years but likely increase significantly thereafter as 
projects near completion and spending requirements normalize. Near-term debt 
maturities are minimal through 2018, primarily consisting of $3.2 million 
yearly amortization on the first-lien term loan. There are no maintenance 
financial covenants in the proposed credit facilities. However, the revolver 
does have a covenant that limits net first-lien debt to EBITDA (as defined) to 
6x if the company uses more than 20% of the revolver commitment.

Recovery analysis
Please see the recovery report to be published shortly on RatingsDirect.

Outlook
The outlook is stable. We expect credit ratios to be very weak and only 
improve gradually, as high capital expenditures over the next few years will 
constrain free cash flow, and therefore debt reduction. Revenue and earnings 
should grow modestly as a result of new locations and stable-to-improving 
business jet usage. We could lower the rating if the weak economy or a spike 
in fuel prices results in declines in business jet usage, constraining the 
company's liquidity such that we would revise our assessment to "less than 
adequate" or "weak." Although unlikely in the next year, we could raise the 
ratings if cash flow is greater than we expect and dedicated to debt 
reduction, resulting in debt to EBITDA below 5.5x.

Related Criteria And Research
     -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 
2012
     -- Standard & Poor's Standardizes Liquidity Descriptors for Global 
Corporate Issuers, July 2, 2010 
     -- Key Credit Factors: Methodology and Assumptions On Risks In The 
Aerospace And Defense Industries, June 24, 2009 
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008


Ratings List
Ratings Affirmed

LM U.S. Member LLC
 Corporate Credit Rating                B-/Stable/--       

LM U.S. Member LLC
LM U.S. Acquisition Inc.
Senior Secured
  $160 mil 2nd lien term ln due 2020    CCC                
   Recovery Rating                      6                  
  $320 mil term ln due 2019             B-                 
   Recovery Rating                      3                  
  $75 mil revolver ln due 2017          B-                 
   Recovery Rating                      3                  

Landmark Aviation FBO Canada Inc.
 Senior Secured                         B-                 
   Recovery Rating                      3                  

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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