Fitch Rates US Airways' Proposed Term Loan Facility 'BB+/RR1'; Outlook Positive

Tue May 7, 2013 3:35pm EDT

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Fitch Rates US Airways' Proposed Term Loan Facility 'BB+/RR1'; Outlook Positive

Fitch Ratings has assigned a rating of 'BB+/RR1' to US Airways' proposed senior secured term loan facility. The Issuer Default Ratings (IDR) for US Airways, Inc. and its parent company US Airways Group, Inc. (LCC) remain unchanged at 'B+' with a Positive Outlook. A full rating list is shown at the end of this release.

US Airways, Inc. is expected to enter into a new senior secured term loan facility to repay debt including LCC's existing senior secured term loan, which will mature on March 23, 2014, and several smaller secured loans. The new senior secured term loan facility is expected to consist of two term loans: a $1 billion term loan B1 due in 2019 and a $600 million term loan B2 due in 2016. The loans are expected to amortize at 1% per annum, paid annually.

LCC entered into the existing senior secured term loan facility in March of 2007 and borrowed approximately $1.6 billion, which has amortized to approximately $1.1 billion as of March 31, 2013. The rating for the existing term loan will be withdrawn when the new facility closes.

Key Rating Drivers:

The new credit facility will be secured by a first-priority perfected security interest in all of the appraised collateral securing the existing term loan, collateral supporting the smaller loans being refinanced, and some additional assets being added to enhance the collateral package for the new term loans. The collateral package includes certain real estate, spare engines, spare parts, aircraft, DCA and LGA slots and gates, ground service equipment, flight simulators, slots and gates at LHR, and US Airways, Inc.'s LHR routes, as well as restricted cash and eligible accounts receivable.

The 'BB+' rating is supported by the expected recovery from the collateral securing the facility and by LCC's IDR of 'B+'. Fitch's recovery analysis incorporates a bespoke valuation of the collateral underlying the term loan facility. Using generally conservative assumptions in a distressed scenario, first-lien holders would likely receive a recovery of 91%-100%, equating to an 'RR1' rating under Fitch's corporate recovery rating criteria.

LCC's IDR continues to reflect the transformation of the company's business model which has significantly improved its financial profile since the credit crisis. Over the past year LCC produced record revenues, profitability and cash flow, in spite of a lackluster macro environment and volatile fuel prices. As a result, LCC's credit metrics notably improved. While significant risks remain, Fitch believes LCC is in a better position to withstand a weak operating environment or higher fuel costs. Other factors supporting the ratings include structural changes in the U.S. airline industry and LCC's relative cost position (including no defined benefit pension plan) which give the company significant operating leverage in a growing economy.

Fitch's primary concerns for LCC on a standalone basis include the company's high debt levels including looming maturities next year, and limitations on its ability to reduce network capacity based on current pilot contracts, in addition to the cyclicality and event risk inherent in the airline industry. Although LCC's unhedged fuel strategy poses a risk in a severe fuel spike scenario, current industry fundamentals enable LCC and its peers to largely pass on higher fuel costs through higher fares when demand is rising, or cut capacity when demand is falling.

The Positive Rating Outlook reflects the potential credit benefits over the next one to two years from LCC's pending merger with American Airlines. Fitch maintains its view that the proposed merger enhances LCC's network and credit profile but expects potential benefits to be realized over the longer term.

Rating Sensitivities:

The term loan ratings are tied to LCC's IDR and the collateral value securing the facility. Fitch could consider a negative rating action on the term loans if there were a significant devaluation of the collateral, which would affect the recovery rating, or a downgrade of LCC's IDR. A positive rating action on the term loans could follow an upgrade of LCC's IDR.

Fitch has assigned the following ratings:

US Airways, Inc.

--Sr. Secured Term Loan B1 due 2019 at 'BB+/RR1';

--Sr. Secured Term Loan B2 due 2016 at 'BB+/RR1'.

Fitch rates US Airways as follows:

US Airways Group, Inc.

--IDR 'B+';

--Sr. Secured Term Loan due 2014 'BB+/RR1';

--Senior Unsecured Convertible Notes 'B-/RR6'.

US Airways, Inc.

--IDR 'B+'.

The Rating Outlook is Positive.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 13, 2012).

Applicable Criteria and Related Research

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=790608

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