​​​​​RATING ACTION COMMENTARY

Fitch Downgrades and Places Western Global Airlines' Ratings on Negative Watch

Tue 28 Feb, 2023 - 4:22 PM ET


Fitch Ratings - Toronto - 28 Feb 2023: Fitch Ratings has downgraded Western Global Airlines, Inc.'s (WGA) Long-Term Issuer Default Rating (IDR) to 'B-' from 'B+ and placed the rating on Negative Watch. Fitch has also downgraded the senior unsecured notes to 'B'/'RR3' from 'BB-'/'RR3'.

The downgrade is mainly driven by heightened near-term liquidity risks. While management's focus on liquidity is appropriate, the soft market outlook, challenged pilot environment, and fully drawn revolver elevate execution risk.
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RATING SENSITIVITIES

Factors that could lead, collectively or individually, to the resolution of Rating Watch

--FCF generation, increased revolver availability or procurement of additional liquidity within the next six months sufficient to alleviate near-term liquidity risks;

--Normalizing operations, including pilot retention;

--Adjusted debt/EBITDAR sustained around 4.25x; or a Fitch-calculated fixed-charge coverage ratio sustained at 2.5x.

Factors that could, individually or collectively, lead to a positive rating action/upgrade:

--Normalizing operations including successful pilot recruitment and increased aircraft utilization rates;

--Implementation of a credible refinancing plan alleviating the 2025 maturity profile;

--Revolver availability of 50% or more;

--Adj. debt/EBITDAR sustained below 4.0x or a fixed-charge coverage ratio sustained around 3x.

Factors that could, individually or collectively, lead to a negative rating action/downgrade:

--Heightened liquidity risk due to inability to generate positive FCF and inability to execute on contingent liquidity options;

--Structural operating challenges driving adjusted debt/EBITDAR above 4.5x and/or fixed-charge coverage toward 2x;

--Heightened refinance risks or potential for a distressed debt exchange.