Moody's scraps Air Jamaica's rating
Published:Friday | December 9, 2011 | 12:00 AM
Steven Jackson, Business Reporter
Credit rating agency Moody's Investors Service has scrapped the rating of Air Jamaica but maintained the B3 rating of its debt as part of activities to reflect the airline's change in majority ownership.
Concurrently, Moody's revealed that the value of the Jamaican Government's acquisition of a 16 per cent stake in Air Jamaica's new majority owners, Caribbean Airlines, was worth nearly US$30 million (J$2.56 billion).
Moody's withdraws its rating when it no longer rates an entity or debt.
This means that the rating agency will cease classifying Air Jamaica, now part of the CAL group, but it will keep the rating on the airline's US$325 million worth of bonds.
"Moody's Investors Service has withdrawn its B3 corporate family rating of Air Jamaica Limited," the ratings agency said in a release recently. "The B3 ratings on the company's two US dollar-denominated senior unsecured notes remain in place. These ratings reflect the Government of Jamaica's unconditional and irrevocable guarantee of the rated debt obligations of Air Jamaica Limited," Moody's said.
Moody's said that outstanding Air Jamaica bonds included a US$125 million 8.125 per cent due 2027, and US$200 million 9.375 per cent due 2015. "The withdrawal of the corporate family rating is for business reasons," said the Moody's statement.
Move expected
Calls to Moody's for further clarity went unanswered. However, on Tuesday, member of the Air Jamaica divestment team, accountant Dennis Chung explained that the Moody's move was expected and has no material impact on the airline.
"I don't believe there is any implication for Air Jamaica Limited," said Chung. "As stated in the rating, the B3 rating for the bonds continue as they are guaranteed and serviced by the Government of Jamaica, which, in fact, makes them in substance (Government of Jamaica) bonds. The fact is that Air Jamaica Limited is not an operational company anymore, and so it would not be prudent for Moody's to maintain a rating for a company that is not operational. The GOJ has handled the transition of the bonds appropriately as seen by the fact that the ratings of the bonds continue to be the same. I expect that the bonds will trade like GOJ bonds now," he said.
Moody's upgraded Air Jamaica rating from Caa1 to B3 in March 2010. In May 2010, after protracted negotiations, Air Jamaica and CAL began operating as one airline.
Moody's said the "Government of Jamaica acquired a 16 per cent equity interest in Caribbean Airlines valued at that time at US$28.5 million".
It added that the Government of Jamaica remained the owner of the remaining assets and liabilities of Air Jamaica Limited. Under an agreement, Caribbean Airlines will lease some of those assets from Air Jamaica. Moody's said the Government intends to liquidate the remaining assets of Air Jamaica as appropriate and will continue to service the liabilities, including the notes.