DBRS Confirms MILIT-AIR Inc. at AAA, Stable Trend

DBRS Limited (DBRS) confirmed the ratings on both the Amortizing Secured Bonds Series 1 and the Amortizing Secured Bonds Series 2-1 (collectively, the Amortizing Bonds) issued by MILIT-AIR Inc. (MILIT-AIR or the Company) at AAA with Stable trends. MILIT-AIR is a not-for-profit corporation formed for the sole purpose of acquiring and making infrastructure assets (the Amortizing Bonds Assets) in support of the NATO Flying Training in Canada (NFTC) program available to a subsidiary of CAE Inc. (with the subsidiary herein referred to as CAE).

The ratings remain underpinned by the AAA rating of the Government of Canada (Canada; confirmed by DBRS on October 12, 2018), which has an unconditional and irrevocable obligation to make payments (the Firm Fixed Fees) sufficient to service the Amortizing Bonds. The Firm Fixed Fees are payable to CAE for services rendered under the NFTC program and are assigned to the Collection Trustee in satisfaction of CAE’s obligation to make rental payments to MILIT-AIR for the Amortizing Bonds Assets (Rental Payments). In turn, the Collection Trustee transfers the Firm Fixed Fees to the Bondholder Trustee to service the Amortizing Bonds and pay the Company’s administrative costs. In the event that removing CAE from its capacity as contractor under the NFTC program was required, Canada would perform the obligations of CAE directly and make Rental Payments to MILIT-AIR or would have to appoint a third-party replacement (which would assign the Firm Fixed Fees to the Collection Trustee), thus ensuring that Canada remains ultimately responsible for indirectly servicing MILIT-AIR’s bonds. So far, CAE has operated in accordance with the NFTC program requirements and has not committed an event of default under the project agreements.

Proceeds from MILIT-AIR’s $826 million Amortizing Bonds ($78.5 million outstanding as of September 30, 2018) were used to purchase aircraft, flight training devices and ground support equipment, all of which were in turn leased to, firstly, Bombardier Inc. (Bombardier), and after assignment of Bombardier’s rights and obligations in 2015, to CAE, for the provision of the NFTC program. Under its Trust Indenture, the Company can only take on new debt if it has secured the funds necessary to pay for the incremental debt service costs. There continues to be no plan for the Company to take on new debt. As such, the debt burden is expected to continue to decline steadily going forward as a result of the scheduled principal amortization payments. Given that the credit profile of MILIT-AIR is linked to that of Canada, any revisions to the rating of Canada would trigger an equal change in the rating of the Company.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public-Private Partnerships, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.