DBRS Morningstar Confirms Rating on MILIT-AIR Inc. Series 2-1 Bonds at AAA, Stable Trend; Discontinues Rating on Series 1 Bonds

DBRS Limited (DBRS Morningstar) confirmed its rating on the Amortizing Secured Bonds Series 2-1 issued by MILIT-AIR Inc. (MILIT-AIR or the Company) at AAA with a Stable trend. DBRS Morningstar also discontinued its rating of AAA on the Amortizing Secured Bonds Series 1 (together with the Amortizing Secured Bonds Series 2-1, the Amortizing Bonds) as the Company fully repaid the bonds on July 2, 2019. MILIT-AIR is a not-for-profit corporation that acquires and makes infrastructure assets (the Amortizing Bonds Assets) to support the NATO Flight Training in Canada (NFTC) program available to a CAE Inc. subsidiary (the CAE subsidiary).

On October 11, 2019, DBRS Morningstar confirmed its rating on the Government of Canada at AAA, which underpins DBRS Morningstar’s rating on the Amortizing Bonds at AAA. The Government of Canada has an unconditional and irrevocable obligation to make payments (the Firm Fixed Fees) to service the Amortizing Bonds. The Firm Fixed Fees are payable to the CAE subsidiary for services rendered under the NFTC program and are assigned to the Collection Trustee to satisfy the CAE subsidiary’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. If the CAE subsidiary is replaced as contractor under the NFTC program, the Government of Canada must perform the CAE subsidiary’s obligations directly and make Rental Payments to MILIT-AIR or must appoint a third-party replacement (which would assign the Firm Fixed Fees to the Collection Trustee), thus ensuring that the Government of Canada remains ultimately responsible for indirectly servicing MILIT-AIR’s bonds. To date, the CAE subsidiary has operated in accordance with the NFTC program requirements and has not committed an event of default under the project agreements.

MILIT-AIR used proceeds from its $826 million Amortizing Bonds ($9.5 million outstanding as of September 30, 2019) to purchase aircraft, flight training devices, and ground support equipment, all of which the Company then leased to, firstly, Bombardier Inc. (Bombardier) and, after Bombardier’s rights and obligations were assigned in 2015, to the CAE subsidiary for 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 incremental debt service costs. MILIT-AIR has no current plans to take on new debt and its debt burden has declined steadily because of scheduled principal amortization and the outstanding Amortizing Secured Bonds Series 2-1 mature on April 22, 2020. Given that the Company’s credit profile is linked to that of the Government of Canada, any revisions to the rating of the Government 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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 [email protected].

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