Research: Rating Action: Moody’s assigns Ba2 to Hanjin International’s secured term loan


Hong Kong, 19 September 2022 – Moody’s Investors Service has assigned a Ba2-Backed Senior Secured Rating to Hanjin International Corporation’s (HIC, B1 stable) proposed term loan, which matures in 2025. The loan is guaranteed by its parent company, Korean Air Lines Co. , GmbH (KAL).

HIC’s rating outlook remains stable.

HIC will use the majority of the proceeds from the transaction to refinance its existing Ba2-rated senior secured loan maturing in December 2022.

REASONS FOR VALUATION

“The Ba2 rating of the term loan is higher than HIC’s B1 Corporate Family Rating (CFR), reflecting the fact that the term loan will benefit from a first lien on the company’s Los Angeles property and has a higher priority than HIC’s existing interbank loan. corporate loans from KAL,” said Sean Hwang, associate vice president and analyst at Moody’s.

HIC’s CFR B1 is based on Moody’s assessment that support from parent company KAL is highly likely, resulting in a three notch increase in HIC’s CFR based on its standalone credit quality. This assessment takes into account KAL’s 100% ownership in HIC and explicit financial support through its guarantee for all of HIC’s external debt and the provision of subordinated intercompany loans.

HIC’s standalone credit quality remains weak, although hotel operations are improving, reflecting high levels of debt and still weak cash flow. The small scale of HIC’s operations in a single location also dampens its standalone credit quality, although that risk is mitigated by the prime location and competitive profile of its mixed-use building, the Wilshire Grand Center (WGC) in downtown Los Angeles.

Guarantor KAL’s credit rating is supported by its leading position in the Korean aviation sector (Aa2 stable), its significantly strengthened capital structure and liquidity, and the likelihood of government and institutional support in Korea given KAL’s strategic importance to the Korean economy.

Over the past two years, KAL has significantly reduced debt and increased liquidity through large equity offerings, asset sales and strong cash flow. The improvement in capital structure should continue over the next 12 to 18 months due to KAL’s manageable capital expenditures and reasonable profitability amid robust cargo and recovering passenger operations. Moody’s forecasts that KAL’s adjusted debt/EBITDA will remain around 4x-5x over this period, providing reasonable capacity to anticipate inherent industry volatility and the proposed acquisition of Asiana Airlines Co., Ltd. to be absorbed by KAL.

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Similar to the existing term loan, the proposed term loan is secured by a first lien on the majority of HIC’s assets, including the WGC, giving it priority over KAL’s intercompany loans in the Company’s liability structure. Upon completion of the refinancing, HIC’s debt will consist primarily of the $400 million senior secured term loan and KAL’s totaling $606 million of intercompany loans and revolving credit facilities.

In terms of environmental, social and governance (ESG) considerations, HIC is exposed to (1) physical climate risks due to its geographically concentrated operations, (2) long-term societal risks arising from the potential shift in business travel and workplace flexibility, and ( 3) Governance considerations related to its track record of high leverage and concentrated ownership, although explicit parent company support mitigates these risks.

FACTORS THAT COULD RESULT IN AN UPGRADE OR DOWNGRADE IN RATING

The stable outlook mainly reflects Moody’s expectation that (1) KAL’s credit profile will remain broadly stable over the next 12 to 18 months and (2) the airline will continue to support HIC, thereby addressing the latter’s weak liquidity and cash flow be mitigated.

Upward pressure on HIC’s CFR could arise over time as KAL’s credit quality improves by maintaining moderate financial leverage and adequate liquidity; and a successful integration with Asiana while continuing its strong support for HIC in the form of guarantees and intra-group financing.

Downward pressure on HIC’s CFR could arise if the likelihood of parental support decreases due to (1) adverse changes in HIC’s relationship with KAL or (2) a significant deterioration in KAL’s credit quality.

The main methodology used in this rating was Business and Consumer Services, published November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, you can check out the Assessment Methods page https://ratings.moodys.com for a copy of this methodology.

Hanjin International Corp. (HIC) is a wholly owned subsidiary of Korean Air Lines Co., Ltd. and owns the Wilshire Grand Center (WGC), a 73-story Class A mixed-use building in Los Angeles, United States.

Korean Air Lines Co.,Ltd. is a leading airline in Korea. As of June 30, 2022, the company owned a fleet of 131 passenger aircraft and 23 cargo aircraft serving 120 destinations in 43 countries.

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LEGAL DISCLOSURES

For more details on Moody’s key rating assumptions and sensitivity analyses, see the methodology assumptions and sensitivity to assumptions sections of the disclosure document. For Moody’s rating symbols and definitions, see https://ratings.moodys.com/rating-definitions.

For ratings provided for a program, series, category/class of debt instrument, or security, this announcement contains certain regulatory disclosures with respect to each rating of a subsequently issued bond or debenture of the same series, category/class of instrument, security or under a program for which ratings are derived solely from existing ratings in accordance with Moody’s rating practice. For ratings provided by a support provider, this notice contains certain regulatory disclosures in relation to the support provider’s credit rating action and in relation to each individual credit rating action for securities that derive their credit ratings from the support provider’s creditworthiness. For preliminary ratings, this announcement contains certain regulatory disclosures in relation to the preliminary rating assigned and in relation to a final rating that may be assigned after the final issuance of the Debt Instruments, in each case where the transaction structure and terms have not changed before issuing the final rating in a way that would have affected the rating. For more information, see the issuer’s issuer/deal page https://ratings.moodys.com.

For any affected security or rated entity that receives direct credit support from the primary entity(ies) of that rating action and whose ratings may change as a result of that rating action, the related regulatory disclosures are those of the guarantor entity. Exceptions to this approach exist for the following disclosures where applicable to the jurisdiction: Benefits, Disclosures to Reviewed Entities, Disclosures by Reviewed Entities.

The rating has been disclosed to the rated entity or its nominated representative(s) and is issued without any modification resulting from such disclosure.

This rating is requested. Please see Moody’s policy on the naming and assignment of unsolicited credit ratings, which is available on Moody’s website https://ratings.moodys.com.

Moody’s considers a rated entity or its agent(s) to be a participating entity if it has an overall relationship with Moody’s. Unless indicated as a nonparticipating entity in the regulatory disclosures, the rated entity is a participating entity and the rated entity or its agent(s) generally provides information to Moody’s for the purposes of its rating process. Please refer to https://ratings.moodys.com for the regulatory disclosures for each credit rating measure displayed on the issuer/company page and for Moody’s policy on naming non-participating rated entities displayed on https://ratings.moodys.com.

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The regulatory disclosures contained in this press release relate to the credit rating and, where applicable, the associated rating outlook or rating summary.

For Moody’s general principles for assessing environmental, social and governance (ESG) risk in our credit analysis, see https://ratings.moodys.com/documents/PBC_1288235.

The global scale credit rating in this rating communication was prepared by an affiliate of Moody’s outside the EU and is confirmed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Article 4(3) of the rating agency Regulation (EC) No. 1060/2009 on credit rating agencies. For more information on EU endorsement status and the Moody’s office that issued the rating, go to https://ratings.moodys.com.

The Global Scale Credit Rating in this rating communication has been issued by one of Moody’s subsidiaries outside the UK and is certified by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA in accordance with UK rating agency laws . For more information on UK endorsement status and the Moody’s office that provided the credit rating go to https://ratings.moodys.com.

Please see https://ratings.moodys.com for updates on changes by Moody’s lead rating analyst and the rating entity.

Please see the issuer/deal page at https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the senior rating analyst for this credit rating and the last name below is the person primarily responsible for approving this credit rating.

Sean Hwang
Deputy Vice President – Analyst
Corporate Finance Group
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensweg
Hong Kong,
China (Hong Kong SAR)
JOURNALISTS: 852 3758 1350
Customer Service: 852 3551 3077

Chris Park
Deputy General Manager
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Customer Service: 852 3551 3077

Approving office:
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensweg
Hong Kong,
China (Hong Kong SAR)
JOURNALISTS: 852 3758 1350
Customer Service: 852 3551 3077



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