DBRS Confirms MILIT-AIR Inc. at AAA

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

The rating remains underpinned by the AAA rating of the Government of Canada (Canada), which has an unconditional and irrevocable obligation to make payments (the Firm Fixed Fees) sufficient to service the Amortizing Bonds, and whose long-term rating was confirmed by DBRS on July 26, 2012. Payable to Bombardier for services rendered under the NFTC program, the Firm Fixed Fees are assigned to the Collection Trustee in satisfaction of Bombardier’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. DBRS notes that Bombardier has the option of transferring its rights and obligations under the lease agreements to Canada anytime between June 30, 2012, and December 30, 2012; it is unknown whether the option will be exercised at this time. In the event that Bombardier is removed (by choice or for failure to operate in accordance with NFTC program requirements) from its capacity as contractor under the NFTC program, Canada would perform the obligations of Bombardier 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, Bombardier 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 ($442.9 million outstanding as at December 31, 2011) were used to purchase aircraft, flight-training devices and ground support equipment, all of which were in turn leased to Bombardier 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 applicable methodology is Rating Canadian Public-Private Partnerships, which can be found on our website under Methodologies.