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

DBRS Limited (DBRS) has today confirmed the ratings on both 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 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. (CAE).

The ratings remain underpinned by the AAA rating of the Government of Canada (Canada; confirmed by DBRS on November 25, 2016), 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 ($205.2 million outstanding as of September 30, 2016) 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. It has been indicated that the transition has happened smoothly and without any operational issues. 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 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 to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Public-Private Partnerships (March 2016), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.