Fitch Rtgs: Norwegian 2016 EETC Ctfs Repaid; Sale Likely Sufficient to Recover Principal

(The following statement was released by the rating agency)

Fitch Ratings-Chicago-16 March 2021: Norwegian Air Shuttle's 2016-1 Class A certificates were recently bought out by a holder of the subordinate class B certificates. The buyout was funded through a private debt issuance in the amount of the outstanding class A certificates and the aircraft are now being listed at public auction. Fitch Ratings expects that the sale of the aircraft will be sufficient to fully cover the amount of the class A certificates. Fitch currently rates the NAS 2016-1 class A certificates 'BBB' and the class B certificates 'CCC-'. The public certificates were fully repaid at the time of the buyout, illustrating a favorable outcome for existing class A debtholders given Norwegian's poor financial condition and the stressed state of the secondary market for aircraft. Norwegian Air Shuttle rejected the 10 737-800s that acted as collateral for its 2016-1 series of enhanced equipment trust certificates (EETCs) as part of its examinership process. Fitch understands that Norwegian made an offer on reduced terms to keep the aircraft that likely would have been sufficient to avoid a default for the class A certificates, but would likely have impaired the class B certificates. Exercising a standard provision in EETC transactions, a holder of the class B certificates opted to fully buy out the class A certificates. Class B recovery is less certain than that of Class A, given the current distressed state of the secondary aircraft market. Principal outstanding at the time of the buyout was $228.8 million for the class As and $52 million for the class Bs. Fitch estimates that the 737s in this portfolio would need to sell for approximately $23.5 million/aircraft for the class A certificates to recover fully after accounting for liquidity facility obligations and other costs. The aircraft would need to sell for closer to $29 million each for the class Bs to be made whole. Recent post-default appraisals peg current market values for 2016 vintage 737-800s between $24 million-$29 million per aircraft. The trustee for the certificateholders will hold a public auction for the aircraft that is expected to be finalized by the end of March. Fitch understands that the same entity that purchased the class A certificates will act as a stalking horse bidder in the auction process, providing a minimum bid that is at least equal to the class A principal and interest outstanding at the time of the buyout, plus relevant expenses. Importantly, the certificates were not considered to be in default prior to their buyout as the liquidity facility has continued to pay interest on the notes, avoiding an event of default despite Norwegian's examinership and rejection of the collateral. Fitch will likely affirm and withdraw its ratings upon the close of the auction process. The Norwegian transaction provides an example of the importance of good quality collateral and structural features in supporting EETC ratings. Fitch's criteria incorporate the likelihood that young/efficient aircraft such as the 737-800 would remain attractive to certain buyers even in an aviation industry downturn. Although the aircraft are likely to sell for well less than their pre-pandemic appraised values, the senior certificates holders recovered fully. Swift repossession and sale of the aircraft during the period covered by the liquidity facility allows the transaction to avoid a default, supporting the certificate ratings through Norwegian's examinership process. Contact: Joe Rohlena Senior Director +1 312-368-3122 Fitch Ratings, Inc. One North Wacker Drive Chicago, IL 60606

Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: elizabeth.fogerty@thefitchgroup.com

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