November 22, 2024
Vista Global has maintained its ratings from Fitch following recent reports in The Wall Street Journal and Bloomberg on bond price declines.
Fitch Ratings has affirmed the parent of VistaJet and XO, Vista Global Holding Limited’s Long-Term Issuer Default Rating, or LDR, at B+ with a Stable outlook.
It also affirmed the senior unsecured ratings on the bonds issued by VistaJet Malta Finance P.L.C. and Vista Management Holding Inc. at BB- with a Recovery Rating of RR3.
The notes are guaranteed by Vista and key operating companies Vista U.S. Group Holdings Limited and VistaJet Group Holding Limited.
According to the announcement, the B+ reflects “Vista’s niche operations, concentrated ownership with key man risk, some volatility embedded in on-demand services and high EBITDAR leverage, which we expect to decrease marginally below our negative sensitivity of 5.5x in 2024 and further in 2025-2027.”
The bond evaluator added, “Rating strengths are its global market position, albeit in a highly fragmented market, diversified operations by geography and customer, and a sizeable and growing share of contracted revenue.”
Key ratings drivers according to Fitch:
Negative Free Cash Flow in 2023
Vista estimates the company to have underperformed our forecast for 2023 in free cash flow (FCF) generation. This was driven mainly by extensive aircraft refurbishments exceeding our assumptions for last year, as well as working capital outflow predominantly due to the paydown of trade payables. We expect maintenance capex to normalize at around USD 160 million per year following the completion of the refurbishment cycle. Our forecasts do not assume further growth in fleet size, while the working capital trend should normalize as well.
Sound Profitability
We estimate Vista’s EBITDAR in 2023 at below our previous expectations, at about USD 750 million, which would still be an increase from USD 663 million in 2022. We anticipate further growth in 2024, driven by higher aircraft utilization following the completion of its refurbishment program, an increase in contracted (jet card) Program live hours, as well as a structural shift of revenue towards more profitable Program sales. We forecast EBITDAR margin to remain around 30%, but it could benefit from a reduction in lease payments as existing lease liabilities amortize.
High Leverage
We estimate Vista’s EBITDAR leverage to have decreased to 6.1x in 2023 from 6.6x in 2022. We expect that improved profitability, as well as the normalization of maintenance capex and working-capital movements, will support positive FCF from 2024 and, consequently, gradual deleveraging. We forecast EBITDAR leverage to decrease to 5.4x in 2024 and remain within our rating sensitivities of 4.5x-5.5x in 2024-2027.
Increasing Revenue and Profit Visibility
We estimate the share of contracted Program revenues to have increased to about 46% in 2023 from 39% in 2022 and forecast it to reach 54% in 2027, driven by the company’s partial shift away from ad-hoc business. We anticipate broadly stable operating cash flows of USD400 million-USD500 million per year, mainly supported by revenue from use-it-or-lose-it three-year (on average) Program contracts.
Solid Competitive Performance
In 2023, Vista outperformed the market in flight hours growth, with an increase of 17%, compared with a 4% decrease for the global market, although this was partly due to some of its off-fleet (marketplace) business coming on-fleet, in line with the company’s core strategy. Market flight activity in key regions weakened, but Vista’s global coverage provided some resilience relative to its peers and the company recorded double-digit growth in on-fleet flight hours in all regions.
Highly Fragmented Sector
The global private aviation market is highly fragmented, and Vista’s market share is about 5%, despite being one of the leading operators. Operations in the fragmented market provide growth opportunities for stronger providers, but they are also subject to strong competitive pressures. Nonetheless, Vista, as an asset-light operator, has historically expanded more quickly than providers with fractional or full ownership aviation services.
Full Spectrum of Asset-light Services
Vista’s business profile benefits from its full spectrum of asset-light services as an alternative to aircraft ownership. It offers different size and range of aircraft types as well as different membership benefits to meet customer needs. Its global footprint with a strong network and client-base diversity is also one of Vista’s competitive advantages. It has a record of successfully integrating acquired businesses, which have increased its scale and product offering globally. However, our forecasts do not assume further M&A, and further debt-funded M&A could put pressure on the rating.
Fitch also said, “Vista’s large share of revenue under fixed contracts, with a customer base that is more resilient than the general public to economic cycles and a floating fleet (aircraft not anchored to certain airports), are key differentiating factors from commercial airlines. All this supports the company’s higher debt capacity than some second-tier commercial airlines at a given rating.”
It added, “Within the private aviation sector, compared with providers with fractional or full asset ownership, Vista offers both lower all-in cost and higher flexibility as well as no asset residual risk to customers.”
Vista has been a target for the financial media since its $500 million bond placement was leaked to reporters last year.
The Financial Times report last May was titled, “Private jet disrupter: the debt-fueled ascent of Thomas Flohr’s VistaJet.”
The offering, which sold out in several hours, was oversubscribed, according to the company.
Flohr dismissed net losses due to how it depreciates aircraft while touting its robust EBITDA.
Several articles from German media have followed suit.
Vista has been of interest there since its 2022 acquisition of Air Hamburg, the country’s largest private jet operator.
More recently, The Wall Street Journal and Bloomberg profiled Vista after its bond price dropped.
Fitch said its analysis “assumes that Vista would be recognized as a going concern in bankruptcy rather than liquidated.”
Vista could also raise cash via the sale of Citation Xs and older Challenger 300s from its 2018 acquisition of XOJet.
The Fitch update also covered liquidity and debt structure.
Manageable Liquidity
Vista had short-term financial debt obligations of around 2x its cash balance at end-3Q23, excluding lease payments. In 2024, we expect the company to generate more than USD 200 million of FCF (after lease payments), which, together with the cash on the balance sheet, would be sufficient for scheduled debt repayment. However, we expect Vista to continue to refinance any balloon maturities in the near term. In addition to debt maturities, Vista also has about USD 150 million of deferred consideration payable in 2024 for past acquisitions.
Working Capital to Normalize
Vista had sizeable working-capital outflow in (the first nine months of 2023) of about USD 150 million, resulting from tightening payment terms with suppliers. We forecast working capital cash flows to be broadly neutral in 2024, although there could be an upside from prepayments on incremental ‘Program’ flight hours.
A decrease in renewal rate by its Program customers or a net decline in Program hours sold could result in net cash outflows related to the unwinding of these contract liabilities throughout the year. We forecast a growth of about 16,000 Program live hours in 2024.
On Monday, Vista touted last year’s results in a press release.
Founder and Chairman Thomas Flohr said, “2023 was another year of successful performance in our business. Despite having to react to deep economic shifts and complex geopolitical uncertainty, we produced double-digit growth across all markets — achieved while refurbishing and upgrading our fleet ahead of schedule, further improving our service standards and significantly increasing aircraft availability.”
The company said it had refurbished more jets acquired via its purchases of Air Hamburg and Jet Edge than originally planned.
According to Investopedia, B1/B+ are ratings “below investment grade, but still one of the highest ratings in the non-investment grade bracket.”
BB ratings “indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time. However, business or financial flexibility exists that supports the servicing of financial commitments.”
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