October 8, 2024
S&P has put its outlook on Vista Global to negative while affirming its B+ rating.
S&P Global has revised its outlook to Vista Global as negative while affirming its B+ rating.
The rating agency said, “Weaker-than-expected operating performance and higher interest costs in 2023 resulted in S&P Global Ratings-adjusted funds from operations (FFO) to debt being well below 12%.
It continued, “We forecast that Vista’s operating performance will improve over 2024-2025. However, there is a risk that credit ratios consistent with a B+ rating might not be restored.”
The result is that S&P revised its outlook from stable to negative.
The negative outlook indicates that S&P could lower the ratings if, over the next 12 months, the private jet flight provider “is unable to achieve a weighted average FFO to debt ratio higher than 12% in 2024 and 2025, or if its free operating cash flow after lease payments remains negative or liquidity weakens.”
According to a release issued yesterday:
Vista’s S&P Global Ratings-adjusted EBITDA declined by 4% to about $670 million in 2023, compared with our previous forecast of an increase to $820 million-$850 million. We include nonrecurring costs and exclude gains on aircraft sales in our calculation of adjusted EBITDA. Revenue was materially weaker than we forecast, primarily in the on-fleet on-demand and third-party marketplace segments, but with continued strong growth in subscription program revenue, in line with the company’s strategy. Demand for private charter flights in North America and Europe was softer than we anticipated, but we understand that Vista outperformed the broader market. Vista’s refurbishment program for jets acquired in 2022 affected the fleet’s availability and revenue in 2023. Furthermore, higher staff costs contributed to the reduction of our adjusted EBITDA figure. In addition, higher debt and interest rates led to adjusted interest paid (including refinancing costs) almost doubling to $324 million, and tighter supplier terms led to a working capital outflow of $67 million. As a result, Vista’s adjusted FFO to debt reduced to about 7% in 2023 from 11% in 2022 and is now well below our threshold of above 12% for the B+ rating.
S&P is expecting the VistaJet and XO parent to post an adjusted EBITDA of $800 million to $830 million in 2024.
It cites “strong contracted growth of about 30% in subscription program flight hours.”
However, the boost in jet cards “is partly offset by lower third-party marketplace revenue and other income.”
S&P adds, “We assume only slightly higher on-fleet on-demand revenue in 2024, given the uncertainty about private aviation demand due to continuing global macroeconomic and geopolitical challenges. Nonetheless, we acknowledge that there was double-digit growth in total flight hours in the first quarter of 2024, supported by an increase in Vista’s fleet availability from the completion of its refurbishment program.”
The net impact, according to S&P:
We anticipate Vista’s adjusted EBITDA margin will improve to about 28% in 2024 from 25% in 2023, fueled by a greater share of revenue from its high-margin subscription program, lower staff cost inflation, and lower non-recurring costs. We assume that Vista’s interest costs will remain broadly stable. As a result, we forecast that Vista’s adjusted FFO to debt will improve to about 11% in 2024. In 2025, we forecast a further improvement to about 13%, underpinned by an increase in adjusted EBITDA to $860 million-$900 million, mainly due to continued strong subscription revenue growth. Our weighted average FFO to debt forecast is marginally above 12% for 2024-2025, consistent with a ‘B+’ rating. However, we think there is a meaningful risk of underperformance versus our base case in relation to less predictable on-demand revenue, cost inflation, and subscription revenue in 2025 if sales unexpectedly slow.
Beyond finances, S&P said, “Social factors are a negative consideration in our credit rating analysis of Vista since the pandemic highlighted how sensitive the aviation industry is to health and safety concerns. As a private jet operator, Vista Global was less affected by pandemic-related travel restrictions than commercial airlines, but its EBITDA dropped by 20% in 2020 (before), recovering above pre-pandemic levels in 2021.”
S&P also said climate protestors weighed into its evaluation.
“Environmental factors are also a negative consideration, as it is for the broader airline industry, reflecting pressures to reduce greenhouse gas emissions, with private aviation accounting for about 2% of the aviation industry’s carbon footprint.”
While “governance factors are a neutral consideration…in our view, (Vista Founder and Chairman) Thomas Flohr continues to represent key-person risk since there could be significant disruption to operations in the event of an unexpected departure.
S&P also affirmed its B- issue rating and 6 recovery rating on Vista’s senior unsecured notes. A 6 means the expectation of negligible recovery in the event of default.
According to a Bloomberg report last week, Flohr told investors he is willing to sell at least part of his 86% stake in the company to raise liquidity.
He also said plans call for reducing debt.
Vista Global operators ranked third on our 2023 list of the biggest U.S. charter/fractional private jet operators.
(Editor’s note at 4:19 pm on April 19, 2024: An earlier version omitted that S&P also affirmed its issue and recovery rating on Vista’s senior unsecured notes.)
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