Moody's moves VistaJet, XO parent Vista Global's outlook to stable

Moody’s Ratings has affirmed Vista Global Holding Ltd.’s B3 long-term corporate family rating (CFR) and B3-PD probability of default rating (PDR).

By Doug Gollan, May 16, 2024

Moody’s Ratings has affirmed Vista Global Holding Ltd.’s B3 long-term Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR).

At the same time, Moody’s affirmed the B3 ratings of the backed senior unsecured notes issued by VistaJet Malta Finance P.L.C. and co-issued Vista Management Holding Inc.

The outlook on both entities was changed to stable from positive.

In April, S&P Global revised its outlook to Vista Global as negative while affirming its B+ rating.

Vista Global is the parent of flight providers VistaJet and XO.

“The stabilization of the outlook follows the weaker than expected performance in 2023 driven by lower aircraft availability from the maintenance program and our expectations that Vista Global’s credit metrics will not improve to levels commensurate with a higher rating in the next 12-to-18 months”, says Dirk Goedde, Moody’s Vice President-Senior Analyst and lead analyst of Vista Global.

Goedde continued, “While we recognize the increasing membership base, which provides some revenue visibility, the company’s profitability remained at around 11% of Moody’s adjusted EBITA margin, indicating ongoing cost pressure, and ultimately resulted in negative free cash flow generation in 2023.”

Vista revenue growth

According to Moody’s, Vista Global’s revenues grew by 8.5% to around $2.6 billion.

The increase was “partially driven by full-year contribution effects of the acquisitions executed during Q2/2022.”

Moody’s noted, “Despite a 22% increase in new program members and stable on-fleet, on-demand revenues, the marketplace revenues contracted meaningfully. Considering the normalization of private aviation activity, especially in the U.S., its single largest market, we expect organic revenue growth around mid-single digits in percentage terms in 2024 and 2025.”

The bond rating agency continued, “Vista Global maintained its profitability above 11% of Moody’s adjusted EBITA during 2023, and we expect some improvements towards 15% on the back of higher fleet utilization and optimized cost structure. The company’s free cash flow generation is subdued by its high capital expenditures (including leases) and interest expenses, and we forecast a return to positive free cash flow (Moody’s adjusted) in 2024.”

According to Moody’s, Vista Global’s debt maturities, including deferred considerations in 2024 and 2025, are around $400 million.

It said, “Any inability to refinance the majority of such maturities will put pressure on the rating as a major decline in operating activity would do as well.”

Vista’s Upside, Downside

Moody’s also wrote, “More general, the B3 CFR reflects the company’s strong position in the market for corporate jet travel; significant contracted revenue from a diversified customer base; and high aircraft utilization rates, which enable a relatively cost-efficient business aviation solution for its customers.”

It added, “The major constraints to the Corporate Family Rating are Vista Global’s exposure to cyclical demand, a competitive and highly fragmented market, its high leverage, with Moody’ s-adjusted debt/EBITDA at 7.8x in 2023, the risk of further debt-funded growth, and the company’s liquidity occasionally hampered by quarterly debt repayments.”

The rationale for the stable outlook is the “expectation that Vista Global will be able to modestly grow revenue and EBITDA, leading to a constant deleveraging into the required range of the B3 rating category. It also incurs our expectation that the company’s liquidity will be maintained at adequate levels despite debt repayments and deferred considerations falling due in the next 12-to-18 months.”

What’s next for Vista Global?

“Upward pressure on the ratings could develop if Vista Global is able to deleverage its capital structure, such as Moody’s-adjusted debt/EBITDA improving to below 5.5x on a sustained basis, generate material positive free cash flow in excess of aircraft debt service leading to an improved liquidity profile, and improve its EBITA margin towards mid-teens in percentage terms on a sustained basis,” Moody’s said.

It added, “[A]n upgrade would require a clear commitment to and demonstration of adherence to a conservative financial policy.”

On the flip side would be if Vista Global is unable to maintain debt /EBITDA below 7.0x, maintain EBITA margins in double digits in percentage terms on a sustained basis, maintain Moody’s adjusted EBITA/Interest above 1.25x, generate sufficient free cash flow to meet the scheduled amortization of its aircraft financings leading to a deterioration in liquidity, or if it continues to finance its growth with additional debt leading to weaker credit metrics.

Vista Global liquidity

“Vista Global’s liquidity is adequately supported by cash on balance sheet and the recently upsized $230 million revolving credit facility maturing in 2027. In addition, cash on balance sheet is bolstered by the recently raised $200 million term loan, which will partially be used to refinance debt. Alternative sources of liquidity include the equity values of the VistaJet aircraft and raising new equity, both of which are dependent on market conditions if and when needed,” Moody’s said.

Vista Global Chairman and Founder Thomas Flohr recently told investors his 84% stake “can be accessed to bolster liquidity,” according to Bloomberg.

Moody’s said, “In our Loss Given Default for Speculative-Grade Companies methodology, we rate the VistaJet Malta Finance P.L.C.’s backed senior unsecured bond totaling $2.0 billion with maturities between 2027 and 2030 in line with the long-term corporate family rating at B3.”

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