Research: Rating Action: Moody’s assigns Ba2 to Hanjin International’s secured term loan

Hong Kong, September 19, 2022 — Moody’s Investors Service has assigned a Ba2 backed senior secured rating to Hanjin International Corporation’s (HIC, B1 stable) proposed term loan due 2025. The loan will be guaranteed by its parent, Korean Air Lines Co., Ltd. (KAL).

HIC’s rating outlook remains stable.

HIC will use the majority of the proceeds of the transaction to refinance its existing Ba2-rated senior secured term loan due December 2022.

RATINGS RATIONALE

“The Ba2 rating on the term loan is higher than HIC’s B1 corporate family rating (CFR), reflecting the fact that the term loan will benefit from a first lien on the company’s property in Los Angeles and ranks higher in priority than HIC’s existing inter-company loans from KAL,” says Sean Hwang, a Moody’s Assistant Vice President and Analyst.

HIC’s B1 CFR is driven by Moody’s assessment of a strong likelihood of support from its parent, KAL, which results in a three-notch uplift to HIC’s CFR from its standalone credit quality. This assessment takes into account KAL’s 100% ownership of HIC and explicit financial support through its guarantee of all of HIC’s external debt and provision of subordinated inter-company loans.

HIC’s standalone credit quality remains weak, despite its improving hotel operations, reflecting its high debt leverage and still-weak cash flow. The small scale of HIC’s single-location operations also tempers its standalone credit quality, although this risk is mitigated by the prime location and competitive profile of its mixed-use building, the Wilshire Grand Center (WGC) in downtown Los Angeles.

The guarantor KAL’s credit quality is supported by its leading position in Korea’s (Aa2 stable) airline sector, its significantly strengthened capital structure and liquidity, and a likelihood of government and institutional support in Korea because of KAL’s strategic importance to the Korean economy.

Over the past two years, KAL has significantly reduced debt and increased liquidity through large equity offerings, asset sales and strong cash flow. The improvement in its capital structure should continue over the next 12-18 months because of KAL’s manageable capital spending and adequate profitability amid robust cargo and recovering passenger operations. Moody’s forecasts KAL’s adjusted debt/EBITDA will stay at around 4x-5x during this period, providing reasonable capacity to absorb the inherent industry volatility and KAL’s planned acquisition of Asiana Airlines Co., Ltd.

Similar to the existing term loan, the proposed term loan is secured by a first lien on the majority of HIC’s assets including the WGC, giving it priority over KAL’s inter-company loans in the company’s liability structure. Following the completion of the refinancing, HIC’s debt will mainly comprise the senior secured term loan of $400 million and KAL’s inter-company loans and revolving credit facility totaling $606 million.

In terms of environmental, social and governance (ESG) considerations, HIC is exposed to (1) physical climate risks due to its geographically concentrated operations, (2) long-term societal risk stemming from the potential shift in business travel and workplace flexibility, and (3) governance considerations associated with its track record of high leverage, as well as concentrated ownership, although the parent’s explicit support mitigates these risks.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The stable outlook mainly reflects Moody’s expectation that (1) KAL’s credit profile will remain largely stable over the next 12-18 months and (2) the airline will continue to extend support to HIC, thereby mitigating the latter’s weak liquidity and cash flow.

Upward pressure on HIC’s CFR could arise over time if KAL’s credit quality improves through the maintenance of moderate financial leverage and adequate liquidity; and a successful integration with Asiana, while continuing its strong support for HIC in the form of guarantees and intercompany funding.

Downward pressure on HIC’s CFR could emerge if the likelihood of parental support weakens because of (1) adverse changes in HIC’s relationship with KAL or (2) a significant weakening in KAL’s credit quality.

The principal methodology used in this rating was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Hanjin International Corp. (HIC) is a wholly-owned subsidiary of Korean Air Lines Co., Ltd. and owns the Wilshire Grand Center (WGC), a 73-story Class A mixed-use building located in Los Angeles in the US.

Korean Air Lines Co., Ltd. is a leading airline company in Korea. As of 30 June 2022, the company owned a fleet of 131 passenger aircraft and 23 cargo aircraft serving 120 destinations across 43 countries.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process. Please refer to https://ratings.moodys.com for the Regulatory Disclosures for each credit rating action, shown on the issuer/deal page, and for Moody’s Policy for Designating Non-Participating Rated Entities, shown on https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Sean Hwang
Asst Vice President – Analyst
Corporate Finance Group
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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