Research: Rating Action: Moody’s Assigns Hanjin International Secured Term Loan Ba2

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

HIC’s rating outlook remains stable.

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

RATINGS RATIONALE

“The Ba2 rating on the Term Loan is higher than HIC’s Corporate Family (CFR) B1 rating, reflecting that the Term Loan will have a first lien on the ownership of the company in Los Angeles and has a higher priority than HIC’s existing relationships for KAL’s business loans,” says Sean Hwang, assistant vice president and analyst at Moody’s.

HIC’s B1 CFR is determined by Moody’s assessment of a high likelihood of support from its parent company, KAL, which results in a three-notch increase in HIC’s CFR from its standalone credit quality. This assessment takes into account KAL’s 100% ownership in HIC and its explicit financial support through its guarantee of all of HIC’s external debt and the granting of subordinated intercompany loans.

HIC’s credit quality remains weak, despite the improvement in its hotel operations, reflecting its high leverage and still weak cash flow. The small scale of HIC’s single-location operations also tempers its stand-alone 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 city ​​of Los Angeles.

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

Over the past two years, KAL has significantly reduced debt and increased liquidity through large equity issuances, asset sales and strong cash flow. The improvement in its capital structure is expected to continue over the next 12 to 18 months due to KAL’s manageable capital expenditures and adequate profitability amid robust cargo and recovering passenger operations. Moody’s expects KAL’s adjusted debt/EBITDA to remain around 4x-5x over this period, providing reasonable capacity to absorb the volatility inherent in the industry 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 intercompany loans in the liability structure of the HIC. ‘company. Following the completion of the refinancing, HIC’s debt will primarily consist of the $400 million senior secured term loan and KAL’s intercompany 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 arising from potential shifts in travel professional and workplace flexibility, and (3) governance considerations associated with its history of high indebtedness, as well as concentrated ownership, although explicit parent company support mitigates these risks.

FACTORS THAT MAY LEAD TO AN IMPROVEMENT OR DEGRADATION OF THE RATING

The stable outlook primarily 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 its support for HIC, thereby mitigating its weak liquidity and cash flow.

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

Downward pressure on HIC’s CFR could arise if the likelihood of parental support weakens due to (1) adverse changes in HIC’s relationship with KAL or (2) a significant deterioration in credit quality by KAL.

The main methodology used in this rating is that of business and consumer services published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356424. Otherwise, please see the Scoring 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 United States.

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

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Rating symbols and definitions from Moody’s are available at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The rating has been communicated to the rated entity or its designated agent(s) and issued without modification as a result of such communication.

This rating is requested. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

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The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

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

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

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

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

The first name below is the primary rating analyst for this credit rating and the last name below is the person primarily responsible for approving this credit rating.

Sean Hwang
Assistant Vice President – Analyst
Corporate Finance Group
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queens Road
Hongkong,
China (Hong Kong SAR)
JOURNALISTS: 852 3758 1350
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Chris Park
Associate General Manager
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Customer Service: 852 3551 3077

Release Office:
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
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Hongkong,
China (Hong Kong SAR)
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Customer Service: 852 3551 3077

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