RE:RE:RE:Upgrade by TD Not an upgrade. Here is the report;
Chorus Aviation Inc. (CHR-T) C$3.77 Resuming Coverage Following Debenture Offering
Event We are resuming coverage following the closing of Chorus' $85-million 5.75% senior unsecured debenture offering.
We have also adjusted our forecasts to reflect the releasing transaction for six ATR 72-600 aircraft announced on August 23.
Impact: NEUTRAL
We are maintaining our BUY recommendation and $6.00 target price.
The unchanged target price is due to immaterial changes to our forecasts. The proceeds from the $85-million debenture issue are expected to be used to repay a portion of the 6.00% December 2024 convertible debenture in early 2022. The interest rate differential biases interest expense slightly lower up until December 2024. The warrants attached to the converts have an exercise price of $8.25, and we do not assume that they are dilutive securities in our forecasts. Leasing customer rent collection has improved since the depths of the pandemic, reaching 67% in Q2/21 from 62% in Q1/21. This was not surprising, given the improving domestic/short-haul air travel market. We believe that the trend could run into temporary resistance in Q3 as many regions have been experiencing renewed COVID-19 cases and continued border restrictions. While we continue to take a conservative approach to forecasting the leasing segment in light of the uncertainty, we are encouraged by the recent moderation in case counts in many key regions. We believe that recent amendments to certain lease agreements within the Regional Aircraft Leasing (RAL) business highlight the risk of a bias lower to lease rates. We have attempted to account for this risk in our RAL forecasts. With our earnings and cash flow forecasts reset slightly lower, our comfort with the company's financial leverage and constructive view of the recovery in regional aviation markets, we continue to believe that the valuation and investment opportunity represented by Chorus Aviation is attractive. TD Investment Conclusion We believe that the CPA with Air Canada provides the stability and long-term cash flow to allow Chorus to continue to meet its financial obligations during this downturn and eventually reinstate a dividend. Although the normalization of the regional aircraft leasing business will take time, we believe that its growth potential will resume following the pandemic.