IAG (IAGLN; Baa3 Stable, BBB- S) Moodys double notch upgrade into IG

{BO656914 Corp} will be the mover, 27s already trade in-line to Lufthansa (Baa3/BBB-: S)

• After earnings we said " IAG likely next & last of the near-term upgrades in airlines....in upgrade territory for Ba1 ratings but we see it remaining crossover for now."
• Part of our expectation for no surprises was on Q1 results which showed a BS that was little changed. Net debt fell but that was on seasonal WC cash inflow (rating triggers are on gross). It last reviewed IAG after FY results in March placing the snr unsecured lines on review for upgrade (at Ba2). Gross leverage since has moved from 2.7x to 2.6x (Moody's adj.).
• We didn't see this as significant enough for a double notch upgrade into IG, particularly given FY guidance remained broad on FCF, dividend restart uncertainty remained (Moody's today has stayed assuming restart only in 2025) & EBITDA consensus was flat yoy.
• Moody's seems to echo some of this today (despite upgrade) seeing gross moving tad higher to 2.7-2.8x at the end of the year which is not far from its downgrade trigger of at "around 3x".
• As expected, negative rating risk here is now limited (similar to recently upgraded Lufty), Moody's adding "IAG's credit ratios will be able to withstand a degree of downside from operational disruptions or geopolitical risk.". Rating upgrades are on sustained levels below 2x (vs. 2.6x in Q1).

We didn't expect IAG supply this year on gross deleveraging & the front maturity being in '25. Moody's has added "€500 million bond maturity in 2025 could help leverage reduce to around 2.5".