Carlyle Aviation Management is sponsoring a $522.4 million asset-backed securities (ABS) deal, due out later this month, which is building several structural precautions into the deal to mitigate potential effects from the COVID-19 pandemic.
For one, the issuer, AASET 2022-1, must own at least eight aircraft at the end of the delivery period, otherwise the transaction will begin to use any excess cash to pay down the notes after the schedule principal is applied, according to Kroll Bond Rating Agency.
There is also a collections test. If a payment date comes around and collections fall short of 85% of the amount due, then the transaction will begin to use any excess cash to pay down the notes, the rating agency said.
Further, AASET 2022-1 has a higher disposition paydown amount. Should an aircraft be sold in the course of the deal, 110% of the series amount which is available to be allocated for a pay down will be used to pay down the notes, KBRA said. Typically, in aircraft ABS deals that percentage is 105%.
AASET 2022-1 will issue notes from one tranche, the series A. The notes will be fixed, although that interest rate has yet to be determined.
The rating agency expects to assign a ‘A’ rating to the single tranche of notes, the series A. The interest rate is yet to be determined, but it will be fixed. The aircraft leases underlying the notes have an initial loan-to-value of 67.0%.
Goldman Sachs is the sole structuring agent, global coordinator, and joint lead bookrunner. Carlyle Aviation will service the notes.
Further, KBRA view some structural features as a credit positive, particularly in the wake of the COVID-19 pandemic. The transaction features a three-month debt-service-coverage ratio test. Transactions previous to the coronavirus pandemic looked back six months.
The transaction also has a security deposit account, which can be used to cover senior expenses, and interest and principal on the series A notes.
Twelve leases on 25 aircraft will secure the transaction. All but one of the 25 leased aircraft are narrowbody planes, which KBRA regards as a credit positive.
All of the narrowbody aircraft are leased to domestic carriers, which have weathered the drop off in air travel better than wide-body aircraft that typically fly internationally.
The one widebody aircraft in the pool is leased to Air Canada, which is current on its lease, KBRA said.
On a weighted average (WA) basis, the aircraft leases have a remaining term of about 4.3 years. Initially, the portfolio of leases had a value of about $779.8 million based on the average of the half-life base values from various appraisers.
