Air Lease Makes 1st Trip of Year to Securitization Market
Air Lease Corp. is making its first trip of the year to the securitization market with $344.7 million of notes backed by leases on older aircraft.
Three series of fixed-rate notes will be issued in the transaction, called Thunderbolt Aircraft Lease: $253.4 million of Series A notes are provisionally rated A by Kroll Bond Rating Agency; $69.3 million of Series B notes are provisionally rated BBB and $22 million of Series C notes are provisionally rated BB-. All of the notes have a final maturity of 2032.
Bank of America Merrill Lynch and Mizuho Securities USA are the joint lead structuring agents and joint lead bookrunners.
Proceeds from the sale of the notes will be used to purchase a fleet of 19 aircraft on lease to 17 airlines located in 13 countries. The initial weighted average aircraft age of the portfolio is approximately 12.5 years with a remaining lease term of approximately 3.4 years.
The portfolio has an initial value of approximately $436.4 million, based on the average of the maintenance-adjusted base values provided by three appraisers, which already includes an adjustment for expected maintenance conditions as of Sept. 30, 2016. It has an aggregate maintenance-adjusted current market value of approximately $422.8 million.
It has become relatively easy for lessors to securitize leases on older planes, primarily because lower fuel prices make them relatively cost-effective to operate for longer. These transactions are still considered riskier than those backed by leases on newer aircraft, because their values are more volatile, they can be harder to re-lease, and more costly to maintain.
However, many of these risks are mitigated by the structure of this transaction, according to Kroll. For one thing, it is less highly leveraged than other mid-life aircraft transactions. The loan-to-value ratio for the Series A notes is just 58.1%; that compares with 65% for the senior tranche of a deal completed by Apollo Aviation in November 2016 and 64% for one completed by Castlelake in August 2016.
Thunderbolt also amortizes faster in later years relative to aircraft ABS transactions with portfolios comprised of newer vintage aircraft.
The transaction benefits from a $30 million reserve account for fleet maintenance, which Kroll says is high relative to other recent mid-life aircraft ABS transactions.
And the trust also has the ability to borrow the equivalent of 17 months of interest due on the Series A Notes and Series B Notes from Citibank.
One feature missing from the transaction that has become common in deals backed by older aircraft: it does not include a partial cash sweep mechanism, which helps to accelerate the amortization of the notes and mitigates the uncertainty of aircraft values associated with older aircraft.
Among other credit considerations, almost 90% of the portfolio is comprised of narrowbody aircraft, which typically have fewer expenses in reconfiguration costs compared to widebody aircraft. Two types of narrowbody aircraft, 737-800s and A320-200s,collectively represent over 50% of the portfolio by value.
Also, the initial portfolio of lessees is diverse, although this could change over time: The three largest lessees by value are United Airlines, SriLankan and Transavia, represent approximately 12.3%, 10.5% and 7.8% of the portfolio, respectively.