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Aircraft lease ABS market aloft with $442M Apollo deal

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Apollo Aviation Group is sponsoring its first aircraft lease securitization since last June in a $442.3 million transaction involving 24 widebody and narrowbody passenger planes slated for mostly emerging-market airlines.

The transaction, the fifth overall by Apollo since December 2014, will offer three classes of notes to investors through its AASET 2018-1 trust. The $351.7 million Class A notes tranche have a preliminary A rating from Kroll Bond Rating Agency and Fitch Ratings. Kroll and Fitch also rated the $58.6 million in Class B notes (BBB) and the $32 million in Class C notes (BB).

The notes proceeds will be used to acquire the 24 aircraft on lease to 16 airlines in 14 countries, according to Kroll. Nineteen of the planes are narrowbody craft that represent 66.2% of the appraised value of the pool of approximately $532.9 million.

The transaction is smaller than Apollo’s June 2017 transaction, which involved 32 aircraft worth $737.6 million, on lease to 23 airlines in 20 countries.

The lease concentrations are highest with three airlines: Beijing Capital Airlines (11.3% of the pool), Malaysia’s flyGlobal Charter (11.2%) and low-cost Spanish airline Vueling (8.1%).

Most of the planes (57.8% of the pool) are being assigned to airlines in emerging-market countries in Asia, Eastern Europe and Latin/Central America. Emerging markets present risk factors to lessors due to disparate leasing and tax regulations, as well as local bankruptcy regulations that can complicate aircraft asset recovery.

Some of the aircraft (14.2% of the pool) are expected to be purchased by two of the leasing airlines after the closing date – an arrangement that could alter the composition or size of the portfolio if the lease-purchase arrangements fall through. Apollo is allowed to substitute up to five of the aircraft that end up not being delivered to lessees.

But Apollo, with $5 billion of aircraft assets under management, is an experienced global leasing firm to many emerging-market airlines that need the older-vintage, midlife/end-of-life aircraft that it acquires in the secondary market. The planes in AASET 2018-1 have a weighted average age of 14.1 years, slightly higher than Apollo’s previous deal in June 2017. Apollo has agreed to establish $31.5 million in reserve liquidity and maintenance accounts.

The aircraft in the pool have an average of 4.1 years remaining on lease teams.

As in the two most recent Apollo deals, the Class A/B notes amortize on an 11-year straight-line schedule for two years before resorting to a 12-year straight-line schedule – an accelerated schedule compared to the 12.5/13-year schedules with lessors of aging aircraft such as Harbor Aircraft Investments and Castlelake Aviation.

The A/B notes have a 50% cash sweep starting in year five and 75% in year six to pay toward principal. The deal also includes cash-trap and rapid-amortization triggers, including for lower-than-expected debt service coverage ratios, or if the utilization rate of the planes in the pool falls below 75%.

Goldman Sachs was the sole structuring agent and lead bookrunner on the deal.

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Aircraft lease securitization Esoteric ABS Kroll Bond Rating Agency Apollo Aviation