Apollo Aviation has launched its third overall leased aircraft securitization, and second for 2016, in a new $640 million transaction.
The Apollo Aviation Securitization Equity Trust 2016-2 will be borrowing from three classes of fixed-rate loans to acquire a full series of A, B, and C notes supported by the receivables of 35 aircraft leases to 22 airlines in 20 countries. The initial portfolio has a value of $792.2 million – which is almost a quarter of the investment management firm’s $3.1 billion in total aviation assets under management.
The Class A series loans are sized at $515 million, and assigned a provisional ‘A’ structured finance rating from Kroll Bond Rating Agency and Standard & Poor's. The Class B loans total $85 million, rated ‘BBB’ and the Class C Series loans are at $40 million, and rated ‘BB’, by each agency.
The asset portfolio consists of older mid-life to end-of-life aircraft with an average weighted age of 12.2 years (only four of the jets are considered end-of-life, or beyond 18 years of operation). About 25% of the leases are to three airline lessees: American Airlines (five aircraft), Virgin America (three aircraft) and SpiceJet (two aircraft). More than 36% of the portfolio are lease agreements to airlines in the U.S., Indonesia and India.
The oldest plane in the portfolio’s fleet is a Boeing 737-900ER. built in 1997; the most recently constructed aircraft was an Airbus 320-200 completed in April 2009. The priciest jet was an eight-year-old Airbus 330-200, valued at $51.94 million and leased to Shaheen Air International in Pakistan. The 330-200 in the only widebody in the pool, and Shaheen’s was among four models leased.
Because of the age of the planes, the loans accelerate amortization levels in later stages of the 25-year securitization maturity. The A and B loans will amortize on an 11-year straight-line schedule the first year; the A loan, however, will slow to a 13-year schedule from years two through seven before adjusting to a seven-year amortization for the remainder of the life of the loan.
The Class B loans shift to a 13-year schedule for years two through nine, followed by a 10-year straight-line schedule until maturity. There is a rapid amortization trigger for the A&B notes that will apply excess cash to principal after seven years, or under two other scenarios: if the debt-service coverage ratio fall below 1.15 times or the utilization rate of the portfolio’s planes is less than 75%.
The Class C loans are amortizing on a five-year schedule for the first year, and a seven-year schedule thereafter, according to Kroll.
The A&B loans have a 10% cash sweep starting in year five; and each increases to 50% in year six, 75% in year seven and 100% afterward. The B loans have an additional 5% sweet in year five, which increases to 10% in year six and 15% in year seven.
The Class C loans’ 50% cash sweep begins in year four before boosting to 100% in year six onward.
Apollo, founded in 2002, is adding $25 million in reserve accounts that include senior maintenance and engine reserve accounts. A liquidity facility through Credit Agricole will fund an amount equal to nine months of interest on the Series A and B notes, and will be available for expenses, and senior hedge payments.
Goldman Sachs is the arranger and structuring agent.
Apollo’s previous securitization this year (also arranged by Goldman) was for $510 million in asset-backed loans, with an adjusted base value of $632.2 million for 32 planes with a weighted age of 14.8 years.
That transaction also was capped at ‘A’, which is common for leasing securitizations of older aircraft such as by Castlelake Aircraft and Harbour Aircraft. Kroll explained in its presale report published Friday that aircraft securitization notes of 25-year terms will have to navigate on average an aviation industry downturn every 7-10 years, which is reflected in cash flow stress scenarios that Kroll bakes into its ratings methodology.