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BBAM aloft with $485M aircraft lease securitization

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BBAM Aviation Services is returning to the aircraft lease securitization market with a $485 million bond offering backed by a new fleet of narrowbody passenger jet aircraft.

The Horizon Aircraft Finance II transaction will use the proceeds from the notes sale to acquire 20 younger mid-life aircraft including 13 Boeings B737-800 models and seven Airbus-manufactured planes: six A320-200s and an A310-100

The notes backed by the planes include a $375 million Class A tranche of bonds with a preliminary A rating from Fitch Ratings and Kroll Bond Rating Agency. Also being sold will be $69 million in BBB-rated Class B notes and $41 million in a BB-rated Class C tranche.

All the notes have an expected final maturity of July 2026, but the Class A and B notes will amortize on a longer 13-year straight-line schedule compared to the seven-year schedule for the Class C notes, according to presale reports.

This is the third securitization for BBAM, which is held by three minority ownership groups: a 35% stake owned by its management team including CEO Steve Zissis (a 33-year veteran in the aircraft leasing industry), 35% by Toronto-based private equity sponsor Onex Partners and 30% by Singapore’s sovereign wealth fund (GIC).

The aircraft in the transaction are primarily in their midlife usage stage, with a weighted average age of 8.5 years. All will be managed and serviced by BBAM, but the aircraft will be owned by Horizon Cayman. BBAM is one of the largest global leasing firms for commercial aviation aircraft in the industry.

The collateral planes are tied to leases with remaining lease terms of 4.6 years left – a credit negative in Fitch’s viewpoint considering the maturing leases “will have less certainty as to cash flows, and the aircraft will be subject to remarketing costs and downtime,” the agency’s presale report stated. Approximately 28.8% of the portfolio’s $570.5 million maintenance-adjusted asset value are tied to leases maturing in 2020.

Also considered a risk is the high proportion of unrated and speculative-grade airlines among the 16 carriers that are leasing the planes in the pool. Nearly 47% of the airlines have assumed CCC issuer default ratings by Fitch. More than 58% of the lease values in the portfolio are to airlines in emerging aviation markets such as Malaysia, Indonesia and

BBAM, although one of the largest aircraft lessors in the industry, had not issued a securitization for three years prior to its November 2018 sponsorship of the $612 billion Horizon Aircraft Finance 1 transaction, which was also single-A rated by Fitch and Kroll Bond Rating Agency.

The company also services the $1.2 billion ECAF 1 Ltd. aircraft lease receivables transaction from 2015.

Mizuho, Citigroup and Credit Suisse are serving as joint lead structuring agents and bookrunners.

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Aircraft lease securitization