In a first for the aircraft ABS sector and for GE Commercial Aviation Services, Blade Engine Securitization recently completed a $362 million debt and equity transaction that combines elements of a securitization and a private placement transaction. Dealmakers say it promises to draw imitators from within the sector and the ABS business overall.

Blade Engine Securitization, which closed on Sept. 15, is secured by leasing revenues on a pool of 50 commercial aircraft engines acquired from Stamford, Conn.-based GE Commercial Aviation Services. The sole arranger and placement agent, UBS Securities, is promoting the transaction as the first debt and equity sale in the aircraft ABS sector.

On the debt side, the senior piece of the deal priced at 100 basis points over Libor, while its subordinate notes came in at 300 basis points over the same benchmark. UBS declined to detail pricing on the private placement portion of the deal.

UBS arranged the sale of assets into a special purpose vehicle by issuing $330 million of debt and $32 million of equity, said Mostafiz ShahMohammed, executive director and head of transportation asset-backed finance for UBS. Market players expect the engines to generate lease cash flow over a period of 30 to 35 years.

"We think this will set the trend for a lot more of this type of deal in this sector," ShahMohammed said, "and for businesses [that deal in] operating assets."

The issuer will lease the engines, valued at $362 million, to three subsidiaries organized in Ireland, Sweden and Labuan, an offshore financial center near Malaysia. Under a servicing agreement, GE Commercial Aviation Services will act as the re-leasing and remarketing agent for the engines and the related leases, according to Moody's Investors Service. Moody's, Standard & Poor's and Fitch Ratings all assigned ratings to various parts of the transaction, which ranged from BBB+ to A.

By tapping the private placement and securitization markets for funding, and earning leasing and marketing fees on the assets, GE Commercial Aviation Services is essentially using the deal as an asset management tool, said ShahMohammed. He added: "This is the perfect alternative to a public market execution."

It is a common strategy employed in other markets, such as real estate. Market players that saw the deal point out that although GE could very well have spun off the assets in a separate fund, it chose to privately sell the equity on a long-term basis. The structure can be replicated many times over, and the deal structure can thrive in the ups and downs of the capital market's credit cycle.

In all aircraft ABS done prior to the Blade Securitization deal, the equity piece was treated as back-ended residual. Blade is different because the equity gets an ongoing distribution from the deal, ShahMohammed said.

GE Commercial Aviation Services has the largest fleet of leasable airplanes in the world, controlling more than 1,300 aircraft. It has more than 200 airline customers in about 60 countries, according to Hoover's.

Previously, only one transaction came to market this year from the aircraft ABS sector, the $560 million ACS 2006-1.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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