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Carlyle Aviation ramps up exposure to 'CCC'-level carriers

Commercial airline lessors tend to be higher-risk obligors, as they are often airlines located in emerging markets and/or saddled with high leverage.

But Carlyle Aviation Management is taking exposure to those weaker-credit airlines to new heights in its first securitization of aircraft leases in 2020.

According to Fitch Ratings, Carlyle’s new $408.9 million pool of 28 mid-to-end life commercial passenger jets securing the leases will be significantly exposed to airlines with weak credit profiles.

The ratings agency considers 11 of the 18 airlines represented in the AASET 2020-1 Trust collateral pool to have weaker credit profiles that are equivalent to high-risk CCC or even D (default)-type corporate and debt ratings, based on either current leverage levels, limited size or short operating histories.

That means more than 60% of the transaction’s collateral asset value of $489.7 million is tied to those airlines, a figure “notably higher than AASET 2019-2 and AASET 2019-1, which totaled 14.5% and 47.5%, respectively,” according to Fitch’s presale report, referencing Carlyle’s two prior securitizations last year.

The large mix of risky credits is mitigated by Carlyle's limiting individual exposure to any one airline, with the largest concentration limited to 10.6% to the largest lessor (by asset value), India’s low-cost carrier SpiceJet Ltd. The top three airline lessee concentration of 30.2% (SpiceJet, American Airlines and Thailand’s Nok Air) is lower than the top three for AASET 2019-2 (43.8%) and AASET 2019-1 (32.8%), Fitch noted.

(SpiceJet’s effective concentration, though, is nearly 20%, since it is subleasing the two passenger jets in the pool on lease to Nok Air.)

The 25 narrowbody jets in the collateral pool (representing 85% of the pool’s value) and three widebody aircraft will secure three classes of notes being offered in the transaction, including a senior Class A notes tranche totaling $325.7 million with preliminary A ratings from Fitch and Kroll Bond Rating Agency.

A $56.3 million Class B tranche is rated BBB and a $26.9 million Class C tranche is rated BB by both agencies, as well.

The Class A and B notes will amortize on an 11-year schedule in the first three years, before slowing to a 12-year straight-line pace afterward. The Class C notes amortization will follow a five-year schedule for the first year before converting to a seven-year, straight-line schedule.

The notes are backed by both the lease contract revenue and the proceeds from any sale or disposition of any aircraft in the pool. (Because the pool is primarily older aircraft, Carlyle includes a partial cash-sweep feature that delivers payment flows to investors if the plans are sold or parted out prior to the notes’ maturities.)

The planes have a weighted average age of 15.2 years, and include 10 Boeing 737-800s and six Airbus A320-200s.

The proceeds from the notes will finance the 28 aircraft, seven of which are still to be delivered to their respective airline lessors.

The transaction, structured by Goldman Sachs, is the ninth deal to be serviced by Carlyle Aviation Management since 2014. Carlyle Aviation was formerly Apollo Aviation Group, before its sale to the Carlyle Group in 2018.

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