Castlelake LP is preparing its second securitization of leases on older aircraft, according to Kroll Bond Rating Agency.
Castlelake Aircraft Securitization Trust will issue three classes of notes with preliminary ratings from Kroll: $529 million of class A notes with a loan-to-value ratio of 60.2% are rated ‘A’; $105.7 million of class B notes with an LTV of 72.2% are rated ‘BBB’; and $78.5 million of class C notes with an LTV of 81.2% are rated ‘B+’. The class A and B notes mature in December 2022 and the class C notes mature in June 2020.
Proceeds from the sale of the notes will be used to purchase a fleet of 54 aircraft and six aircraft engines collectively representing 37.5% of Castlelake’s owned and managed fleet. This portfolio has an average age of approximately 15 years and is on lease to 23 lessees located in 18 countries. One of the initial assets is currently off-lease but is expected to be leased to Boliviana in December.
Goldman Sachs is the deal’s global coordinator and sole structuring agent.
Older aircraft are typically considered to be riskier because their values are more volatile and prospects for re-leasing relatively limited, according to Kroll. There is also the risk of technological obsolescence for out-of-production models and higher costs related to ongoing maintenance.
However, the majority of the initial portfolio consists of in-production aircraft that are more likely than out-of-production aircraft to be operated by airlines during an economic downturn. The transaction also features two narrowbody aircraft that are three years in age and younger.
Moreover, Kroll believes Castlelake has an experienced management team and the infrastructure in place to fulfill its strategy in the management of vintage aviation assets. In many instances, it may have several attractive exit options at the end of a lease, including the ability to sell aircraft without balance sheet impairments and the disassembly and sale of engines and airframes, which is largely outside of the core competency or strategic focus of the majority of fleet managers in the aviation leasing community.
Finally, nany of the risks associated with older vintage aircraft are mitigated by the transaction structure, including low initial leverage, a rapid amortization profile and cash sweeps applied for all three classes of notes.