A Dubai-based aircraft fleet owner is issuing its first rated securitization of loans to purchase a new series of older passenger jets that it will lease to 13 airlines globally.
Dubai Aerospace Enterprise, the largest aircraft leasing firm in the Middle East, is packaging loans in a $410 million bond issuance through its international Falcon Aerospace trust. The transaction involves 21 narrowbody aircraft with a adjusted market value of over $488 million.
Bond rating agency KBRA and Standard & Poor's have assigned a preliminary ‘A’ structured finance rating to the $315 million in Class A senior notes being backed by the loans – a rating commensurate with those applied to peer aircraft leasing rivals. The transaction also includes a Class B series of loans sized at $65 million (rated ‘BBB’) and $30 million in Class C loans (‘BB’).
The aircraft involved are mid-life to end-of-life Boeing 737-800 and Airbus A320-200 models, with a weighted average age of 9.2 years. The 21 new plans will add to DAE’s existing fleet of 111 owned and committed aircraft leased to 28 airlines in 22 countries.
The latest planes will be doled out to airlines in 12 countries, with airlines in Indonesia, Australia and the U.S. obtaining the bulk of the orders. The largest lessee order is with Garuda Indonesia, which is adding three planes.
KBRA notes that although the portfolio’s age is a few years younger than most mid-life aircraft ABS transactions, “risks associated with mid-life to end-of-life aircraft are present” within the deal. That includes higher volatility in values, limited re-leasing prospects, obsolescence for out-of-production models and higher near-term costs for ongoing maintenance.
To mitigate those risks, is offers cash sweep mechanisms, performance triggers, and a faster amortization profile. The debt service coverage ratio cash trap is triggered should the DSCR fall below 1.2x. All maintenance reserves for the life of the portfolio ($27 million) will be deposited for expenses for the first two years, after which the proceeds above the minimum maintenance reserve amounts will be used to pay down loans.
The straight-line amortization profiles for the underlying loans (initially 15 years for the Class A and B loans) is the longest of any comparable securitizations by other jet aircraft leasing companies like Merlin Aviation Holdings (13 year on Class/Series A loans), Apollo Aviation (11 and 13 years) and Castlelake Aircraft (12 years). The A and B loans also have a 10% cash sweep starting in the fifth year of the loans, increasing to 25%, 75% and 100% over the next three successive years. The B loans will have an additional 5% sweet starting in year five, increasing to 10% in year six and 15% in year seven. The C loans will have a 40% cash sweep in year four, plus a loan interest reserve account of $2.65 million to pay any Series C loan interest shortfalls.
The deal includes a liquidity facility through Crédit Agricole sized to 9 months of interest on the A and B loans.
Goldman Sachs is the global coordinator and left lead arranger as well as the structuring agent.