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DVB makes second trip to U.S. aircraft lease ABS market

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DVB Bank, a transport finance specialty bank based in Germany, is back in the aviation lease securitization market with a $722.5 million transaction backed by a fleet of narrowbody and widebody commercial passenger aircraft.

The bank’s London branch is prepping a portfolio of 36 aircraft that will be managed through a Cayman Islands-based issuing entity, KDAC Aviation Finance.

Proceeds from the bonds will be used to acquire a fleet on lease to 30 airlines in 24 countries. The planes, representing 19% of DVB’s entire fleet, are mostly older aircraft averaging 11.8 years, and have average remaining lease terms of four years. The aggregate appraised value of aircraft is $868 million.

The trust is issuing three series of notes that will pay on staggered amortization schedules. The $565 million Series A ($565 million) and Series B ($95.5 million) notes will amortize on a 12-year, straight-line schedule, according to Kroll Bond Rating Agency. The Series C notes totaling $62 million will be paid on a seven-year schedule.

KBRA and S&P Global Ratings have each assigned a preliminary A rating to the Series A notes, which is similar to other aircraft lessors (such as Castlelake Aviation and Apollo Aviation Global Management) that have tapped the ABS field with multiple deals.

The transaction is the first in nearly three years for DVB, which placed a $667 million asset-backed portfolio in January 2015.

While 28 of the aircraft are narrowbody, the eight widebody aircraft represent 42.3% of the portfolio’s collateral value. That heightens risks due to the higher expenses for fuel, maintenance, reconfiguration and transition costs associated with the six Airbus A330s and two Boeing 777-200ERs. The widebody aircraft have an average age of 12.8 years.

More than 44% of the portfolio by value are aircraft leased to airlines in developed European markets, with the Netherlands (13.3%) and Norway (7.4%) representing two of the three largest concentrations.

The KDAC transaction allows DVB has a seven-year reinvestment period in which net cash flow from bond proceeds and aircraft sales can be used to acquire additional aircraft for the pool. However, a 50% cash-sweep mechanism kicks in on the Class A and B notes in year six of the deal.

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Aircraft lease securitization Esoteric ABS