Provisional ratings ratings were assigned Friday to a pair of asset-backed securitizations of aircraft and work-vehicle leases.
Kroll Bond Agency and Moody's Investors Service each issued preliminary ratings for a new $600 million notes offering by Toronto-based Element Financial Group – an operator of global sales, service and delivery vehicle fleets.
Kroll, meanwhile, also weighed in on a $510 million portfolio of 32 airliner leases that Apollo Aviation Group will sell off to investors in its securitization.
The Element Financial leases are backing a five-class note structure being issued as Series 2016-1, a first term ABS issuance through the Chesapeake Funding II LLC trust. Element previously issued securitizations through Chesapeake Funding LLC prior to its 2014 acquisition of two rival fleet management operations: PHH Corp. and the former GE Capital Fleet Services unit. All of the leases in Series 2016-1 are assets originated under the fleet management platform (Gelco Corp.) of GE Capital.
Most of the collateral pool is contained in two ‘AAA’-rated Class A note classes totaling $555.2 million, split between fixed and floating rate tranches. The exact spit it to be determined the day of pricing, according to Kroll. Kroll assigned a preliminary ‘AA’ structured finance rating to $17 million in Class B notes, an ‘A’ to $13.9 million in Class C notes and ‘BBB’ for a Class D tranche totaling $13.9 million.
Moody's assigned 'Aa2' rating to the Class B notes, 'A2' to the Class C notes and 'Baa2' to the Class D notes.
The Class A notes are supported by a 12.51% credit enhancement level of the initial note balance to cover defaulted leases, defaulted loans and residual value losses. A reserve account of 1.29% will be funded at closing, and will amortize to a floor of 0.43% of the note balance.
The ABS comes shortly after Element has announced its split into two publicly traded companies: Element Fleet Management and Element Commercial Asset Management, which will serve as an equipment finance company to the fleet, rail, commercial/vendor and aviation sectors.
Element’s fleets consist of cars, light duty and medium duty trucks that are used in sales, service and delivery. It has a core business of work trucks (leases on more than 50,000 light-duty trucks are in the pool) in the consumer goods and services, pharmaceutical/medical sales and light-industrial sectors. It’s target customers are large, “high quality” corporate leases to commercial companies (60% are investment-grade rated) needing more than 100 vehicles in their fleets.
Element has built itself into the largest fleet management firm in North America through five acquisitions since 2012 (including PHH and GE Capital Fleet Services.
Apollo Aviation is marketing its initial ABS of 2016 and it second overall. The pool structure of Apollo Aviation Securitization Equity Trust 2016-1 is divided between three note tranches, topped by $395 million in Class A notes for which Kroll has issued an ‘A’ rating.
Kroll also assigned a preliminary ‘BBB’ rating to the Class B notes and a ‘BB’ to $35 million in Class C notes. The $510 million portfolio is backed by the $632.2 million value of the 32 aircraft in the pool (or $607.5 million on an aggregate maintenance current market value adjustment) that Apollo has leased to 20 airlines in 19 countries.
The Class A notes have an initial loan-to-value ratio of 62.5%, which compares favorably to comparable transactions like Castlelake Securitization Trust 2015-1 (60.2%) and its own prior Apollo Aviation Securitization Equity Trust 2014-1 (55%).
Goldman Sachs is the global coordinator, structuring agent and bookrunner on the transaction.
Apollo specialized in mid-life and end-of-life aircraft through acquiring commercial aircraft and engines in the secondary market while on-lease at the time of purchase. As of Dec. 31, 2015, Apollo had approximately $2.5 billion of aviation assets under management. The pool fleet averages approximately 14.8 years in age, with 70.4% of the collateral pool value represented by narrowbody commercial aircraft.
Due to the age of the planes, the notes carry a faster amortization profile that accelerates principal payments on the notes, including a 10-year amortization schedule on the Class A and B notes in the first two years of the issuance (followed by a straight-line 13-year amortization schedule thereafter). The top two classes of notes also have a 25% partial cash sweep provision that will begin in year five, moving to 50% in year seven and 100% for the remainder of the maturity.
The largest lessees in its pool are easyJet, US Airways and Iberia (combining for over 35%). The largest single exposure is the lease of two 737-800 planes (8% of the pool’s value) to the VRG airline in Brazil.
As of Dec. 31, Apollo had approximately $2.5 billion of assets under management and a fleet of more than 80 narrow and widebody aircraft. Apollo also have 55 jet engines leased to 13 counterparties. It also manages 58 aircraft and 146 engines subject to part out.
