A $1.48 billion aircraft lease securitization launched last month by Global Jet Aircraft does not merit investment grade credit ratings, Fitch Ratings said in a statement published late Tuesday.
It was a rare example of a rating agency calling out a competitor.
Kroll Bond Rating Agency issued a report on Sept. 27 saying it expects to assign an A rating to three senior tranches of notes to be issued by the transaction, Business Jets Securities 2017-1; it expects to assign a BBB to the three subordinate tranches of notes. The deal has yet to close.
Fitch, which is not rating the deal, said that the transaction “fell short” of standards the agency normally requires for either an A or BBB rating on corporate aircraft lease securitizations.
The transaction is backed by leases on 181 business jets that Global Jet Capital acquired two years ago from GE Capital Corp.
Fitch says the deal “exposes investors to multiple risks including performance volatility of the underlying asset, transaction structural risks and lack of sufficient credit enhancement, and a servicer with a limited track record.”
The rating agency also noted that the six classes of notes to be issued do not begin repaying principal until two years from the transaction's close.
Exacerbating the deal structure concerns, Fitch wrote, was the “heavy reliance” on the two-year-old GFJ as the servicer. Kroll's presale report lauded GJC for bringing along an experienced aviation lease management team that oversaw the $2 billion portfolio of aircraft at GE Capital after it completed its acquisition.
But Fitch said GJC itself “has limited operating history, particularly in the releasing of aircraft in regions outside the U.S.”
Moreover, the deal allows GJC to add additional collateral, which could expose investors to “lower credit quality obligors” and “weaker jurisdictions” in volatile and undeveloped markets in the Asia-Pacific and African regions. “GJC has very limited historical operating history adding to the complexity of servicing aircraft in these regions,” Fitch's report stated.
The deal also does not account for potential macroeconomic volatility that could impact aircraft asset values and recovery rates, according to Fitch.
According to KBRA, the 181 aircraft in the pool are leased by 154 unique obligors and have an appraised value of $1.7 billion and remaining terms averaging 61.2 months. KBRA noted the obligors are either high net-worth individuals or corporate entities with investment-grade credit quality. The deal’s largest industry group concentration is just 12.9%.
In its presale report, KBRA acknowledged that there has been volatility in business-jet values in recent years, and that the less-frequent use of corporate jets vs. commercial jets makes it a niche leasing area requiring unique remarketing and reconfiguration strategies to find new obligors among a limited number of users.
Global Jet Capital is a private aircraft leasing and financing company catering to ultra-high-net-worth individuals, corporations and governments. It is backed by Blackstone’s GSO Capital Partners, Franklin Square Capital Partners, The Carlyle Group and AE Industrial Partners.
The company has $2.5 billion in assets under management and has the capacity to lend $1 billion, according to a company brochure.