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Global Jet adds own originations to next business-jet finance ABS

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Global Jet Capital’s third securitization of business-jet loans and leases will focus on its own recent originations, rather than the contracts purchased from General Electric Capital Corp. that constituted the collateral from its debut deals last year.

The $517.1 million Business Jet Securities 2019-1 will pool a majority of the transaction’s collateral from leases and purchase-finance agreements that were newly originated by the five-year-old, private equity-sponsored operator, according to presale reports.

In its first two transactions, Global Jet was refinancing the business jet lease-and-loan contracts it purchased from GECC in 2015 and 2016, shortly after it launched business with seed capital from The Carlyle Group, AE Industrial Partners, and FS/KKR Advisor LLC (a partnership between FS Investments and KKR Credit).

The BJETS trust will market notes secured by the lease/loan receivables as well as secured interest in 33 corporate jets and two helicopters with an appraised value of $682.6 million, according to reports from Kroll Bond Rating Agency and S&P Global Ratings.

The notes include a $417.4 million Class A tranche, a $62.3 million Class B tranche and a $37.4 million Class C notes offering. S&P has assigned an A rating to the senior notes, a BBB to the Class B notes and a BB to the Class C tranche.

The Class A and B notes amortize on a 12.5-year straight-line schedule.

Kroll is only rating the Class A notes, which it assigned an A- rating. That is a notch below the S&P grade as well as the single-A ratings Kroll currently holds for the two outstanding BJETS securitizations from 2018. Those two deals had more individual assets, and were more widely dispersed among a greater number of borrowers and lessees. There is also no backup servicer arrangement behind GJC in the new deal, which has limited servicing experience dating to its founding in 2014.

Global Jet serves a niche aircraft lease market of high-end, business-jet aircraft to corporates as well as high-net worth individuals. Global Jet is pooling 31 corporate and four HNW contracts in the deal, and nearly 52% of the assett by value in BJETS 2019-1 are concentrated with borrowers and lessees in the U.S.

The loan and lease agreements are triple-net agreements, which shift maintenance, tax and insurance costs to the borrower or lessee.

The newer originations in BJETS 2019-1 support a younger fleet (average age of five years) of more recently manufactured jets from Bombardier, Gulfstream, Dassault, Embraer, and Cessna, compared to 7.7 years in BJETS 2018-2. (The helicopters were manufactured by Leonardo in 2013 and 2014.)

Global Jet has also provided longer remaining terms on contracts of 89 months versus 76 months in last year’s deal - terms that are buoyed by the expected 30-year useful life of a business jet or helicopter.

The average asset value of BJETS 2019-1 is also greater at $17.8 million, compared to $10.8 million-$10.9 million in the two prior transactions.

The reports show that 25 of the jets are large/super-midsize aircraft that are in higher demand in the corporate-jet lease and finance market. Just eight of the jets are light or midsize models that have been more difficult to market in the post-crisis era.

There are 20 different business jet models in the portfolio, but one of the models – Gulfstream’s flagship G650ER large jet – makes up 30% of the portfolio’s asset value. Four G650ER aircraft are included in the deal, including a $64 million 2018 model that constitutes the most expensive jet among the collateral.

The BJETS 2019-1 transaction structure is static, and does not permit the addition of new collateral to the deal (a criticism of GJC’s first transaction in an unsolicited opinion from Fitch Ratings last year).

The deal also only allows extended leases and loans up to 35% of the initial aggregate value of the deal, and does not permit Global Capital to re-lease any of the aircraft to new obligors. About 55% of the portfolio by asset value is tied to lease contracts.

When a lease expires and the jet is removed from the pool, the transaction can investors to lower jet values. Unlike large-commercial aircraft securitizations, the trust could sell an asset for less than the portion of the debt balance backing the deal’s notional value.

To protect noteholders in the event of below-value distributions, equity stakeholders would receive none of the proceeds of an asset sale until the principal balance of the aircraft is covered.

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Aircraft lease securitization Carlyle Group KKR
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