Global Jet is making another attempt at financing a portfolio of business jet leases in the securitization market, according to Kroll Bond Rating Agency.
The company’s first trip was grounded last year after the transaction attracted additional scrutiny from investors following an unfavorable review from Fitch Ratings.
The new transaction, the $608 million Business Jet Securities, Series 2018-1, is less than half the size of the $1.48 billion deal pulled in September. It is backed by just 67 business jets, including Gulfstream, Bombardier, Dassault (Falcon); Embraer, Cessna (Textron), HondaJet and Pilatus, compared with 181 jets for the September deal.
It also appears to be less risky, by several measures.
There is some inherent risk in all business jets because their values have been volatile in recent years and because many companies that once leased corporate jets are using commercial jets instead; on this point, both Kroll and Fitch seem to agree.
One factor reducing the risk of the new transaction is that it amortizes faster. The senior Class A notes and Class B notes repay principal on an 11.5 year, straight-line schedule and the Class C notes (rated BB) amortize on a five-year, straight-line schedule. By comparison, in the previous deal, none of the notes would have repaid principal for the first two years, unless the value of the jets fell below a specified level or certain other triggers were met.
All of the notes are expected to be repaid in February 2023.
And, unlike the deal that was pulled, the new one does not permit re-leasing of aircraft, which could introduce risk if a new lessee is weaker. If an operating lease expires, the transaction will have to dispose of the asset. Operating leases make up 63.3% of the pool, by value.
KBRA expects to assign an A rating to the senior tranche of notes, which have an initial loan-to-value ratio (LTV) of 67%. The Class B notes, with an LTV of 77%, will be rated BBB; the Class C notes, with an LTV of 82%, will be rated BB.
Those are the same ratings that Kroll planned to assign to comparable tranches of the September deal. A couple of weeks after it was launched, Fitch, which was not asked to rate the transaction, published an unsolicited report saying that the senior notes did not merit an investment grade rating. It cited the performance volatility of the underlying asset, transaction structural risks and lack of sufficient credit enhancement, as well as Global Jet’s limited track record as a servicer.
Global Jet was founded in 2014 by several veterans of GE Capital Corp. and backed by heavyweights such as the Carlyle Group and the Blackstone Group. It has approximately $2.5 billion in assets under management, according to information posted on its website.
In its presale report for the new deal, Kroll acknowledges that the company’s operating history is limited, but cites the experience of management as a strength. It points to the executives' background with GE's aviation services unit, with significant experience managing, servicing and originating leases and loans of business jets.
Based on its review of performance data provided by Global Jet and GECC, these executives incurred “minimal” losses during their operating history, the presale report states.
1st Source Bank is the named Backup Servicer for the transaction.