Guggenheim Securities is marketing $350 million of aircraft lease backed securities, according to a presale report published by Standard and Poor's.
The deal, TACSEE Funding Co., consists of four tranches of fixed-rate deferrable notes. The $175 million class A is rated 'BB+' by S&P, the $100 million B class is rated 'BB-', and the $75 million C class is rated 'B'; the $25 million D is unrated; it is being held by an Irish charitable trust.
The notes are backed by a $370 million trust certificate, which represntes the benefical interest in the class E notes of another securitization: a $451.332 million deal issued by Aircraft Lease Securitisation Ltd. (ALS) in 2007. The ALS transaction, in turn, is backed by the lease revenue and sales proceeds from a portfolio of commercial aircraft serviced by AerCap.
Guggenheim Securities purchased the class E notes of ALS in 2012 and it is underwriting the resecuritization, which is expected to close July 15, 2013.
S&P noted in the report that many of the lessees in ALS' portfolio have low credit quality, as is typical for aircraft lease securitizations, and that the aircrafts in ALS' portfolio are relatively old, with a weighted average age of 11 years.
As of June 20, 2013, the ALS portfolio consisted of 48 aircraft. About 71% of them from the A320 aircraft family, 18% are B737-NG, and the remainder consists of B737 Classics, B757-200, B767-300ER, and A300C4-600RF aircraft. ALS' class G notes follow a turbo payment schedule and therefore ALS' class E notes have not received any interest or principal payments.
Aircraft leasing and, consequently, securitization of aircraft leases is expected to grow, with operating leasing currently accounting for around 40% of the global commercial aircraft fleet and expected to grow to around 50% over the next five to 10 years, according to S&P.
Aircraft leasing is attractive to airlines because of lower capital outlay requirements, fleet planning flexibility, delivery position availability, and residual value risk avoidance. More airlines will find it cost efficient to lease aircrafts as credit financing costs increase as a result of the higher pricing and equity contributions effective Jan. 1, 2013 , S&P said in the report.
The market is especially likely to see aircraft securitizations from Europe, where many aircraft lessors have turned to the capital markets to raise secured and unsecured debt to fund new aircraft deliveries and refinance debt maturities due the recent European sovereign debt crisis has forced some banks to reduce their involvement in traditional aircraft bank lending.