For six years, commercial aircraft lessor Merx Aviation has used a “platform light” model that outsourced the servicing of a leased passenger jet once an airline obligor signed the dotted line.
Now, the Apollo Global Management-owned firm is ready to get its hands dirty as a full-time asset manager.
This week Merx, based in Bermuda, launched a $506.5 million securitization backed by 25 aircraft it owns, leases and now directly manages for 16 airlines in 11 countries. The MAPS 2018-1 transaction will issue three notes classes secured by the aircraft with an independently appraised value of $610.5 million.
The $415 million Series A notes have preliminary single-A ratings from Kroll Bond Rating Agency and S&P Global Ratings. Rounding out the deal are a $55 million Series B notes tranche rated triple-B and $36.5 million in Series C notes rated BB by each agency.
The 25 aircraft in the pool, along with 20 others in Merx’ 99-aircraft portfolio valued at $1.6 billion, are the first assets the sponsor Merx will maintain and remarket.
Nineteen of the aircraft collateralizing MAPS 2018-1 were previously securitized in a 2013 Merx-sponsored deal dubbed AABS Ltd. The $650.3 million AABS was originally rated A+ by S&P. Proceeds from the new notes will be used to repay the 2013 transaction.
The six additional planes in the pool were acquired and assigned to the trust by Merx’ asset-finance business that was established in Ireland for tax-residency purposes. All the planes in the transaction are already on lease.
The aircraft are primarily Airbus A320-200 and Boeing 737-800 models, lower-cost narrowbody aircraft that are among the most liquid in the secondary market for passenger jets, according to Kroll.
The aircraft have an average age of nine years, with remaining lease terms averaging 4.5 years – an age lower than other recent midlife/end-of-life aircraft securitizations rated by Kroll or S&P.
The Class A and B notes amortize on a 13-year straight-line schedule, while the Class C notes on a seven-year schedule.
While the company’s track record for servicing is limited, Kroll and S&P are confident the firm has the chops to remarket, maintain and if necessary repossess aircraft over the life of the transaction. Merx is well-funded with a $500 million revolver facility by its business development corporate parent (Apollo Investment Corp.) and is led by Gary Rothschild, a former Citibank managing director who led the bank’s aircraft trading and leasing business.
The deal is also overfunded by $23.7 million to back a maintenance reserve account, and has a nine-month liquidity facility. Noteholders are further protected through amortization and cash trap triggers should dwindling cash flow cause debt service coverage ratios to fall below prescribed levels (1.15x-1.2x), according to the presale reports.
MAPS 2018-1 is also top-heavy in deals with major airlines in developed countries. The three largest lessees are American Airlines (16.3%), Virgin Australia (10.6%) and Virgin America (10%). More than half of the leases (representing 57.2% of asset value) are based in the U.S., China and Australia.
The transaction will allow Merx to replace aircraft that have been sold off or retired during the life of the deal, provided proceeds from net sales are used within 90 days to purchase additional jets.
Goldman Sachs is the sole structuring agent, global coordinator and lead bookrunner. The closing date is to be determined.