Moody's Investors Service forecasts issuance of eight-to-ten deals backed by enhanced equipment trust certificates (EETCs) during 2014, in line with 2013 activity. The agency expects that up to three of these deals will be originated by non-US firms. Four non-US issuers came to market in 2013, with three of them — Air Canada, British Airways, and Virgin Australia — making their debuts.
A few factors are keeping the market from growing more vigorously.
“Lessors who would like to take advantage of the aircraft ABS market must contend with a limited investor base, the poor historical track record of the asset class and the lack of monoline guarantors,” Moody’s said. Insurance wraps were a standard feature of this asset class in 2006-07.
New issuers are also in cards for the asset class of equipment loans and leases. Investor appetite and the healthy performance of the asset class will be the main draws. “High potential returns have attracted private equity investors to a market that, because of the recession fallout, is still far from saturated,” Moody’s said. “Generally strong borrower credit profiles will continue to support these new entrants for at least the near term.”
The sub-sector of agricultural equipment will continue to make up more than 75% of new securitized pools.
In the sector of fleet leases, the rating agency said that some deals in 2014 will feature leases that diverge from the traditional full-payout type. This is a credit negative. The new kinds of leases include “mortgage-style depreciation leases with a residual value of zero, non-zero residual value leases with balloon payments at the end of the lease, and quarterly payment leases,” Moody’s said. Originators have been churning out these leases in response to what best suits customers facing a slow-growth economy.