S&P downgrades bonds in 13 aircraft ABS transactions
S&P Global Ratings has downgraded note ratings on 13 of 30 asset-backed transactions it covers involving aircraft and aircraft engine assets, as the COVID-19 impact continues to swirl in the airline industry.
S&P lowered the ratings on 23 tranches of notes in the deals, affirmed eight others, and kept the other 40 notes on watch for potential downgrade. Twenty of the downgraded notes are on notice for potential future downgrades, as well.
Downgrades were applied to aircraft lease and engine securitizations of GE Capital Aviation (GECAS), Castlelake LP, DVB Bank SE, Carlyle Aviation Management, Raptor Aircraft, Airborne Capital,and Zephyrus Aviation Capital.
The ratings agency also downgraded a 2001 Class E certificate of a U.S. Airways pass-through certificate used to finance aircraft fleet purchases.
In addition to uncertainties around airline operations amid the global coronavirus pandemic, S&P downgraded deals based on the greater levels of rent deferrals, the declining credit quality of airline carriers leasing the plans and the high exposure to wide-body or older aircraft for which demand has drastically fallen.
A 2016 aircraft lease securitization sponsored by Castlelake, for instance, has exposure to five aircraft on lease to airlines that have defaulted on obligations, out of the 29 planes in the pool.
S&P also found issues with deals that had a high number of planes or leased engines coming off lease in the next 12 months – with concerns the assets will likely be returned with no prospects for re-leasing them. In a 2006 transaction serviced by GECAS, the downgrade was applied in part to a 43% exposure to engine assets that were off lease or on leases expiring in 2020.
“A common theme among lessors has been an increasing number of requests for rent deferrals, which have taken different forms,” S&P’s report stated, with most deferral requests of 50% of rental payments.
Airlines are expected to cut 20% of their fleet due to the reduction in air travel from the pandemic, with wide-body aircraft taking the “biggest hit” due to the fact “long-haul flights have come to a standstill,” S&P’s report stated.
Aircraft values – which factor into ABS note payments for aircraft sold out of fleets – have also taken a tumble.