SKY Aero Management is looking to ease investor’s risk concerns of the aircraft lease ABS market during an ongoing global pandemic by introducing a trove of noteholder protections in its forthcoming $663.18 million SLAM 2021-1 securitization.
For instance, SKY is pooling lengthy leases of newer, in-demand aircraft – which are being delivered to financially strong carriers such as JetBlue Airways, Delta Air Lines and India’s popular IndiGo low-cost airline, according to ratings agency presale reports.
Sky is also limiting the new series pool to an unusually small number of aircraft (16); will fund a cash security deposit on any leases expiring before the notes’ maturity; and will employ a shorter time frame in testing minimum debt-service coverage ratios.
“There are several features in the subject transaction which should help mitigate this uncertainty and improve the resiliency of the cash flow available to the rated Notes vis a vis pre-COVID aviation ABS transactions,” according to a presale report from Kroll Bond Rating Agency (KBRA). “These include new structural features that have not been present in any of the aviation ABS transactions KBRA has rated prior to 2021, including a minimum number of aircraft test.”
The transaction features a Series A note tranche totaling $592.44 million, with a preliminary A rating from KBRA and an early A1 rating from Moody’s Investors Service, as well as a $70.7 million Class B tranche with a BBB rating from KBRA and Baa1 from Moody’s.
The deal represents SKY’s second securitization, and just the third transaction of aircraft-lease securitizations this year (excluding engine-aircraft leasing ABS deals).
New-issue aircraft lease securitizations were largely grounded last year following the outbreak of the coronavirus that disrupted business and tourist air travel. Airline passenger traffic has improved each month during 2021, noted KBRA, with May passenger levels reaching the “mid-60%” area compared to May 2019 figures.
The newer, next-generation aircraft being delivered to JetBlue, Delta, Indigo, Hawaiian Airlines, Brazilian carrier GOL and Kazakhstan airline Air Astana give the SLAM deal one of the lowest weighted average ages (1.6 years) of a passenger-plane lease deal that KBRA has ever rated, the ratings agency report stated.
Most of the aircraft, like the Airbus A321-200neo, are considered highly liquid assets that can more easily be re-leased to a new carrier if a current lease ends. But the average remaining lease terms of 11.1 years have most of the leases’ end dates beyond the anticipated repayment dates of the SLAM 2021-1 notes.
Only one of the 16 planes is a widebody aircraft. More than 78% of the leases (by the appraised book value of $884.2 million) are with JetBlue, Delta and IndiGo – none of which has been delinquent on an aircraft lease nor sought deferrals on rent payments. (KBRA noted it stress-tested the transaction on the potential for a deep disruption of IndiGo's traffic due to the surging COVID-19 infection rates in that country.)
MUFG Securities Americas and Citigroup Global Markets are joint structuring agents on the transaction.
