Investors will get access to a new issuer and a new aircraft type in the Goldman Sachs led Castlelake Aircraft Securitization Trust 2014-1 deal.
The $515.6 million deal is a first for issuer, Castlelake. It has been assigned preliminary ratings by Kroll Bonds Ratings. The series A-2 and A-2 notes are rated A’. The Series B notes are rated BBB’. All three tranches are structured with a final maturity of Feb. 15, 2029.
KBRA noted in the presale report that the transaction is supported by 79 aircrafts initially leased to 26 lessees located in 17 countries.
The collateral pool includes 19 distinct aircraft types across three fleet categories: widebody (42% of the initial pool), narrowbody (25%) and turboprop (33%). This is the first securitization to feature turboprops, according to KBRA.
Turboprops are smaller aircraft than the commercial aircraft that typically feature in securitization deals. Although the leasing market for this type of aircraft is not as extensive as that for commercial jets, turboprops have “a long useful life, good leasing characteristics and strong value retention,” according to KBRA.
“The market for turboprops has quietly been gaining strength, with values resilient through the downturn,” said KBRA in the presale report. “Due to limited availability in both the new and used markets and with few replacement options on the horizon, the average retirement age for turboprops is trending upwards, while the pace of retirements is decelerating, in contrast to the general pattern for commercial jets.”
With an approximate weighted average age of 17.5 years, the Castlelake 2014-1 fleet is also significantly older than the younger vintages included in recent lease securitizations. According to the presale report the risks typically associated with older aircraft include “high volatility in values, limited re-leasing prospects, technological obsolescence and higher costs related to ongoing maintenance.”
“Older aircraft are also the most susceptible to exogenous shocks since they are likely the first aircraft to be grounded during an industry downturn,” explained analysts in the presale.
However KBRA noted that the issuer, Castlelake, has “already established itself as a prominent participant in the market for older aviation assets, with the technical expertise, and risk management capabilities necessary to navigate through downturns.”
Castlelake is headquartered in Minneapolis, MN and focuses on mid-life and end-of life aircraft and has invested over $1.1 billion in aviation assets involving 225 aircraft and 510 engines since its inception in 2005.
By contrast, the aircraft backing the Goldman-led GE Capital Aviation Services’ (GECAS) $670 million aircraft securitization are newer and more popular commercial jets. “These aircraft tend to have strong liquidity and it is relatively easier to lease them out,” according to Standard & Poor’s, which assigned preliminary ratings to the deal.
The deal, dubbed RISE Ltd,. will issue $574.3 million of series A notes rated A+’ and $95.7 million series B notes rated BBB+’. Both notes are structured with a final maturity of Feb. 15, 2039.
A portfolio of 26 commercial passenger aircraft and their related leases back the securitization. The 26 aircraft include 25 narrow-body planes (B737NG and the A320 family) and one wide-body plane (A330-200), with a 4.8-year weighted average age. A majority of the lessees are in emerging markets where the commercial aviation market is growing, according to S&P.
BofA, Merrill Lynch, Pierce Fenner & Smith, Deutsche Bank and Credit Agricole are also named as co-lead managers on the deal.
