The stability of seven aircraft lease-backed securitization conduits is up in the air following Trans World Airlines Inc.'s filing for Chapter 11 bankruptcy protection. Further, a ticket-receivables securitization that provided TWA with daily operating capital has been placed on Rating Watch Negative by Fitch.
TWA is an obligor in seven aircraft operating lease pool securitizations, and TWA is in an agreement to pay the pools at above-market lease rates because of the company's poor credit. If the pending buyout of TWA by American Airlines Inc. is approved, it could impact the cashflows of the securities.
"If American is leasing the exact same plane as what TWA is leasing, TWA is paying a lot more," said Drew Nugent, an analyst at Fitch. "Where we're at risk here is American, assuming this thing goes through, is going to go back to the table and say TWA is now a part of our company, and we're going to say we're better credit than TWA, and we only want to pay [what we're paying].' It's up to the leasing company to decide whether they want to pay American rates for that."
American also has an option to not accept the leases, which would make the leasing company responsible to release the aircraft. That would create a zero cashflow, however, until the planes could be released.
TWA could be facing additional problems in the short term when its Constellation Finance LLC ticket-receivables deal begins amortizing this morning. Because TWA would have to come up with cash that it might not have, Fitch placed the deal on Rating Watch Negative based on that uncertainty.
"TWA is going to have a call, they're going to need to come up with some cash to start to repay these notes," Nugent said. "So that could impact TWA's position as well as the position of this transaction because there may not be money there to repay it."
If the buyout deal is approved, it is highly likely that American is going to pay off the whole facility and write it off.
"It's not like American is going to sit there and hang around and baby-sit this thing for the next X amount of years," Nugent said.
