United Capital Markets priced the first aircraft lease repackage deal of the year last week, according to sources. There are potentially more restructurings on the way, as well as up to three new-issue pooled aircraft lease transactions - bringing a resurgence of liquidity to the sector, and satisfying investors looking to diversify ABS holdings outside of home equity ABS.
The deal for the first time brings a triple-A rated tranche of repackaged aircraft lease notes to the market without the benefit of principle defeasance from zero coupon Treasurys or other instruments, enabled by a surety wrap by guarantor Ambac, according to Randy White, aircraft and CDO trader at UCM.
The $203 million deal repackages $95 million of LIFT 1 A1 notes and $50 million of LIFT 1 A2 notes, part of the $1.429 billion Lease Investment Flight Trust deal issued by GE Capital Corp.'s GECAS in 2001. On a standalone basis, the notes were rated triple-B.
Offered to investors was the $100 million senior A class, with a weighted average life of 8.2 years and yielding 3.572%. The tranche priced at 35 basis points over one-month Libor, and is scheduled to close Tuesday.
White declined to comment on plans for the retained B1 and B2 subordinate tranches, constituting $45 million and $58 million of the deal, respectively.
"There was a broad market interest among typical triple-A buyers who couldn't really buy underlying aircraft securities. They really appreciated the fact that there was a surety on board," White said.
UCM used the cashflows on the underlying collateral to accelerate the senior piece of the deal. "It's groundbreaking for a single [aircraft] tranche to be wrapped like this," White said. "And the positive liquidity has been shown."
Renewed interest in picking up the poorly performing aircraft lease collateral for repackaging could lift prices, shaking loose the liquidity vacuum in the sector, he added.
From September 2001 through September 2004, the sector had been plagued by lower lease rates as well as numerous other problems, but renewed interest in the sector has lifted prices and liquidity in the secondary market has improved significantly.
LIFT bond prices, which have been trading at 70 over the last several weeks, rose to as high as 72.5 in recent trading, according to White, with some aircraft lease bonds as much as 8 to 10 points richer.
Aviation Capital recently agreed to purchase the Bouillon Aviation portfolio from German investment bank WestLB, and the Debis platform was recently sold to buyout specialist and hedge fund Cerberus Capital Management. Those two deals are likely to result in two new-issue aircraft securitizations, and GE Capital is reportedly planning a repackaging in the third quarter, according to a source close to the deals.
Two privately placed aircraft lease repackage deals came to the market last year, both repackaging LIFT bonds. Morgan Stanley issued Airplanes Repackaged Transferred Securities series 2004-2 in a private placement deal last April 15, with triple-A rated A class bonds pricing at 38 basis points over one-month Libor. Then, on March 31, Morgan Stanley issued $312 million of LIFT-backed notes, also pricing the seniors at 38 basis points over one-month Libor.
Last June, Wachovia Securities had a $114 million Wraps series 2004-1 single tranche single-A rated deal, with an average life of 8.66 years, priced at a 160 basis point discount margin over one-month Libor, but it was unwound prior to settlement.
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