Vx Capital Partners, a cargo aircraft management and leasing firm based in San Francisco, is tapping the securitization market for the first time.
The deal is also a first in the aircraft ABS industry: it is backed by a portfolio made up entirely of end-of-life, commercial airliners that have been converted for use as freighter aircraft.
The $189 million transaction, Vx Cargo 2018-1 Trust, will issue three loans; proceeds will be used to acquire 35 aircraft with a weighted average age of 23.1 years. Commercial aircraft are considered end-of-life after 18 years, but older passenger planes are often converted to freighter cargo. Nearly 4% of the planes in Vx’s collateral pool exceed 30 years of age, according to Kroll.
The rating agency expects to assign an A to the senior, $138.5 million Class A loan with a loan-to-value ratio of 55.4%. A $35.5 million Class B loan is rated BBB and a $15 million Class C loan is rated BB.
According to Kroll, 32 of the aircraft are already on lease to 12 global obligors including cargo shipping firms such as Federal Express, DHL and AsiaCargo Express. Vx owns 21 of the aircraft, with the remaining 14 under purchase agreements.
The conversion of passenger jets, along with new production of freighter aircraft, will both fulfill what appears to be a growing demand for air cargo shipping services. Boeing estimates demand will lead to an 83% expansion of the current 650-plane global narrowbody freighter aircraft fleet to 3,250 aircraft by 2037.
About 70% of the fleet is being used by express companies and postal services, and are preferred routes for higher-value goods, Kroll reports. Air cargo transports only account for one percent of world-trade tonnage, but as a preferred route for higher-value goods accommodates about 35% of the volume based on trade value.
The Vx portfolio has a weighted average remaining lease term of 4.3 years. As of the third quarter, the portfolio had a current market value of $283.6 million, or 13.5% greater than its maintenance adjusted base value. The planes had an initial $249.9 million value based on half-life base values determined by three independent appraisers.
The Class A and B loans amortize on a nine-year straight-line schedule, and the Class C loan on a five-year schedule. Kroll says the amortization is faster than other recent rated aircraft ABS portfolios.
Vx’s deal has similar ratings to other securitizations of older aircraft, or specialty asset-backed pools such as the 100% prop-plan securitization by Elix Aviation Capital in 2017.
One prior aircraft ABS deal, Castlelake Aircraft Securitization Trust 2015-1, included a 4.7% share of narrowbody freighters in that $878.1 million transaction.
Vx was founded in 2002, but has only been focused on the leasing and conversion of freighter aircraft since 2014. The company owns and manages 135 aircraft, and has completed 23 aircraft conversions of passenger jets in its portfolio the last four years.
BNP Paribas is structuring agent on the deal.
