After roughly four years on the drawing board, Willis Lease Finance Corp. completed the first-ever term securitization backed by aircraft engine leases last week, pricing a $228 million senior/subordinated transaction via lead manager UBS. In addition to being the first aircraft lease ABS, Willis Engine Securitization Trust 2005-1 was the first operating lease asset transaction to price without a monoline surety wrap.
Structured in two tranches - $200 million of 6.5-year senior notes, rated Baa1 by Moody's Investors Service and A' by Fitch Ratings, which priced with a 125 basis point coupon over one-month Libor at 98.5 with a discount margin of 153 basis points over one-month Libor. Additionally, $28 million of subordinated paper rated Baa3' by Moody's and BBB' by Fitch was placed privately and no details were made available.
The transaction reportedly saw interest primarily from long-term, buy and hold investors. The Rule 144A senior notes were 1.5 times oversubscribed, the source added.
Willis has been shopping this transaction since 2001, when then First Union Capital Markets had the lead mandate (see ASR 7/16/01). Of course, the Sept. 11 terrorist attacks had such a negative impact on the airline industry that the entire aircraft sector dried up. Willis' steadily improving performance since, its stock has climbed from just over $3 per share immediately following the attacks to $8.39 as of last Thursday's close, helped sell investors to the transaction, sources said.
Unlike the pooled aircraft lease sector, Willis' engine leases are relatively short, with just under half of the securitized pool's leases averaging five-to-six months in tenor and just over half of the pool's leases averaging two-to-three years. Eighty percent of the leases are to airline carriers, primarily national flagships such as Gulf Air, LOT Polish Airlines, Mexicana and Varig. The transaction has roughly 1% exposure to troubled carrier Delta Airlines. The remaining 20% of the leases are made to non-airline entities, primarily aircraft repair shops, the source added. The senior tranche had a 64% LTV-to-base value, with a 74% LTV for the subordinated bonds.
With its first transaction under its belt, Willis plans to tap the ABS market "every couple of years," according to the source. Willis' master indenture trust has a $350 million capacity, with $100 million of variable funding notes, which Willis can grow as its lease portfolio grows and then re-tap the market.
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