Willis Lease Financing’s next lease securitization offers exposure to a new type of asset: aircraft frames.

The initial portfolio for the $373.4 million transaction consists primarily of 55 engines; there is a single mechanical structure, the fuselage, wings and undercarriage for an 18-year-old Boeing 737-800 , which represents 0.3% of the pool. However, exposure to airframes could rise to as much as 10% of the portfolio during the transaction’s reinvestment period, according to Kroll Bond Rating Agency.

By comparison, Willis’ previous air lease securitization, completed in 2017, allowed for higher exposure to airframes of 15%, though there was not a single airframe in the initial portfolio.

Two tranches of fixed-rate notes are being issued in the new transaction, which is called Willis Engine Structured Trust IV: $326.8 million of Class A notes are provisionally rated single A by both Kroll and Fithc Ratings and $46.7 million of Class B notes are rated triple B. All of the notes have a final maturity of 2043, which is two years earlier than the final maturity of Willis’ prior securitization.

Bank of America Merrill Lynch, MUFG Securities and Wells Fargo Securities are the lead underwriters.

Leasing spare aircraft engines is Willis’s primary line of business, but it also acquires leases on aircraft that are near expiry. In addition to generating additional cash flow, this allows Willis to “realize value” from the engines and other parts of the aircraft, according to Kroll. As of July 23, Willis owned and leased seven Boeing 737 aircraft, three ATR turboprops, and four A320 aircraft, with an aggregate net book value (minus depreciation) of $154.5 million.

Leasing airframes poses slightly different risks that leasing engines, and Kroll notes in its presale report that Willis’ deal “does not feature mechanics typically observed in aircraft ABS transactions relating to economic value, credit quality or lease term." Nevertheless, it takes some comfort from the fact that any airframe leases added to the pool during the reinvestment period must be “newer models.” The rating agency also pointed to Willis’ track record of actively managing lease portfolios and the fact that it is retaining equity in the transaction, aligning its interests with those of investors.

Increased exposure to airframes isn’t the only thing that sets Willis’ latest transaction apart from the previous one, however. Kroll notes that the portfolio has a shorter weighted average term of 19.6 months, down from 25.8 months in the 2017 transaction (at issuance). That’s partly because two of the engines in the portfolio are not currently being leased. Also, the airframe, which is on lease to Scandinavian Airlines, has a remaining lease term of just 2.3 years.

Fitch cites a high technological risk, noting that the majority of engines, 71% support aircraft that are scheduled to be replaced by newer aircraft.

And, despite the presence of lessees with strong credits, notably General Electric and Southwest Airlines, most of the lessees in the pool are unrated or have speculative grade ratings, per Fitch.

On the plus side, Fitch considers the faster amortization of the notes to be issued and the shorter tenor — repayment is anticipated in eight years, down from 10 for the prior deal — to be an improvement.

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