Sponsor World Star Aviation is seeking to land a $633 million asset-backed securities (ABS) offering that will be used to refinance its first securitization in 2017 and acquire additional used aircraft.
The Sprite 2021-1 transaction is divided into $485 million, ‘A’ rated tranche with an initial loan-to-value (LTV) of 58.0%; an $88 million piece rated ‘BBB’ with LTV of 68.5%; and a $60 million unrated portion with an LTV of 75.7%, according to Kroll Bond Rating Agency’s (KBRA) Nov. 4 pre-sale report. Each tranche has a 2037 legal final maturity date.
KBRA adds that World Star and funds managed by Oaktree Capital Management will retain 100% interest in the E-notes at closing but may later sell all or part of the equity.
The rating agency’s report details the Covid-19 pandemic’s “severe” impact on the aviation industry due to government restrictions and curtailment of business and consume travel. It adds that conditions are expected to improve as vaccinations efforts continue, but significant uncertainty remains. As a result, the offering includes several features to mitigate the uncertainty, although the report also details numerous deal risks.
One plus is a new structural element KBRA has not seen ABS transactions prior to 2021 and views as positive: A test requires World Star to own at least eight aircraft, or the transaction will begin to use any excess cash to pay down sequentially the outstanding principal balances of the rated tranches.
KBRA notes several other positive structural elements. They include a timelier three-month debt-service coverage ratio (DSCR) test compared to the typical six-month window in aviation ABS transactions, excess amounts on deposit to cover shortfalls in expenses and interest that cannot be leaked to equity, and a faster amortization profile that accelerates repayment and deleveraging of the notes.
Risks include the portfolios weighted average age of 12.7 years, since the value mid-life to end-of-life aircraft is more volatile, and there are limited re-leasing prospects and higher maintenance costs. In addition, one aircraft is not yet owned by the party anticipated to sell it to World Star, and the appraisals valuing the aircraft at $836 million are currently three to five months old, which is older than other recent aviation ABS transactions, and they will not be updated by the closing date.
