A window of opportunity

Apollo PK Airfinance dominates aviation loan ABS market

In June, PK ALIFT Loan Funding 3 (PKAIR 2024-1) securitised a portfolio of aviation loans with five tranches of notes totalling $622.25 million, maturing in September 2039: $122million AAA-rated A-F notes, with an initial loan-to-value ratio (LTV) of the loan balance of 62.9% and 41.2% LTV based on the collateral balance, which are priced at SOFR plus a spread. The $290million A-1 notes have the same rating and LTVs as the A-F notes but will be priced at a fixed rate, which is still to be disclosed. The $43.5 million Class B notes are rated AA, have a loan balance LTV of 69.6% and a collateral balance LTV of 45.5%, while the $102 million Class C notes are rated A with a loan balance LTV of 85.1% and a collateral balance LTV of 55.7%. The $64.75 million D notes are not rated and carry an loan balance LTV of 95% and a collateral balance LTV of 62.2%. The pricing on the B, C and D notes has not yet been determined. PK Airfinance retained 100% of the equity at closing.

The notes were secured on a portfolio of 27 loan facilities comprised of 122 loans. The 27 Facilities are limited recourse (81.2% by loan balance) and full recourse (18.8% by loan balance). The assets pledged as collateral are 70 narrowbody aircraft (68.4%), six widebody aircraft (22.8%), 30 freighter aircraft (5.9%), seven engines (2.7%) and nine regional jet aircraft (0.1%) on lease to 52 lessees located in 32 jurisdictions.

All loans in the subject transaction were originated under the PK AirFinance platform are first lien senior secured loans and have a weighted average LTV at origination of approximately 70.2%.

“PK is excited to close this strategically significant transaction which diversifies our financing sources and supports our integrated aviation platform’s demand for directly originated aviation assets,” said Gary Rothschild, CEO of PK AirFinance, said on the close of the deal. “This transaction – supported by a AAA rating – is a testament to PK’s demonstrated track record within aviation finance, the strength and diversity of our collateral pool and our comprehensive servicing capabilities.”

The loan marked the first commercial aircraft loan ABS issuance in 2024 and the first AAA-rated aviation ABS public issuance in over 20 years. PK said its portfolio asset quality, platform, and management team had driven the rating. PKAIR 2024-1 was rated by both KBRA and DBRS credit rating agencies.

Apollo Global Solutions served as sole lead arranger and Redding Ridge Asset Management acted as a structuring agent on the transaction. BNP Paribas, Mizuho Americas, RBC and Apollo Global Solutions served as joint lead bookrunners. Milbank served as issuer counsel and Vedder Price acted as lender counsel.

A follow-up transaction was launched in September - the $633 million PK AIRLIFT Loan Funding 4 (PKAIR 2024-2). The second loan ABS from PK AirFinance this year comprised of five tranches of loans. The $103 million A-F notes, with an initial LTV of 65.6% based on loan balance and 38.7% based on collateral balance, are triple-A rated and priced with an interest rate based on SOFR plus a spread. The $334 million A notes, also rated triple-A and with the same LTV ratios as the A-F notes, priced at a fixed rate of 5.05% coupon and 160bp spread. The B notes, totalling $34 million, have a loan balance LTV of 70.7% and collateral balance LTV of 41.7%. There is an unrated $115 million C tranche with a loan balance LTV of 88% and collateral balance of 51.9%, as well as an unrated $47 million D tranche with a loan balance LTV of 95% and collateral balance LTV of 56.1%. All of the notes have a final maturity date of October 2039. PK AirFinance will retain 100% of the equity of the subject transaction at closing.

The notes are secured on 32 loan facilities comprised of 129 loans. The 32 facilities are limited recourse (67.8% by loan balance) and full recourse (32.2% by loan balance). As of September 2024, the portfolio has an initial aggregate loan balance of approximately $666.2 million, an average collateral obligation balance of $5.2 million, and a weighted average remaining loan term of approximately 5.3 years.

The collateral obligations are secured by 73 narrowbody aircraft, eight widebody aircraft, 32 freighter aircraft, six engines and 10 regional jet aircraft on lease to 51 lessees located in 30 jurisdictions.

Redding Ridge Asset Management and Mizuho were structuring agents. Mizuho, BNP Paribas, RBC and Apollo Global were joint bookrunners. Apollo PK Air Management is the servicer, with Perseus Aviation – via Merx Aviation – as the special servicer. US Bank Trust Company is the trustee, with Avitas, mba and IBA as the appraisers.