The aviation asset-backed securitisation (ABS) market is back up and running demonstrated by the latest transactions to come to market: Thrust 2021-1 – the $485 million engine portfolio securitisation from GECAS – and SLAM 2021-1 – the $663 million aircraft portfolio securitisation from SKY Leasing.
The $663.176 million Sky Aero Management Limited (SLAM 2021-1) ABS comprises two tranches of notes: $592.437 million A rated A notes, with an initial loan-to-value ratio of 67%, and $70.739 million B notes, with a 75% LTV and rated BBB.
Proceeds from the notes will be used to acquire 16 aircraft - 10 A321-200neo, two 737-900ERs, one A321-200, and two 737-800s – valued at $884.2 million on loan to just six lessees in four countries. This transaction is unusual to prior aviation ABS deal as it contains a special feature that requires the seller to deliver all of the aircraft on lease to JetBlue (five aircraft) or the three aircraft to Delta Air Lines before any other of the lessees, which are IndiGo (three aircraft), Hawaiian Airlines (two aircraft), GOL (two aircraft) and one aircraft with Air Astana.
Although the airline type, region and jurisdictions are more concentrated than previous ABS deals, the two first airlines are considered by rating agencies to be industry and market leaders, which decreased that risk.
The age of the portfolio is very young at just 1.6 years, with a long average remaining lease term of 11.1 years.
To date, two of the initial leases with GOL are subject to lease deferrals, which are scheduled to be repaid during the course of the applicable lease term. This stress and others due to Covid-19 were addressed by the rating agency. This transaction also has a minimum aircraft test – fewer than five aircraft with trigger a rapid amortization event where excess cash will be used to pay down the As and the Bs. Further enhanced structural features include more reactive DSCR tests and a more favourable security deposit account which can be used for additional liquidity.
SKY Leasing is the servicer for the portfolio. MUFG and Citi are joint structuring agents. Natixis is the liquidity facility provider, with UMB as the trustee, security trustee ad operating banks. Maples is the managing agent. Appraisers for the portfolio are BK Associates, IBA and mba. Alton Aviation is the maintenance provider.
The Thrust Engine Leasing 2021 DAC (THRUST) engine ABS transaction comprises three tranches of notes: $385 million A-rated A notes with an LTV of 62.8%; $75 million BBB-rated B notes with an 82.2% LTV; and $25 million C tranche of notes rated BB with an 86.6% LTV.
The notes are secured on a portfolio of 24 aircraft engines – serviced by GECAS – which will be acquired from White Oak Commercial Aviation and affiliates (WOCA), which will initially retain a portion of the C notes and the full amount of equity.
Some 21 of the 24 assets are on lease to General Electric (GE), which are 18 GEnx-1Bs that power the 787 and nine GE90s that power the 777; two Rolls-Royce Trent 900s, which power the A380, are on lease Asiana Airlines and one GE90-115B is currently off-lease.
As of March 31, 2021, the portfolio – valued at $559.9 million – had a remaining lease term of approximately 5.8 years (excluding the off-lease asset).
This structure also includes enhancements to mitigate the uncertainty of Covid-19, namely a novation test and minimum number of assets test, as well more reactive DSCR tests, a longer liquidity facility reserve account of 18 months, a longer number of months for the maintenance look-forward (post ARD) for projected maintenance expenses of 24 months, and a reserve account for interest on the Series C Notes that will be replenished if depleted.
Mizuho is the joint structuring agent. Natixis is the liquidity facility provider, with UMB as the trustee, security trustee ad operating banks. Maples is the managing agent. Appraisers for the portfolio are Ascend by Cirium, IBA and mba. Alton Aviation is the maintenance provider.