Ashland Place Finance (Ashland Place) has priced its inaugural aviation loan asset backed securitisation (ABS), APL Finance 2023-1, which offered four tranches of notes secured by a static pool of aviation loans.
The quality of the portfolio of aviation loans resulted in tranches A through C being rated investment grade by KBRA, and the deal being oversubscribed. A healthy mixture of traditional aviation ABS investors as well as investors new to the asset class are reported to have bought into the deal.
Formed in September 2021, the Ashland Place platform, backed by Davidson Kempner Capital Management (DKCM), was set up with the specific aim of originating aviation loans. The team, led by veteran aircraft leasing and banking executive Jennifer Villa, has built up the Ashland Place portfolio with well-structured loans to quality borrower and underlying lessee credits and the specific long-term view of eventually securitising sections of the loan book. “This was always the plan,” says Villa, speaking to Airline Economics on the day the deal priced. “We intend to be a continuing issuer in this space.”
DKCM had this strategy in mind ahead of the formation of Ashland Place and has been pleased to see this idea come to fruition. Villa commented, “We see many opportunities for Ashland Place – we are continuing to originate and underwrite new loans even in this heightening interest rate environment. There is a need for the type of lending provided by Ashland Place, as demonstrated by our repeat customers.”
The $324.3 million securitisation includes $238.2 million A notes, rated AA by KBRA, with a 67.9% loan-to-value (LTV) ratio based on the securitisation loan balance and 38.9% based on the collateral balance, with a weighted average life (WAL) of 1.61 years, which priced at I-curve +285 basis points (bps) with a 7% coupon and 7.705% yield. The $53.32 million B notes, rated A-, have a loan balance LTV of 83.1% and collateral LTV of 47.6%, a WAL of 2.93 years, and priced with a +355bps spread, 7.86% coupon and 7.99% yield. The $21.92 million C notes, rated BBB-, have a loan balance LTV of 89.3% and collateral LTV of 51.2%, a 2.93 year WAL, which priced at a +475bps spread and 8.5% coupon/9.19% yield. The BB- rated D tranche, worth $10.87 million in total, has a loan balance LTV of 92.4% and a collateral LTV of 53.0%, a 2.93 WAL, which priced with a 5% coupon/12.69% yield, an +825bps spread and sold at 81.96% of par. All four tranches of notes have a final maturity of July 2031.
Affiliates of both Ashland Place, which remains as the servicer of APL Finance 2023-1, and DKCM are retaining 100% of the equity of the subject transaction at closing.
The proceeds of the notes will be used to acquire a portfolio of 11 limited recourse loan facilities composed of 26 loans, which are secured by 19 narrowbody aircraft, three widebodies and four narrowbody host aircraft engines on lease to 12 lessees located in 11 jurisdictions. The three largest lessees by loan balance are Corsair International, TUI Airways and Ethiopian Airlines.
The collateral has a weighted average age of 10.0 years (excluding the engines) and an initial appraised value of approximately $612.2 million based on the average of half-life base values provided by three third-party appraisers as of the second quarter of 2023. The appraisers are Collateral Verifications, Avitas and Morten, Beyer & Agnew.
As of the deal’s cut-off date, the loan portfolio had an initial aggregate loan balance of approximately $350.8 million, an average asset balance of $13.5 million and a weighted average remaining loan term of approximately 2.8 years. The portfolio has a weighted average seasoning of 18 months. The initial portfolio balance includes $6 million for incremental extensions, and advances for certain assets that have taken place after the cut-off date.
ATLAS SP Partners is the sole structuring agent. Pivotal Corporate AMS is the managing agent, with UMB Bank acting as back-up servicer and trustee. Allen & Overy served as legal advisor to Ashland Place, and Milbank served as legal advisor to ATLAS SP Partners.
APL Finance 2023-1 will also feature an esteemed group of board members, including: Elizabeth Barry, former director & head of corporate affairs at Airbus Financial Services; Anthony Diaz, former president at CIT Aerospace; and Mark O’Kelly, group chief financial officer at ASL Airlines.
All loans in the portfolio were originated under the Ashland Place platform and are limited recourse, first lien, senior secured loans. The loans are structured with maturities shorter than or equal to the lease maturity of the underlying aircraft. There are also additional protections in place for the A note holders.
“We’ve sought to structure the underlying loans conservatively relative to what you often see in this space,” says Villa. “The underlying airline counterparties are mainly flag carriers and tier one credits, with strong borrowing counterparties across the spectrum of the leasing community, each with equity in the assets. Furthermore, there is no remarketing risk in the portfolio like you typically face in vanilla lease ABS, as these loans are all either shorter than or co-terminus with the underlying leases.”
The static loan pool is one of the main appeals of the Ashland Place aviation loan ABS and what assisted with the investment grade rating for the first three tranches including the subordinated C notes – a major achievement. “We received investment grade ratings for the A, B and C tranches, with the D rated BB-; you don't really see that in the lease ABS transactions,” says Villa. “What we believe really resonated with investors from a risk-reward perspective is that on a metal LTV basis, the entire capital stack of this loan ABS fits inside the A note of a traditional lease ABS, and why the transaction has been so well received in the market.”
Ashland Place 2023-1 is only the second aviation loan ABS to come to market. The first aviation loan ABS (SALT) was issued by Bellinger Asset Management and Stonepeak Partners in 2021, which secured the portfolio of aviation loans they acquired from National Australia Bank (NAB). APL Finance 2023-1 is an ABS loan structure but is a very different transaction. The NAB book acquired by the issuers in SALT had more loans of varying sizes, with minority lender and a mix of secured and unsecured. APL Finance 2023-1 was designed with the capital market refinancing in mind and, as such, has been carefully constructed with strictly secured loans, with one sole lender and primary originator in Ashland Place and, thus, similar documentation throughout which spoke to the rating agencies and ultimately the investors.
As this deal has demonstrated, the aviation loan ABS product is considered by the market to be less risky than the traditional aviation lease ABS offering and considering the active market for aviation loan origination outside of the commercial banking market by specialty lenders such as the Ashland Place platform, the loan ABS is expected to have an enduring future in the aviation finance stable of products.