Castlelake is in the market with its fifth aviation asset backed securitisation (ABS) transaction, Castlelake Aircraft Structured Trust 2018-1. This time the deal comprises $911 million in three tranches of notes secured on a portfolio of 36 aircraft with an average age of 9.7 years and an average remaining lease terms of four years.
The ABS comprises: $731.2 million class A notes, with an initial loan-to-value (LTV) of 67%, and an A rating from Kroll Bond Rating Agency; $114.6 million B notes, rated BBB with an LTV of 77.5%; and $65.5 million C notes, rated BB with an LTV of 83.5%.
The A and B notes amortise on a 14-year straight-line schedule for the first three years and a 12-year straight-line schedule thereafter. The C notes amortise on a seven-year straight-line schedule.
Slightly unusually, at the time of closing 23 aircraft in the portfolio may not be owned by the companies managing Castlelake. Fourteen of the 23 aircraft, which represent 45.1% of the total value of the transaction, are currently subject to a binding purchase agreement with a single seller, while nine aircraft – 23.5% of the total deal value – are subject to letters of intent with various sellers. As a result, the aircraft owning issuers are able to substitute up to five aircraft in the portfolio during the first 270 days of the extended 360-day delivery period, so long as they satisfy certain requirements and do not break concentration limits.
In the pre-sale report published by Kroll Bond Ratings Agency, to further mitigate this risk, the transferors or their affiliates are posting a letter of credit in lieu of a cash reserve for the associated amount on the closing date to offset shortfalls that may arise because not all of the aircraft will be owned by Castlelake-managed entities at closing. The amount of the letter of credit will be reduced as aircraft are owned and then delivered into the transaction. The letter of credit provider is required to meet certain minimum rating thresholds that KBRA views as appropriate to support the ratings on this transaction.
This is an unusual structure and not one that has been seen before in recent aviation ABS structures – the uncertainty around the final portfolio composition will need to be carefully addressed by the issuer, Castlelake, and the lead structuring agent, Citi.
KBRA believes that the letters of credit, the reserve account and the parameters around substitutions during the delivery period mitigate the risks associated with the aircraft that Castlelake-managed entities will not own on the closing date. If all the aircraft except the aircraft subject to LOI are not delivered to the transaction, the notes would be repaid their allocable debt associated to these aircraft, and the notes would be secured by the remaining 27 aircraft. KBRA believes the remaining 27 aircraft would support the assigned ratings based on the size and diversity of the portfolio.
Natixis is providing the nine-month liquidity facility.
The portfolio comprises 12 A320-200s (two of which are on lease with Alitalia although the airline is current on its lease payments to date), seven 737-800s, four 737-700s, four A330-200s, three A319-100s, three 737-900ERs (two of these are LOI aircraft that will be acquired by Castlelake entities via sale-leaseback agreements with Lion Air), and one 777-300ER.
The four years weighted average remaining lease term of the initial lease contracts in the portfolio is comparable to MAPS 2018-1, Sprite 2017-1 and WAVE 2017-1. CLAS 2018-1 has a more diversified initial portfolio concentration by lessee and country. The three largest lessees (by value) are Alaska Airlines (11.6%), Air Canada (9.8%) and Qatar Airways (9.7%), which represent approximately 38% of the portfolio. The three largest lessees represent a less concentrated initial portfolio compared to Castlelake’s prior transactions and other aircraft ABS transactions.