A new aviation asset backed securitisation deal is in the market with a portfolio of aircraft from servicer Dubai Aerospace Enterprise (DAE), which features two 737MAX aircraft.
The $716 million Navigator Aircraft ABS (Navigator 2021-1) is offered in three tranches of notes, which are secured on a portfolio of 22 aircraft (four A320-200s, two A321-200s, eight 737-800s, two 737-8s (previously known as the MAX), four A321-200Neos, and two A330-300s) on lease to 17 lessees located in 16 jurisdictions. The weighted average age of the portfolio is approximately 5.5 years and the weighted average remaining term of the initial lease contracts is approximately 7.2 years.
The large exposure of new technology aircraft in the portfolio, as well as its young age, is a credit positive for the transaction; however KBRA notes that the two MAX aircraft’s limited operating history and the question marks over re-leasing difficulties, accuracy of the valuations and potential maintenance events. KBRA adds though that these risks are mitigated by the fact that aircraft are very young – less than a year old – and are on long leases with a tier one operator (American Airlines).
A further concern with the portfolio – like many other ABS deals that have come to market post-Covid – there are four aircraft with outstanding deferral amounts. TAP and Azul are noted as they still owe a portion of their deferral payback or are currently in their deferral period. Three aircraft on lease to two lessees Norwegian Air and Fly Gangwon are also highlighted since the leases are structure under power-by-the-hour agreements.
The deal comprises: $570 million A notes, rated A by KBRA, with an initial loan-to-value ratio of 65.3%; $110 million BBB-rated B notes with a 77.9% LTV; and $36 million BB-rated C tranche with an 82% LTV.
Navigator is an aircraft acquisition vehicle which is indirectly majority owned by certain private funds managed by Pacific Investment Management Company (PIMCO) and DAE. According to the pre-sale note, certain private funds managed by PIMCO are expected to acquire all of the C notes, and the navigator sellers will retain 100% equity of the subject transaction at closing but then may sell all, or a portion of the equity thereafter.
Joint lead structuring agents and joint lead bookrunners are Mizuho and Citi. Credit Agricole-CIB is providing the nine-month liquidity facility. Citi is the trustee with Fexco as the managing agent.
This structure features a minimum number of aircraft test – if the issuer does not own as least eight aircraft, the structure will begin to use any excess cash to pay down the A notes and then the B notes.
The structure also includes more reactive DSCR tests, and a more favourable security deposit account which can be used for additional liquidity.