Dubai Aerospace Enterprise (DAE) has successfully closed a new asset backed securitisation (ABS) transaction, Kestrel Aircraft Funding I (KSTRL 2018-1), selling a portfolio of 18 mid-life aircraft to institutional investors.
Kestrel is DAE’s third aviation ABS, which is secured on a portfolio of 18 aircraft - seven A320-200s, four 737-800s two A319-100s, two ATR 72-600s, one A330-200, one A330-300 and one A321-200 – with an initial weighted average aircraft age 8.9 years with a weighted average remaining lease term of approximately 4.5 years.
The $379.4 million transaction comprises two tranches of notes - $319.8 million A notes, with an initial loan-to-value (LTV) ratio of 67%, rated A by Fitch Rating and Kroll Bond Rating Agency, which have a coupon of 4.250% and a yield of 4.976%; and $59.6 million B class notes, with an LTV of 79.5%, rated BBB by Fitch and Kroll, with a 5.50% coupon and 6.276% yield.
The A paper amortises on a 12.8-year straight-line schedule and the B notes amortise on a 12.9-year straight-line schedule until the ARD – October 15, 2025 – and a four-year straight-line schedule thereafter.
Mizuho Securities is the sole structuring agent and joint bookrunner with Credit Agricole Securities. CA-CIB also provides the nine-month liquidity facility. UMB is the security trustee, operating bank and trustee. Maples is the managing agent. DAE will act as the portfolio servicer.
Firoz Tarapore, Chief Executive Officer of DAE said: “We continue to build our managed aircraft portfolio. This transaction takes us one step closer to our stated goal of having US$5 billion of managed aircraft assets. Investors are increasingly recognizing the value of DAE’s Aircraft Investor Services (AIS) platform and entrusting the management of their aircraft assets to us. So far, we have continued to outperform our investors’ expectations in all the portfolios we manage.”
This is the second aviation ABS transaction from Mizuho where the equity has been sourced from Korean investors. This is the first midlife aircraft portfolio sale with E note into Asia and the first portfolio with turboprops sold into Asia.
Notably this transaction avoided novations on all but five of the aircraft – the first time that has been achieved with an Asian equity source.
The transaction received interest from 40+ accounts with 20 investors eventually submitting IOIs for the bonds offered despite a challenging environment with spreads widening materially across multiple asset classes.
Whilst many deals got pulled from the market given the tumultuous conditions – the Dow dropped more than 1,100 points during the marketing of the deal and aircraft lessor unsecured debt widened by 50-80bps – Kestrel was able to attract strong demand across the tranches, with the A notes being more than twice oversubscribed.