Deucalion is in the market with a $282 million asset backed securitisation (ABS) secured on a portfolio of 21 aircraft – five A319s, nine A320-200s, four 737-800s, two 737-900ERs, one A330-200 and one A330-300.
Stellar Jay 2021-1 is offered in three tranches: $216million A-rated A notes, which have an initial loan-to-value (LTV) ratio of 57.9%; $39 million BBB-rated B class notes with a 68.4% initial LTV; and $27 million B-rated C notes with a 75.6% initial LTV.
Deucalion Aviation is the servicer and Avenue Capital Group is listed as the sponsor. Morgan Stanley is the sole structuring agent and joint lead bookrunner.
The notes are secured on an older aircraft portfolio with a weighted average age of 14.9 years and a short average remaining lease term of 3.2 years as well as having two aircraft in the portfolio off lease at closing (one A319 and A320-200) and three delinquent leases (on lease to Hong Kong Airlines and Flybondi). Moreover, three aircraft leases are under power-by-the-hour usage agreements. Meanwhile, Deucalion is also in the process of extending six leases to four lessees and remarketing others that are coming off-lease in the short term, with two lease extensions currently pending to Virgin Australia (9.5% by value), two leases to British Airways (8.2% by value), one lease to Volaris (5.4% by value), and one lease to Alaska Airlines (3.0% by value). The nearest lease expiry is not until February 2022 for one aircraft.
Despite the age of the portfolio and other issues, the portfolio does feature some leading airlines, however it also contains some airlines that are struggling from the aftermath of COVID-19 pandemic, namely Garuda, Lion and HK Express and Hong Kong Airlines. This ABS transaction will be a good test of the strength of the aviation finance market as well as the health of the capital markets.