Fitch Ratings HAS downgraded the rating of the class C notes issued by both Castlelake Aircraft Structured Trust 2018-1 (CLAS 2018-1) and Castlelake Aircraft Structured Trust 2019-1 (CLAS 2019-1) asset-backed securities (ABS) transactions.
Fitch removed Rating Watch Negative (RWN) on the class B and C notes for both transactions and placed them on Rating Outlook Negative (RON). The class A notes remain on RON.
The rating actions reflect ongoing deterioration of all airline lessee credits backing the leases in each transaction pool, downward pressure on certain aircraft values, Fitch's updated assumptions and stresses, and resulting impairments to modelled cash flows and coverage levels.
Fitch revised or maintained each tranche of both transactions on RON, reflecting Fitch's base case expectation for the structure to withstand immediate- and near-term stresses at the updated assumptions and stressed scenarios commensurate with their respective ratings.
On March 31, 2020, Fitch placed the class B and C notes of CLAS 2018-1 and 2019-1 on RWN, while both class A notes were placed on RON as a part of its aviation ABS portfolio review due to the ongoing impact of the coronavirus on the global macro and travel/airline sectors.
To reflect today's global recessionary environment and the impact on airlines backing these pools, Fitch updated rating assumptions for both rated and non-rated airlines with a vast majority of ratings moving lower, which was a key driver of these rating actions along with modelled cash flows.
According to Fitch the credit profiles of the airline lessees in the pools have further deteriorated due to the COVID 19-related impact on all global airlines in 2020, resulting in lower lessee rating assumptions utilised for this review.
The proportion of airline lessees in the CLAS 2018-1 pool assumed for this review with an Issuer Default Rating (IDR) of 'CCC' or below increased to 51.6% from 23.2% at closing and to 78.3% from 12.1% initially in the CLAS 2019-1 pool. Based on airlines currently in administration or that have recently filed for bankruptcy, 16.4% were assumed to immediately default in 2018-1 and 13.9% in 2019-1.
For airlines assumed to immediately default in Fitch's modelling, narrowbody aircraft were assumed to remain on ground for three additional months and widebody (WB) aircraft for six months, in addition to lessor-specific remarketing downtime assumptions to account for potential remarketing challenges in placing these aircraft with new lessees in the current distressed environment.
This approach resulted in Fitch-modelled pool values of $753.3 million for CLAS 2018-1 and $814.2 million for CLAS 2019-1, respectively. This is notably lower compared to $834.6 million and $880.6 million as stated in the May 2020 servicer reports, by 9.7% and 7.5% for each pool, respectively.
Fitch said that nearly all lessees across both transactions have requested some form of payment relief/deferrals, consistent across peer aircraft ABS pools.