Fitch Ratings expects to assign a BBB(EXP) rating to the $600 million senior secured term loan issued by Delos Aircraft Designated Activity Company (Delos), an indirect, wholly-owned subsidiary of AerCap. Proceeds from the issuance will be used for general corporate purposes, including the refinancing of the existing senior secured term loan issued by Delos Finance.
Delos' senior secured term loan rating is equalized with AerCap's BBB Long-Term Issuer Default Rating (IDR) given the joint and several guarantee by AerCap, AerCap Ireland, and related affiliates. The term loan is secured by a first-priority lien on Delos' equity interests, and in its subsidiaries that directly or indirectly own a portfolio of aircraft, related equipment, and a cash collateral account.
Fitch said that the rating on the senior secured term loan is equalized with AerCap's Long-Term IDR due to the lack of a perfected first priority claim on the aircraft provided to support the repayment of the term loan. Instead, the loan will be supported by the cash flows generated by the portfolio owned by Delos and related affiliates and the guarantee provided by AerCap.
Delos' equity interest in a portfolio of 21 aircraft on lease to 10 airlines across 10 countries, with a weighted average remaining lease term of 7.5 years, is relatively consistent with AerCap's remaining lease term of 7.4 years, as of June 30, 2023. Fitch considers the portfolio to be liquid, comprised of tier 1 (97%) and tier 2 (3%) aircraft. The initial loan to value (LTV) is approximately 62%, assuming an initial half-life base value of approximately $975 million, which was provided by three independent appraisers.
The senior secured term loan is subject to asset-based covenants tested quarterly, based on semi-annual updates from three independent appraisers. These covenants include a LTV threshold of 75% and portfolio specifications based on a maximum age of 9.5 years (plus the amount of time elapsed from the closing date, plus six months), and concentration limits by customer and geography. A mandatory prepayment is required if the LTV exceeds the 75% threshold, after giving effect to any disposition, removal, event of loss or other specified event. AerCap also has the right to add, substitute and dispose of aircraft so long as the LTV maintenance covenant and average age requirements are complied with on a proforma basis.