Innovation isn’t just about ideas – it’s about having a vision. It takes pioneers to spot problems others overlook or dismiss as insignificant, and dare to challenge the status quo. These are the people that see beyond the accepted norms, who take risks on solutions that don’t fit neatly into the industry’s comfort zone – even though they are often at a higher cost – because they believe in what’s possible.
Ryan McKenna is one such pioneer. He has done more than most in the industry to further the development of the aircraft asset backed securitisation (ABS) sector. In 2014, McKenna shared his first groundbreaking transaction with Airline Economics magazine when he closed Blackbird Capital I – a blind pool sidecar funded with private capital – while he was head of strategic planning at Air Lease Corporation. He followed that with a solution for the midlife aviation ABS sector that first introduced the concept of tradeable equity notes, with Thunderbolt II, which was designed to expand Air Lease’s managed asset strategy. Both deals heralded a change in the ABS sector that was quickly adopted by others.
After leaving Air Lease and founding Griffin Global Asset Management in January 2020 – a few months before the global pandemic shut down the aviation industry – McKenna has continued to innovate. With Griffin’s inaugural aviation ABS deal, GGAM 2025-1, McKenna has once more shaken the foundations of the established market to introduce a new way to more efficiently securitise
aviation assets.
“Introducing the first tradeable E note was a career highlight for me since it fundamentally changed how the Aircraft ABS market was used by our industry, but I can’t think of anything I am more proud of than closing this transaction,” McKenna told Airline Economics shortly after the completion of GGAM 2025-1. “I don’t think this new structure will have the same breadth of adoption that the tradeable E Note has had because this isn’t a monetization strategy, but rather a whole new way of funding our business which needs to be in sync with the business strategy of an issuer.”
The journey began with a single, ambitious goal: to structure a funding vehicle that would dynamically match the market depreciation of aircraft with amortising debt. This required blending core principles of aviation corporate finance with aviation ABS methodology and creating a new paradigm for how mid-life aircraft could be capitalized.
The $1.245bn GGAM 2025-1 transaction – structured by joint leads Mizuho and BofA along with legal advisory from Hughes Hubbard and Millbank – includes $1.12bn Class A notes rated A- by Fitch and subordinated $125 million Y notes, rated BB- by Fitch. Both tranches have a legal final maturity date of September 30, 2060 and are secured by an initial pool of 25 aircraft – 20 narrowbodies and five widebody aircraft – with a weighted average age of 4.1 years and average remaining lease term of 8.7 years on lease to a well-diversified airline portfolio of top tier credits including British Airways and Air France.
The A tranche, which has a loan-to-value (LTV) ratio 77.1%, has a 14-year mortgage-style amortisation profile.
The Y notes are yield notes – a new designation that pay a coupon but are not amortising. Instead, the Y tranche, which has an LTV of 85.7%, has the principal paid down only with excess cash flows from leasing and sales. The Y note has an initial $3 million interest reserve that will replenish to cover interest shortfalls.
The logic here is for credit investors who like the lower risk profile and diversification of the collateral pool, but are seeking higher yield, the Y notes allow them to remain invested in the company for a much longer period and share in the ongoing cash flows of the assets. In effect, what Griffin has created is a quasi-corporate finance vehicle for midlife aircraft assets.
McKenna and his advisors worked on this transaction for six months to ensure the structure worked efficiently to the benefit of equity and debt investors alike. To begin with, the team went right back to the crux of the issue – how to reimagine an aircraft ABS structure to behave like a living and breathing business rather than a static pool of assets that shrinks over time. “The aircraft ABS structures we created 11 years ago sought to improve liquidity for defined pools of aircraft, which would eventually lead to better pricing. The introduction of 144A notes, regular reporting, and tradable E notes, amongst other innovations, all had the same goal of broadening investor participation via enhanced disclosure and increased liquidity from trading in the secondary markets. These principles proved to be very impactful to the outcomes of the transactions which led to them become industry standards,” explains McKenna. “However, we also adopted concepts that made the structures inflexible for expansion and contraction. For example, one of those structural constructs that is not particularly logical, but that the market accepts as standard, are the anticipated repayment dates (ARDs). In designing this master trust, we took a step back and questioned the logic of why ARDs were included in aircraft ABS structures to begin with. The answer to that question is that we required amortisation schedules that would be in sync with the long lived nature of the aircraft, but needed to attract investors who were used to buying unsecured bonds with three, five and seven-year maturities. ARDs allow you to shorten the weighted average life of the bonds without compromising the rate of amortisation but pushes the issuer to either sell or refinance prior to that ARD. While this is a very useful construct for static pools of assets, it is extremely limiting if the objective is to create a dynamic and growing business with regular issuances.”
Aircraft ABS transactions were initially designed to be used to sell or refinance a portfolio of assets rather than form part of a coordinated or consolidated financing strategy, which meant that the pool of secured assets was often restricted to a single portfolio, with a defined investor, and with a fixed end date. McKenna describes them as “single use, melting ice cube structures”. He explains that lessons learned from previous cycles made him question the logic of building a balance sheet that mixes aviation assets from brand new aircraft and midlife aircraft to engines, with regional aircraft and helicopters all on a single balance sheet. While rating agencies have rewarded issuers for the scale created by housing everything under one roof, he questioned whether this actually translates to a lower risk profile. “The rating agencies reward bigger balance sheets,” says McKenna. “I never agreed with that since the market values of those different asset types behave differently over time. All of them can be good investments but they don’t necessarily belong in the same capital structure.”
McKenna says that brand new aircraft with very long leases have stable values for the first few years along with stable cashflows and so funding those assets with bullet maturities is reasonable. He adds that as aircraft reach their midlife phase with shorter leases and begin exhibiting additional depreciation, they should be treated differently by using amortising funding. McKenna wanted to find a way to secure funding for midlife assets that behaved more like corporate funding. To do this, the first step McKenna took to reengineer the ABS structure was to eliminate the ARD in favor of fully amortising notes.
In a typical aircraft ABS structure, there is a finite pool securing a single A tranche of notes that have an ARD in year seven, a double B tranche that has the same weighted average life, and then a fast pay C note or an an equity tranche. Although these structures address current needs of issuers well and will continue to do so, the unique stressed environment caused by the Covid pandemic revealed certain shortcomings. “The global shutdown for 18 to 24 months meant that these deals hit their ARDs and the A noteholders were being paid but the B noteholders were being shut out,” explains Vinodh Srinivasan, managing director, co-head structured credit group at Mizuho Americas. “Before the ARD was included in the ABS structure, any available cash was paid to the A, B and C noteholders. Ryan [McKenna] wanted to create a structure that would continue to work during a crisis. With the ARD in place, there was no way to construct a vehicle where each investor shared in the collateral with none of the classes being shut out of the cashflows. Eliminating the ARD cleared up that problem.”
McKenna says that despite the B and C noteholders being locked out of receiving cash flows in a stressed scenario like Covid, “no one had considered the simplest solution of eliminating the ARD and moving to full payout structure.” He argues that with a full payout structure, “there is no moment over the course of that 14 year mortgage that cash is stopped from going to a subordinate class of notes or sequential issuances of the senior notes. It also addresses the problem that investors dealt with during the pandemic whereby they bought notes with a known weighted average life at issuance, but having to deal with the reality of their notes remaining outstanding at the ARD because market conditions were unfavorable for refinancing or sales. These notes are designed pay down to zero over the life of the deal.”
Next McKenna and the team considered the “melting ice cube” problem of the defined asset pool. GGAM 2025-1 is structured using the first real, scalable, flexible master trust structure for an aviation ABS.
In a Master Trust structure, all series of notes share a common legal trust, integrated servicing and cross-collateralised cash flow support. Essentially the Master Trust structure facilitates an expandable ABS platform – allowing for the issuance of multiple securities under a single trust over time. Subsequent issuances require the assets to meet a similar eligibility criteria. The structure allows for flexibility and cost efficiency, while providing the ability to issue additional pari passu debt to purchase additional aircraft.
Carlyle Aviation Partners similarly introduced a novel Master Trust structure earlier this year with the issuance of AASET 2025-1 but that retained caveats around pre-identified assets that would comprise the composition of the pool along with an end date for future issuances.
Griffin’s inaugural ABS deal marks the first “true” master trust deal in the aviation sector. The novel deal has the flexibility to issue for years into the future under the same trust, though still requiring the assets to meet certain criteria.
The central aim of the GGAM 2025-1 Master Trust vehicle is for it is treated more like a company, with the flexibility to grow and add assets. Although this first transaction has a pool of 25 aircraft, the facility can grow with more planes. The vehicle has the ability to re-invest dispositions proceeds within a defined time frame, offering prepayment protection for the debt holders, and giving Griffin the flexibility to keep debt in place. The change here is that when the pool is changed, further issuances under this structure are subject to a Rating Agency Confirmation (RAC). “When more assets are added, everything is re-evaluated and re-rated,” explains McKenna. “If actual depreciation and amortisation differ from forecasts, you adjust by issuing more or less debt to stay on schedule. All aircraft are cross-collateralised – there are no separate pools – so the entire fleet backs all issuances equally. Every A rated bond, regardless of when issued, shares the same legal seniority and benefits from the full pool of assets. Existing terms for notes remain fixed, but new issuances flex up or down to maintain alignment, extending maturities so no one is prepaid early. Essentially, this applies corporate finance principles to structured products: all bondholders have equal standing, though repayment schedules differ. For example, two five-year bonds are identical in seniority, but the first matures earlier.”
With this new structure, Griffin hopes to keep investors interested and reinvesting in the strategy via this new vehicle specifically for the midlife portion of their investments.
With this new ABS Master Trust structure and Griffin’s existing corporate issuance vehicle, McKenna has created distinct capital structures for distinct asset profiles for the company’s portfolio. “Corporate investment grade lessors issue bonds and aim to create a balanced maturity ladder and refinance notes when they come due,” says Srinivasan. “Below those IG bonds are junior subordinated notes and then common equity. GGAM 2025-1 is identical to that except that they are secured by midlife assets. The A tranche consists of 14-year mortgage-style amortising A notes and subsequent issuances will aim to create a similar maturity ladder to those of IG lessors. The cash waterfall pays interest to the A and then to the Y with nothing taken out of the structure, except when they sell.”
The GGAM 2025-1 vehicle has a stellar asset portfolio of 25 young, in-demand midlife assets on lease to top tier credits. As an inaugural issuance, the quality of the portfolio was important but in essence the investor is taking corporate credit risk rather than asset risk in this new
funding structure.
“With traditional ABS deals, when someone brings a pool of 15–20 aircraft to the market, most discussions with investors aren’t about structure – that’s been standardised over the last decade – instead, 90% of the focus is on underwriting each aircraft and lease, debating the credit quality of individual assets and determining the appropriate pricing. Investors live and die by those credits because the pool of assets doesn’t grow, but rather shrinks over time,” explains McKenna. “When you contrast that with corporate bond issuance programmes, most questions from investors are about company level such as expected future capital deployment or strategic direction rather than individual airline credits. For the inaugural issuance of GGAM2025-1 the investor questions were much more similar to the corporate whereby people wanted to understand our business objectives and how this structure facilitated those goals rather than a deep-dive on underlying credits.”
By issuing a single tranche of senior debt and eliminating the ARD, the senior and junior tranches can continue to participate in the performance of the lease cash flows in stress scenarios rather than getting locked out. “I wanted to make the capital stack, even the junior capital, as similar as possible to the to the way corporate debt functions,” says McKenna. “Making bonds pari passu with future issuances and having the collateral pool behave as a singular block are fundamental changes from the previous generation of aircraft ABS deals. Our funds retain all the residual value risk of the airplanes and that creates clear distinction between the risk profile that note holders own relative to our funds and provides meaningful alignment of interests. All cash collected from lease payments, maintenance reserves, end-of-lease proceeds, remain in the structure. Not a single dollar goes to equity. If cash collected exceeds the principal and interest payments for the A notes and the Y notes, remaining funds are directed towards delivering the Y Notes. The only way our funds receive distributions from the master trust is when we sell aircraft or add new ones. When we sell, proceeds first pay down senior notes at 105% and Y notes at 110%; any excess then goes to equity. When adding planes, we adjust debt up or down to match the depreciation/amortisation schedule, typically twice a year. This creates a dynamic structure similar to a corporate entity but using structured debt that moves in line with aircraft values.”
Having an efficient source of capital for midlife assets will allow Griffin to consistently invest in assets throughout the aviation economic cycle, providing flexibility to sell out of assets when values are favourable and choose to hold when the market turns. Separately, Griffin will continue to invest in brand new aircraft via the companion corporate entity funding by senior unsecured debt. This innovative new funding strategy has created a flexible, scalable financing vehicle that will provide a differentiated pool of capital for Griffin.
Pioneer pricing
If this had been structured as a traditional midlife ABS, Srinivasan said that it would have been the tightest pricing ever seen. However, there is always a price to pay for innovation. The $1.12bn A notes priced at a spread of +215 basis points, with the $125 million Y notes pricing with a
9.900% yield.
“This is probably one of the best collateral pools that has ever come to the ABS market,” says Srinivasan, “with top tier credits and a very young aircraft portfolio. If we had marketed this with a traditional structure for a finite pool, it might have achieved the tightest pricing. But the market doesn’t give you credit for going first. Ryan has always been at the forefront of innovation even with the knowledge that he wouldn’t get paid for the first one. But this new transaction is a long-term piece of capital that is going to prove itself
over time.”
Fellow structuring agent, Brad Sohl, managing director at BofA Securities, says that this first transaction was “breaking the glass” and has the utmost confidence that subsequent issuances will be more tightly priced, but notes that the ultimate aim to build a flexible funding structure for midlife aircraft assets has been achieved. “The large scale of this structure, combined with its liquidity and predictable issuance schedule, will likely influence pricing over time,” says Sohl. “The strong collateral composition, high liquidity, and the platform’s critical importance to the business – especially its integration into Griffin’s broader ecosystem – should provide investors with significant confidence in this paper.”
Over time, consistent asset quality, greater scale, and improved liquidity are expected to strengthen the platform’s competitive position against other trust structures. Whether this type of ABS structure will be adopted by lessors beyond Griffin remains uncertain. “There are some issuers for whom this structure may make a lot of sense, and others for whom it will not,” explains Sohl. “Across securitisation in other asset classes, we see a mix: some sectors—such as shipping containers and railcars—primarily use Master Trust structures; others rely on discrete trusts; and sectors like prime auto loans employ a combination of revolving Master Trusts and discrete portfolio financing. The GGAM Master Trust is a valuable additional tool for the aviation market when used for the right strategy, and I believe we’ll continue to see growth in these structures alongside traditional pool financing.”
Mizuho and BofA Securities acted as joint structuring agents and joint bookrunner on GGAM 2025-1. Citigroup, Goldman Sachs and Morgan Stanley acted as passive bookrunners, Barclays, BMO Capital Markets, Fifth Third Securities, MUFG, PNC Capital Markets, SMBC Niko, Societe Generale and Truist Securities acted
as co-managers.
Hughes Hubbard & Reed acted as counsel to Griffin and the GGAM Master Trust, and Milbank acted as counsel to the Initial purchasers, the joint structuring agent and joint bookrunners, passive bookrunners and co-managers. KPMG Ireland acted as tax advisors to Griffin and GGAM
Master Trust.