Stratos Aircraft Management has announced its inaugural asset backed securitisation (ABS) - JOL Air 2019-1 the first aircraft ABS transaction to include a Japanese Operating Lease, or JOL structure.
The $553.6 million ABS comprises three tranches of notes: $456 million A notes, rated A by Kroll Bond Rating Agency (KBRA), with an initial loan-to-value (LTV) ratio of 68%; $73.7 million B notes, rated BBB by KBRA, with an initial LTV of 79%; and $23.8 million C notes not rated by KBRA - these have an initial LTV of 82.5%.
The notes are secured on a portfolio of 13 narrowbody and two widebody aircraft, all of which are currently in-production assets. These include: seven A320-200 aircraft, three 737-800, two A320-200Ns, one A350-900, one 787-9, and one A319-100.
The portfolio has an initial value of approximately $670.8 million, based on the average of the half-life base values, with an aggregate maintenance-adjusted current market value of approximately $683.2 million. The initial weighted average age of the portfolio is approximately four years as of March 31, 2019, with a weighted average remaining lease term of approximately 8.3 years. In addition, 12 out of the 15 aircraft (88.1% by value) are on their first lease since being manufactured.
Stratos, founded in 2013, focuses its core business on remarketing and servicing aircraft. The company is an independent firm comprised of a team of aviation industry veterans primarily focused on large commercial aircraft with dual headquarters in Shannon, Ireland and Monaco. Stratos remains the servicer of the aircraft portfolio. Although the company will be initially be purchasing a minority proportion of the class C notes, it will not be retaining any of the equity.
The name of the issuance hails from the fact that this is the first aircraft ABS transaction to include a Japanese Operating Lease, or JOL structure.
In a JOL structure, the equity interests in the transaction are expected to be held by JOL investors. In general, as part of the JOL structure, the notes issuers will lease the aircraft to a Japanese SPV (the JOL Lessor) under finance leases. The JOL Lessor will lease the aircraft under operating head leases to intermediate lessors, which will, in turn, lease the aircraft to the lessees under operating leases. The shares in the JOL Lessor will be held by JP Lease and the JOL Lessor is expected to enter into tokumei kumiai (silent partner) arrangements with the JOL Investors.
As this is the first ABS from Stratos, which is a relatively new company, formed in 2013, as an added protection to the transaction in the servicing agreement, if Gary Fitzgerald is no longer the chief executive officer, it is required that he be replaced with someone approved by the board of the JOL Lessor. In addition, if Stratos were to cease to employ or contract at least 10 full-time employees or full-time contractors for a period of at least 90 consecutive days, the servicer shall be required to hire a third-party re-marketing agent to assist with the re-marketing of the aircraft.
The lead structuring agent and lead left bookrunner is Goldman Sachs. Joint structuring agent and joint lead bookrunner is Deutsche Bank. JP Lease is the JOL arranger and JOL managing agent. The liquidity facility provider is Natixis, acting through its New York Branch. Phoenix American Financial Services is acting as managing agent. Wilmington Trust will act as the facility agent, security trustee, operating bank and trustee.