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Weekly Wrap: Castlelake Relaunches Aircraft ABS Sector

By offering a host of new protections to investors, Castlelake Aviation hopes its new aircraft rental securitization will boost an ABS sector hit hard by the COVID-19 pandemic.

On Thursday, Castlelake valued $ 595 million in banknotes issued through its 2021-1 Castlelake Aircraft Structured Trust vehicle, the first passenger jet securitization since February 2020 and Castlelake’s first transaction since April 2019.

(The only other activity of the asset class concerned a business aircraft contract sponsored by Global Jet Capital whose last price was established last October).

The sale of two tranches of bonds in the Castlelake deal in 2021 (priced on Thursday) will fund a portfolio of 26 commercial aircraft comprising narrow-body, wide-body, regional jet and freight models. The planes have an initial value of $ 794 million.

The market has been devoid of such deals since the arrival of the global coronavirus epidemic on US shores, crushing demand for business and leisure travel which has cut revenues for many airlines suddenly unable to meet airline obligations. payment for their leased fleets. As global travel suffered a 44% year-over-year drop through December 2020, dozens of tranches of airline ABS tickets were downgraded by rating agencies and the own debt ratings of many international airlines fell into the ditch while they multiplied requests for deferral of rent from leasing companies.

Credit rating agency Kroll Bond noted in a report that deferrals in ABS portfolios of rated aircraft ranged from 7% to 68% over the summer, and late payments were 24%. at 77%.

In a Jan. 13 report on credit markets, however, Deutsche Bank noted that inflows improved slightly on the 40 aircraft ABS transactions it tracks, as improved payment activity for rents and end of lease yielded “materially” better debt service coverage ratios: the average DSCR rate was 0.86x in December compared to 0.72x in November.

Carlyle discovered this week that with a host of structural changes to new deals (with a weighted average return of 4.15%), there was still an investor appetite for the asset class, albeit with a multitude new structural changes. The notes were improved to allocate advance rates and amortization asset by asset, and investor covenants were broadened. There was also lower initial leverage, a faster amortization schedule, and increased cash transfer provisions.

“We were very pleased with the strong investor interest in this transaction,” Castlelake managing partner and co-founder Evan Carruthers said in a statement. Goldman Sachs was the main structuring agent and the main left-wing bookrunner.

Highlights of the deal included long-term leases on a “vast majority” of plans beyond 2024, according to Moody’s Investors Service. (With Castlelake’s deal, Moody’s is evaluating its first aircraft ABS deal in nearly a decade).

The transaction includes a senior single-A rating from Kroll and Moody’s. Moody’s has applied an A2 rating to the Class A ratings and Baa2 to the Class B tranche; Kroll assigned a BBB to the Class B offering.

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