By providing a host of new investor protections, Castlelake Aviation is hoping its new aircraft-lease securitization will provide a boost to an ABS sector hard hit by the COVID-19 pandemic.
On Thursday, Castlelake priced $595 million in notes issued via its Castlelake Aircraft Structured Trust 2021-1 vehicle, the first securitization of airline passenger-jet aircraft since February 2020 and Castlelake's first deal since April 2019.
(The only other activity in the asset class involved a corporate-jet aircraft deal sponsored by Global Jet Capital that last priced last October).
The sale of two bond tranches in Castlelake's 2021 deal (which priced Thursday) will finance a portfolio of 26 commercial aircraft including narrowbody, widebody, regional jet and freight models. The planes have an initial value of $794 million.
The market has been void of such deals since the arrival of the global coronavirus outbreak on U.S. shores, crushing demand for business and leisure travel that cut off revenue to many airlines suddently unable to meet payment obligations on their leased fleets. As global travel suffered a year-over-year 44% decline through December 2020, dozens of aircraft ABS note tranches were downgraded by ratings agencies and many international airlines' own debt ratings fell into the ditch as they ramped requests for rent deferrments with leasing firms.
Kroll Bond Rating Agency noted in a report that payment deferrals across rated aircraft ABS portfolios range from 7% to 68% during the summer, and deliquencies were 24% to 77%.
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In a Jan. 13 credit markets report, however, Deutsche Bank noted that cash collections have improved slightly across 40 aircraft ABS transactions it follows, as improved rent and end-of-lease payment activity produced "materially" better debt-service coverage ratios: the average DSCR rate was 0.86x in December compared to 0.72x in November.
Carlyle this week found that with a bevy of new deal structural changes (along with a 4.15% weighted average yield), there was still investor appetite for the asset class, albeit with a bevy of new structural changes. Notes were enhanced to allocate advance rates and amortization on an asset-by-asset basis, and investor covenants were expanded. There was also a lower starting leverage, a faster amortization schedule and increased cash sweep provisions.
“We were very pleased by the robust investor interest in this transaction," said Evan Carruthers, the managing partner and co-founder of Castlelake, in a statement. Goldman Sachs was the lead structuring agent and left lead bookrunner.
The deal's strengths included long leases on a "vast majority" of the plans beyond 2024, according to Moody's Investors Service. (With the Castlelake deal, Moody's is rating its first aircraft ABS deal in nearly a decade).
The transaction includes a senior-note single-A rating by Kroll and Moody's. Moody's applied an A2 rating to the Class A notes and a Baa2 to the Class B tranche; Kroll assigned a BBB to the Class B offering.
