NEW YORK--()--Fitch Ratings assigns ratings and Outlooks to AABS Limited Asset Backed Secured Term Loan (AABS) as follows:
--$557,010,000 series A Loan 'Asf'; Outlook Stable;
--$93,335,000 series B Loan 'BBBsf'; Outlook Stable.
Fitch's stress and rating sensitivity analysis are discussed in the new issue report titled 'AABS Limited Asset Backed Secured Term Loan, dated Jan. 16, 2013, which is available on Fitch's web site.
The loans to AABS are backed by payments pursuant to operating leases and disposition proceeds on a portfolio of 26 narrowbody commercial aircraft manufactured by Airbus and Boeing. GE Capital Aviation Services Limited (GECAS) will act as servicer of the assets, responsible for ongoing leasing activities, including remarketing and servicing of new leases, procuring maintenance and disposition of the aircraft as directed by the board of AABS.
Quality of the Portfolio: The pool is of high quality comprised by a majority of young tier 1 aircraft (in-production, in-demand aircraft types) with generally long expected remaining useful lives. The transaction also benefits from a long average remaining lease term, which limits releasing risk.
Technological Risk Related to the Assets: Despite their current popularity, the pool is composed entirely of narrowbody aircraft that face replacement programs in the latter half of this decade. Fitch expects that the large operator bases and long lead time to replace these assets will partially mitigate this risk.
Concentrations in Poor Credit Quality Lessees: AABS carries significant lessee concentrations, and most leases are extended to unrated or speculative grade lessees. Fitch assumed unrated lessees would perform consistent with a 'B' Issuer Default Rating (IDR), to reflect increased default risk.
Cyclicality of the Commercial Aviation Industry: Commercial aviation has historically been subject to significant cyclicality stemming from macroeconomic downturns. These periods are typically marked by reduced asset utilization, values and lease rates. Fitch's analysis assumes multiple periods of significant volatility in asset values and lease rates over the life of the transaction.
Structure, Credit Enhancement and Cash Flow Stress Results:
Credit enhancement (CE) is primarily comprised of overcollateralization (OC) and a liquidity facility. The transaction also benefits from various performance triggers which could accelerate amortization. Fitch created multiple cash flow scenarios to evaluate the structure, as detailed in this report.
Heavy Servicer Reliance: AABS will depend on GECAS's ability to collect lease payments and maintenance reserves, remarket and potentially repossess aircraft following lessee default, and procure maintenance, among other functions, which are all crucial to the assets' values and transaction performance. Fitch believes GECAS, a leading aircraft lessor, is capable of performing these functions on behalf of AABS.
The proceeds of the offering by AABS will be paid primarily to affiliates (or associated trusts) of GECAS selling the aircraft to AABS. GECAS is a wholly owned subsidiary of General Electric Capital Corporation (GECC), whom in turn is a wholly owned subsidiary of General Electric Company (GE; Not rated publicly by Fitch).
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Rating Criteria for Aircraft Operating Lease ABS,' dated April 17, 2012';
--'Global Structured Finance Rating Criteria' dated June 6, 2012;
--'Counterparty Criteria for Structured Finance Transactions' dated May 30, 2012.
Applicable Criteria and Related Research: AABS Limited Asset Backed Secured Term Loan
Global Rating Criteria for Aircraft Operating Lease ABS
Global Structured Finance Rating Criteria
Counterparty Criteria for Structured Finance Transactions