NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases ratings on Castlelake, L.P.’s (“Castlelake”) inaugural aircraft securitization, Castlelake Aircraft Securitization Trust 2014-1 (“Castlelake 2014-1”). Castlelake is headquartered in Minneapolis, MN and focuses on mid-life and end-of life aircraft and has invested over $1.1 billion in aviation assets involving 225 aircraft and 510 engines since its inception in 2005.
|Class||Rating||Initial Principal Balance|
|Series A-1 Loans||A (sf)||$303.5|
|Series A-2 Loans||A (sf)||$50.0|
|Series B Loans||BBB (sf)||$162.0|
The transaction is supported by a pool of 79 aircraft initially leased to 26 lessees located in 17 countries. With an approximate weighted average age of 17.5 years, the Castlelake 2014-1 fleet is significantly older than the younger vintages included in recent lease securitizations. The collateral pool includes 19 distinct aircraft types across three fleet categories: widebody (42% of the initial pool), narrowbody (25%) and turboprop (33%). To KBRA’s knowledge, this is the first securitization to feature turboprops.
The transaction’s structure benefits from sufficient credit enhancement and liquidity, and a dynamic structure that accelerates principal payments on the loans in the event of weak performance. Key structural features include low initial loan-to-value (LTV), a fully amortizing schedule over 9 years, inclusion of a liquidity facility and a maintenance reserve account and rapid amortization events based on DSCR tests, portfolio utilization and an incurrence-based LTV test not typical in aircraft lease securitizations.
Adjusted for maintenance, the initial LTV of the Series A loans of 51.7% using current market values is low relative to other aircraft lease securitizations but appropriate considering the advanced age of the aircraft collateral. The initial LTV of the Series B loans is 75.4% based on maintenance adjusted current market values.
Due to the higher yielding nature of older aviation assets and the high lease rate factors associated with the Castlelake 2014-1 fleet, the transaction is expected to generate significant cash flows from the underlying leases relative to lease securitizations backed by younger aircraft.
The transaction has greater exposure to developed markets and U.S. lessees (North America: 31.8%; Europe: 31.3%) relative to comparable transactions. Although many of the lessees are located in emerging markets, in aggregate they comprise a smaller portion (29.9%) of the initial pool relative to other lease securitizations.
Due to the advanced age of the fleet, maintenance exposure is a heightened concern for Castlelake 2014-1, although the assumed liquidation of older aircraft early in the transaction and the transaction’s liquidity profile mitigates this risk in KBRA’s various cash flow modeling scenarios.
Risks typically associated with older aircraft include high volatility in values, limited re-leasing prospects, technological obsolescence and higher costs related to ongoing maintenance. Older aircraft are also susceptible to exogenous shocks since they are likely the first aircraft to be grounded during an industry downturn.