CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the three Aviation Capital Group Trusts outlined below:
Aviation Capital Group Trust (ACG)
-Affirmed class A-1 at 'Csf' RE 35% ;
-Affirmed classes B-1, C-1, and D-1 at 'Csf' RE 0%.
Aviation Capital Group Trust II (ACG II)
-Affirmed class B-1 at 'Bsf'; Outlook Negative.
Aviation Capital Group Trust III (ACG III)
-Affirmed class G-1 at 'Asf' Outlook Stable;
-Affirmed class B-1 at 'A-sf' Outlook Stable;
-Affirmed class C-1 at 'BBBsf' Outlook Stable.
Key Rating Drivers
The affirmation of the notes in ACG reflects Fitch's view that default is inevitable. Trust leverage has continued to increase as all classes have loan to value (LTV) ratios in excess of 100% and lease cash flow has continued to decrease. Fitch expects these trends to continue, as the portfolio is comprised of lower tier, less in-demand aircraft types. Under Fitch's base case scenario, the class A-1 notes are not expected to pay in full. Fitch estimates principal recoveries to be 35% of the current A-1 balance. Classes B-1, C-1, and D-1 were affirmed at 'Csf/RE0%' reflecting the expectation they will receive no further payments.
The affirmation of the class B-1 notes in ACG II reflects the stabilization of lease collections and leverage levels. While the class is unable to pass scenarios commensurate with the 'Bsf' rating category under Fitch's cash flow analysis, the transaction has material concentrations of liquid aircraft with the potential to generate robust cash flow for a number of years. This, along with stabilizing performance, has led to the affirmation of the class B-1 notes. The Negative Outlook reflects Fitch's view that deterioration in lease collections may result in future negative rating actions.
The affirmations of the class G-1, B-1, and C-1 notes in ACG III reflect the credit risk of each class which is consistent with their current ratings. The collateral pool has generated collections within Fitch's initial expectations to date. Meanwhile, leverage levels for all classes have decreased since close. The results of Fitch's cash flow modeling analysis, as well as strong collateral characteristics and decreasing leverage for all classes has resulted in the affirmations and maintenance of Stable Rating Outlooks.
Due to the correlation between the global economic conditions and the airline industry, the ratings may be impacted by the strength of the macro environment over the remaining term of these transactions. Global economic scenarios that are inconsistent with Fitch's expectations could lead to further negative rating actions. For example, the occurrence of an extended global recession of significantly greater severity than the last two experienced. As such, the resulting strain on aircraft lease cash flow, could lead to a downgrade of the notes.
Additionally, changes in the airline industry can have significant impact on the ratings of these transactions. If the timing of or degree of technological advancement in the commercial aviation space differed materially from Fitch's expectations, a rating movement may occur. Similarly, factors influencing the supply of and demand for the certain aircraft types present in the ACG trust portfolios could directly impact Fitch's view of the transactions' ability to avoid a default on the notes and, thus, could result in further rating actions.
The analysis of the ACG trusts is consistent with Fitch's April 12, 2013 report, 'Global Rating Criteria for Aircraft Operating Lease ABS', with the following exceptions:
--The criteria states the methodology may not apply for transactions with less than 20 planes. While ACG retains fewer than 20 aircraft, Fitch is able to maintain the ratings on this trust due to sufficient asset-level information and the need to evaluate only base case scenarios in light of the low ratings on the issued notes.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research
'Global Rating Criteria for Aircraft Operating Lease ABS' (April 12, 2013);
'Global Structured Finance Rating Criteria' (May 24, 2013).
'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 18, 2011).
Applicable Criteria and Related Research:
Global Rating Criteria for Aircraft Operating Lease ABS
Global Structured Finance Rating Criteria
Structured Finance Recovery Estimates for Distressed Securities