Fitch Affirms Three Aviation Capital Group ABS Trusts

CHICAGO--()--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.

Rating Sensitivities

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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704628

Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Structured Finance Recovery Estimates for Distressed Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656557

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822135

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Thomas Kaiser, CPA, +1-312-368-3338
Analyst
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Peter Manofsky, +1-312-368-2068
Director
or
Committee Chairperson
Du Trieu, +1-312-368-2091
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Thomas Kaiser, CPA, +1-312-368-3338
Analyst
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Peter Manofsky, +1-312-368-2068
Director
or
Committee Chairperson
Du Trieu, +1-312-368-2091
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com