NEW YORK--(BUSINESS WIRE)--Fitch rates ECAF I Ltd. (ECAF I) as follows:
--$459,375,000 class A-1 notes 'A-sf'; Outlook Stable;
--$590,625,000 class A-2 notes 'A-sf'; Outlook Stable;
--$160,000,000 class B-1 notes 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Quality of Assets: The pool is of high quality, comprised mostly of tier 1 aircraft with long expected remaining useful lives. The pool has a slightly higher degree of lessee diversification, compared with recent aircraft ABS transactions, but is slightly older in age at 6.5 years.
Technological Risk: Despite their current popularity, the pool is largely composed of aircraft with replacement programs approaching introduction. Fitch expects the large operator bases and long lead time for full integration of replacement aircraft to partially mitigate this risk. Fitch accounted for this risk in its analysis of future values and lease rates.
Weak Lessee Credits: ECAF I has significant concentrations with unrated or speculative-grade lessees. Fitch assumed unrated lessees would perform consistent with a 'B' Issuer Default Rating (IDR) and migrate to 'CCC' in future recessions to reflect increased default risk.
Structure/Credit Enhancement/Cash Flow Stresses: Credit enhancement is primarily composed of overcollateralization and liquidity facilities. Fitch created multiple cash flow scenarios to evaluate the structure, as further detailed in this report. The results of these cash flow scenarios support the ratings listed above.
Heavy Servicer Reliance: ECAF I will depend on BBAM's ability to collect lessee payments; remarket and repossess aircraft following lessee default; and procure maintenance, among other functions, all crucial to asset values and ECAF I's performance. Fitch believes BBAM to be capable of performing these functions.
Cyclicality of 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, as well as deteriorating credit quality among lessees. Fitch's analysis assumes multiple periods of significant volatility in asset values and lease rates over the life of the transaction.
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. As such, in its review of ECAF I Fitch evaluated scenarios that simulated various timing and severity of future recessions that would impact the transaction through reduced aircraft values, lease rates and utilization levels. Under these scenarios, the notes showed little rating sensitivity.
A significant portion of cash flow to the trust throughout the life of the transaction is attributable to aircraft sales proceeds. As such, Fitch evaluated scenarios in which residual proceeds were stressed below realizations utilized in Fitch's primary scenario. Under these scenarios, the class A-1 and A-2 notes showed minor rating sensitivity and potential for rating downgrades of one level. The class B-1 notes showed little rating sensitivity.
Additionally, changes in the airline industry can have a 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, performance could be affected. Similarly, factors influencing the supply of and demand for the certain aircraft types present in the trust portfolios could impact Fitch's view of the transactions' ability to avoid a default on the notes and, thus, could result in negative rating actions. In a review of sensitivities designed to mimic significant drops in aircraft demand and shorter asset useful lives owing to these factors, the notes showed little rating sensitivity, retaining investment grade ratings in all cases.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)
Global Rating Criteria for Aircraft Operating Lease ABS (pub. 19 May 2015)
Global Structured Finance Rating Criteria (pub. 31 Mar 2015)
Dodd-Frank Rating Information Disclosure Form