Fitch Ratings - Chicago - 12 September 2018: Fitch Ratings has affirmed three classes of Aircraft Lease Securitization Limited (ALS).
Key Rating Drivers
The affirmation of the notes reflects performance to date and results of Fitch's cash flow modelling analysis. In the past year, the transaction has been stressed by the combination of off lease aircraft and high remarketing and maintenance expenses. This has resulted in a decline in cash available to service the notes, leading to a decline in debt service coverage ratio (DSCR) levels, which has triggered a rapid amortization event. However, Fitch expects this disruption to be temporary. All aircraft are now currently on lease, and expenses have declined from levels seen in prior months. This has led to an increase in note payments and the DSCR as of August 2018 reporting. Further, aircraft collateral values have been stable and within Fitch's initial expectations. To date, two aircraft have been sold from the trust for amounts greater than appraised values.
Each class of notes is able to pass modelled stress scenarios consistent with their current rating. Assumptions used in Fitch's cash flow modelling scenarios are unchanged from the initial review of the transaction, with one exception. Under the 'BBsf' scenario, the time over which values decline during a recession has been decreased to three years from four.
The transaction is serviced by AerCap Holdings N.V. (AerCap, Long-Term Issuer Default Rating [IDR] of 'BBB-'/Outlook Stable), via its Irish servicing subsidiary AerCap Ireland Limited. Fitch deems AerCap capable of servicing ALS based on their servicing capabilities, the transaction's performance to date and historical performance of their owned and managed aircraft fleet.
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Due to the correlation between global economic conditions and the airline industry, the ratings may be impacted by global macro-economic or geopolitical factors over the remaining term of the transaction. Therefore, in its initial and current rating analysis, Fitch evaluated various sensitivity scenarios which could affect future cash flows from the pool and the ratings of the notes.
During the current review, Fitch first performed a sensitivity analysis assuming a material increase in remarketing and reconfiguration expenses. The stressed amounts considered were $3,000,000 at the 'Asf' level and were decreased by $500,000 at each lower rating category. This scenario tests the transaction structure against expenses significantly higher than Fitch's initial expectations for the remainder of the transaction life. The impact is significant, with expenses increasing by approximately $40 million to $80 million across the rating scenarios. While the transaction is stressed, each class of notes is still able to pay in full under stresses commensurate with their current ratings. Thus, such a scenario is unlikely to result in any negative rating action on the notes.
Fitch also evaluated a scenario in which unrated airlines were assumed to carry a 'CCC' IDR during non-recessionary periods and 'CC' during assumed recessions. This scenario is attended to address a rate of early lease terminations and repossessions above expectations. While the transaction is stressed, with cash flow and utilization falling from the primary scenarios, this sensitivity is not as stressful as what is envisioned in the expense sensitivity above. Each class of notes is still able to pay in full under stresses commensurate with their current ratings. Thus, such a scenario is unlikely to result in any negative rating action on the notes.