Fitch Ratings - Chicago - 05 August 2019: Fitch Ratings has affirmed the ratings of Shenton Aircraft Investmen t I Ltd. (SAIL)'s series 2015-1A and 2015-1B notes. The Rating Outlooks are Stable.
KEY RATING DRIVERS
The affirmation of the class A and B notes reflects overall collateral performance to date. Lease and maintenance cash flows, along with aircraft sales proceeds, have been in line with Fitch's expectations. As of the July 2019 reporting date, utilization currently stands at 89.6% due to one off-lease A330 freighter. However, the aircraft has since been placed on a subsequent lease. In addition LTV levels have increased slightly but are still consistent with levels at close.
While the transaction is currently in a rapid amortization event, this is primarily driven by a unique structural feature whereby anticipated end of lease proceeds (EOLs) were factored into the class' amortization profiles. As multiple initial leases with EOL payments were extended following close, the large EOL payments weren't received to offset the increase in scheduled amortization. As a result, the DSCR trigger has been breached since the September 2018 reporting date, resulting in a rapid amortization event. As of the July 2019 reporting date, the DSCR was 0.80x versus the 1.15x trigger level. If other leases' EOL payments that were initially expected to be paid are not received due to either lease extension or default, the transaction may continue to experience depressed DSCR levels.
Cash flow modelling was not completed for this review as the transaction has been modeled within the last 18 months, performance has been within expectations and the review is not resulting from the breach of a performance trigger. When the transaction was modeled at the prior review, the DSCR trigger was assumed to be breached and never recover under primary modeling scenarios. Under these scenarios, the class A and B notes passed at stress levels commensurate with their current ratings.
The transaction is serviced by BOC Aviation (Ireland) Limited, a wholly-owned subsidiary of BOC Aviation Limited (collectively BOC Aviation). In July 2019, Fitch affirmed the Long-Term Issuer Default Rating (IDR), senior unsecured debt and medium-term note program ratings of BOC Aviation at 'A-' with a Stable Rating Outlook. Fitch deems BOC Aviation capable of servicing SAIL based on their servicing capabilities, the transaction's performance to date and historical performance of their owned and managed aircraft fleet.
RATING SENSITIVITIES
Due to the correlation between global economic conditions and the airline industry, the ratings may be affected by the strength of the macro-environment over the remaining transaction term. Global economic conditions that are inconsistent with Fitch's expectations and stress parameters could lead to negative rating actions. Fitch, in the initial rating analysis, found the transaction to have minimal sensitivity to the lower lease rate factors, severity of assumed recessions and reduced maintenance collections.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
The recommended rating action is not being taken in connection with a material change in the transaction's RW&Es.
Additional information is available on www.fitchratings.com