ABS market to be a gradual re-opening
Olivier Bonnassies
Alton Aviation Consultancy managing director John Mowry believes the next aviation asset-backed securitisation (ABS) issuance is more likely to feature freighter or engine assets than liquid narrowbody aircraft.
“It is hard to pinpoint what asset classes could be into the next possible ABS issuance but it is probably not the liquid narrow body space but more the esoteric classes that have had strong rent generation over the past two years,” he commented during an ISTAT learning lab webinar on the aviation ABS market environment.
He said that the next transaction would have characteristics like relatively strong lease rates relative to the current interest rate environment.
He expects the market to see a gradual re-opening: “Unless the interest rates move or the commercial lending market shifts dramatically I don’t think there will be that massive explosion of volume [of ABS deals].That first one would clear the path and perhaps there will be others that want to be a follower but it isn’t going to overall shift the broad economics of issuance.”
Evan Wallach, co-president and co-chief executive officer of Global Airfinance Services, recalled the trend in ABS issuance almost 10 year sago.
“Back to 2014, Castlelake came out with an issuance and it gradually peaked up as the market got more traction. My guess is that it will be similar to that.”
He sees little structure changes from the perspective of the bond holders but reckon parties could work on the amortization of the debt with the age of the asset.
“If you think of the aviation ABS product there is a residual value transfer from the lessor to the bondholders, it makes perfect sense when you do that for a midlife aircraft up to 18-20 years of age. Maybe one of the things they could do is match the amortized debt on a basis associated with the age of the aircraft. For instance, amortize the debt over three years for a 15-year old aircraft. If it is a 10-year old asset, amortize it over 10 years.”
Wallach also suggests a loosening up of the rules once the asset has reached a certain age.
“Once it is 16-17 years of age, it is most likely that it is going to go to third-tier carriers. Is it really important to maintain the rules associated with the concentration limits etc ? This would allow faster liquidation of the portfolio and accelerate the repayment of principal to the A and B tranches,” he commented.