Harbour Aircraft Investments Ltd. $579.8 Million Notes Assigned Preliminary Ratings

Stocks and Financial Services Press Releases Wednesday November 15, 2017 08:35
NEW YORK--15 Nov--S&P Global Ratings

NEW YORK (S&P Global Ratings) Nov. 14, 2017--S&P Global Ratings today assigned its preliminary ratings to Harbour Aircraft Investments Ltd.'s $579.8 million fixed-rate series A, B, and C loans (see list).

The note issuance is an asset-backed securities transaction backed by the aircraft portfolio, aircraft-related leases, and shares or beneficial interests in entities that directly and indirectly own the aircraft and residual cash flows, among others.

The preliminary ratings are based on information as of Nov. 14, 2017. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
  • The likelihood of timely interest on the series A and B loans (excluding the step-up amount) on each payment date, and the ultimate interest and principal payment on the series A, B, and C loans on the legal final maturity at the respective rating stresses.
  • The 70.5% loan-to-value (LTV) ratio (based on the lower of the mean and median [LMM] of the half-life base values and the half-life current market values) on the series A loans, the 81% LTV ratio on the series B loans, and the 92% LTV ratio on the series C loans.
  • The initial asset portfolio, which comprises 30 narrow-body passenger planes (20 A320 family, one B737-700, and nine B737-800). None of the assets are currently out of production.
  • The age of the initial assets in the portfolio, which are in mid-life, with a 12.4-year weighted average age (by value). Currently, 27 of the 30 assets are on lease, with a 2.8-year weighted average remaining maturity as of the cut-off date.
  • That some of the lessees are in emerging markets where the commercial aviation market is growing.
  • The existing and future lessees' estimated credit quality and diversification. Of the 30 aircraft, 27 are currently leased to 18 airlines in 16 countries, many of the initial lessees have low credit quality, and some of the lessees are domiciled in emerging markets. Thirteen of the 30 aircraft are leased to flag carriers internationally.
  • The subordination of series C principal and interest to the series A and B interest and principal.
  • The series C interest reserve account, which will be funded at closing with $2 million.The series A and B loans' 12.5-year amortization profile.
  • The series C loans follow a seven-year amortization profile.
  • That during the fifth year of the transaction, if no rapid amortization event has occurred and is continuing, the transaction will pay 25% of the available collections first to the series A loans and second to the series B loans, 50% in years six and seven, and 100% thereafter.
  • That during year four to seven of the transaction, 30% of the available collections will be paid to the series C loans. Starting in year seven, the transaction will pay 100% of the available collections to the series C loans.
  • That if a rapid amortization event (the debt service coverage ratio [DSCR] or utilization triggers have been breached or eight years after the initial closing date) has occurred and is continuing, the transaction will pay the series A loans' outstanding principal balance. A similar arrangement applies to the series B loans after the series A loans are paid.
  • That a portion of the end-of-lease payments will be paid to the series A, B, and C loans according to a percentage based on the LTV.
  • A revolving credit facility that DVB Bank SE, London Branch will provide, which is available to cover expenses, interest on the series A notes, hedge counterparty payments, and interest on the series B notes.
  • Morten Beyer & Agnew's (MBA's) provision of a maintenance analysis at closing. After closing, the servicer will perform the maintenance analysis, which will be confirmed for reasonableness and achievability in an opinion letter from MBA.
  • Maintenance reserve accounts are required to keep a balance to meet the higher of $1 million in the aggregate and the sum of forward-looking maintenance expenses (up to six months). The excess maintenance over the required maintenance amount will be transferred to the payment waterfall.
  • The senior indemnification (capped at $10 million), which is modeled to occur in the first 12 months.
  • The junior indemnification (uncapped), which is subordinated to the rated series' principal payment.
  • Aergen's capability as the servicer for this transaction.

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