Keener pricing on Apollo Aviation's fourth ABS
Apollo Aviation Group has priced its fourth aircraft portfolio transaction, AASET 2017-1 Trust, which will issue $612.228 million of secured notes that will be used to acquire a fleet of 32 aircraft.

AASET 2017-1 will issue three tranches of Secured Notes with the following principal amounts and coupons: $479.456 million Class A at 3.967 per cent, with an effective yield of 4.0 per cent, $88.515 million Class B at 5.926 per cent, with an effective yield of 6.0 per cent, and $44.257 million Class C at 7.385 per cent, with an effective yield of 7.5 per cent.

This is more finely priced on the Class A and Class C notes than Apollo's previous ABS last November, the $640 million AASET 2016-2, which was its second issuance in 2016 and which has just been awarded Debt Capital Markets Aviation ABS Deal of the Year by sister publication, Finance Dublin. AASET 2016-2 had effective initial yields of 4.25 per cent on the $515 million of Class A notes, 6.0 per cent on the $85 million Class B notes and 8.00 per cent on the $40 million Class C loans.

AASET 2016-2 followed a successful AASET 2016-1 issuance for $510 million in April and brought the total amount the company has raised through asset backed securitizations since December 2014 to over $1.7 billion.

The Finance Dublin award specifically acknowledged the lessor's use of a single waterfall format, which enforces sequential pay in downside scenarios and thereby provides greater comfort to investors, as an example of how Apollo took on board investor concerns from previous transactions. A similar mechanism is employed in AASET 2017-1.

In a pre-sale report on the latest issuance Kroll Bond Rating Agency has noted that the 32 aircraft in the portfolio will be on lease to 23 airlines located in 20 countries. The initial weighted average aircraft age is approximately 12.2 years with a remaining lease term of approximately 4.6 years as of April 30, 2017.

The three largest lessees by value are Air Europa, AirAsia X and Jet Airways, which represent approximately 11.8 per cent, 6.8 per cent and 6.8 per cent, respectively (25.4 per cent in total). Spain, India and Canada are the three largest country concentrations by value, which represent approximately 11.8 per cent, 10.4 per cent and 7.6 per cent, respectively (29.7 per cent in total).

The agency says the three largest lessees and countries represent a similar, if not smaller, initial percentage of the portfolio relative to Apollo’s prior transactions rated by KBRA. Furthermore, this transaction represents a less concentrated initial portfolio (by lessee and country) as compared to other recent mid-life aircraft ABS transactions, KBRA adds. It notes that while the initial portfolio is diverse, over time, the portfolio may migrate to a more concentrated pool due to re-leasing activity as well as disposition activity .

The portfolio has an initial value of approximately $737.6 million, based on the average of the half-life base values provided by three appraisers as of March 2017 and adjusted for maintenance conditions, giving it a current market value of approximately $729.3 million. As of end March this yeasr the 32 aircraft represent approximately 22.2 per cent by number of aircraft of Apollo’s managed leased fleet, including purchase commitments.

As of March 31, 2017, Apollo had approximately $3.7 billion of aviation assets under management, representing over 140 aircraft and 31 aircraft engines. KBRA notes that Apollo's three previous securitisations have performed in line with expectations.

Publication Date: June 2017