Avolon launches Sapphire ABS; UKEF closes C Series funding for Korean Airlines

Eleanor Steed
By Eleanor Steed March 9, 2018 16:42

Avolon launches Sapphire ABS; UKEF closes C Series funding for Korean Airlines

Avolon has launched its second asset backed securitisation (ABS) – the $768.4 million Sapphire Aviation Finance I (SAPA 2018-1) – which is secured on 41 aircraft, currently leased to 30 lessees located in 19 countries with an initial total value of approximately $962.4 million. Wells Fargo is the sole structuring agent and lead bookrunner on this transaction, with BNP Paribas as the liquidity facility provider. Avolon will remain as the servicer.

The ABS is offered in three tranches of notes, comprising: $633 million A notes, rated A by Kroll Bond Rating Agency (KBRA), with an initial loan-to-value ratio of 65.8%; $97 million B notes, rated BBB with an initial LTVB of 75.9%; and $38.38 million BB-rated C notes with an initial LTV of 79.8%. The deal is structured with a single waterfall.

The portfolio represents a vertical slice of Avolon’s mid-life and older fleet that comprises assets from Avolon’s portfolio as well as assets from prior third-party fleet purchases. Eight of the 41 aircraft are widebody aircraft:  six are A330-200/300s, which are leased to five separate airlines: Qantas (two A330-200s), Garuda Airlines (one A330-200), Sri Lankan Airlines (one A330-300), Azul (one A330200), Air Transat (one A330-200). Two 767-300ERs are leased to Air Canada.

The remainder of the portfolio is made up of narrowbodies: 16 737-800s, eight A320-200s, four 737-700s, four A319-100s and one A321-100.

According to the KBRA pre-sale report, the weighted average remaining term of the initial lease contracts is approximately 4.4 years, which includes signed LOIs for follow-on leases two aircraft and signed follow-on lease for one. If these were not included the weighted average remaining term of the initial lease contracts would be approximately 4.1 years. The report notes that the portfolio’s weighted average remaining lease term is comparable to recent ABS deals, the KDAC and AASET 2018-1 and longer than HAIL 2017, however more than 60% of the initial leases (by value) expire in four years or less.

Meanwhile, UK Export Finance has officially announced its support of Korean Airlines C Series purchase from Bombardier, which were manufactured in Northern Ireland.

Baroness Fairhead, Minister of State for Trade and Export Promotion, said: “This represents a double-first; it is the first time that UKEF has supported a C Series aircraft sale from Bombardier, who are a major investor and employer in Northern Ireland, and it is the first sale of the C Series to an Asian airline.  This contract clearly shows the value of support from UK Export Finance to those investing into the UK as they grow their international businesses.”

UKEF has worked in partnership with Canadian export credit agency Export Development Canada (EDC) to provide Korean airlines with financing to support the sale to date of two C Series aircraft, whose wings and parts of the fuselage – a significant proportion of the complete aircraft – are made at Bombardier’s site in Belfast. UKEF has provided reinsurance support to EDC for the UK elements of the aircraft.

Michael Ryan, President, Bombardier Aerostructures and Engineering Services, said: “The C Series aircraft is the market leader in the 100- to 150-seat segment and subject to significant global demand. This aircraft has advanced carbon fibre wings and advanced technology fuselage sections manufactured in Belfast. We are very proud to have secured our first C Series aircraft sale to an Asian airline and with the backing of UK Export Finance and Export Development Canada look forward to building on this success.”

UKEF, Bombardier and EDC are planning to extend the programme, with further support likely to follow for future C Series deliveries to Korean Airlines scheduled for 2018.

Eleanor Steed
By Eleanor Steed March 9, 2018 16:42