TEAM enters ABS sector with $305m engine deal

Aaron Woolner
By Aaron Woolner February 11, 2020 14:45

TEAM enters ABS sector with $305m engine deal

 Total Engine Asset Management (TEAM) has launched its first asset-backed securitisation (ABS) transaction – Sunbird Engine Finance 2020-1 – backed against a portfolio of 30 engines, valued at $305 million and one of the few securitisations using this type of underlying collateral to reach the market in recent years.

The transactions is structured into three different series of notes, issued by Cayman Island-based Sunbird Engine Finance. TEAM is a is a 50/50 joint venture that was established in 20 11 ST Engineering and Marubeni Corporation and is headquartered in Singapore. 

All three series of notes mature in 2045 with the A notes holding a total value of $214.5 million, and a loan-to-value (LTV) of 70%, and are rated A by Kroll Bond Rating Agency (KBRA), while the $30.6 million B notes have an LTV of 80% and a BBB rating, while the $12.3 million BB-rated C notes have an 84% LTV.

Citi is the structuring agent and joint bookrunner with Crédit Agricole-CIB, which is also providing the initial liquidity facility. Citibank is the trustee, with Maples acting as the managing agent. TEAM remains as the servicer. 

TEAM will use the proceeds of the securitisation to acquire a portfolio of 30 commercial jet aircraft engines either on lease, or subject to a letter of intent to be leased, to 13 lessees located in 11 jurisdictions. The initial weighted average portfolio remaining lease term is approximately 5.9 years and comprises 29 engines powering narrowbody aircraft – comprising 91.0% of the portfolio by value – and one engine for a widebody aircraft. 

The portfolio has an initial value of about $305.9 million, based on the average of the half-life base values provided by three appraisers as of the fourth quarter of 2019 and adjusted for maintenance conditions. 

As of January 30, 2020, TEAM’s owned and managed engine portfolio consisted of 48 engines leased to 16 commercial airlines across Asia Pacific, Europe, the Middle East and the US. TEAM’s engines are typically acquired via purchase lease-back directly from airlines, and single or portfolio acquisitions from the secondary markets, including lessors. 

KBRA highlighted potential risks to remarketing the fleets due to TEAM’s relatively short operating history in its ratings’ report, however it said these were balanced by the initial weighted average remaining lease term of 5.9 years which it said was longer than typical aircraft engine ABS transactions. 

KBRA said that all of the engines have stronger near-term re-leasing prospects which it said was credit positive and the agency note that unlike other recent engine ABS transactions it doesn’t contain any engines in the latter stage of their lifecycle in relation to their host aircraft.

The three largest lessees by value are Frontier, Lion Air and SpiceJet, which represent 26.6%, 18.3% and 10.2%, respectively (55.1% in total). The top three lessees generally represent a higher concentration than other recent aircraft engine ABS.

Aaron Woolner
By Aaron Woolner February 11, 2020 14:45