Castlelake has marketed its $888.2 million aviation asset-backed securitisation (ABS) deal. CLAS 2026-2 is the company’s second aviation ABS deal of the year.
Unlike its first ABS of the year, the deal has only a subordinate B tranche. The previous deal included a C tranche.
The notes are expected to be repaid in April 2033 and have a legal final maturity date of April 2051.
The $773.2 million A notes have an initial loan to value (LTV) of 73.9% and are expected to be rated A+ by KBRA and A by Fitch.
The $114.9 million B notes have an LTV of 84.9% and are expected to be rated BBB by KBRA and BBB+ by Fitch.
Castelake’s first ABS deal totalled $843.3 million, with the A tranche totalling $718.5 million, while the B and C tranches totalled $69.9 million and $54.9 million, respectively.
Proceeds from the CLAS 2026-2 will be used to acquire a portfolio of 39 assets, including 38 narrowbodies and one widebody, on lease to 25 lessees in 22 jurisdictions. The widebody makes up around 3% of the portfolio by value.
As of the end of March, 18 of the aircraft in the portfolio have yet to be acquired by Castlelake and are subject to leases. The company has purchase agreements for all of the unowned aircraft and are expected to close directly into the deal.
As of March 31, the weighted average age of the portfolio is around 9.3 years, while the weighted average remaining term of the initial lease contracts are around 5.7 years.
The portfolio includes 16 Airbus A320-200s, two A320neo, two A321-200s, one A321neo, 12 Boeing 737-800s, three 737 MAX 8s, and two Embraer E195-E2s. The widebody is an Airbus A330-200.
Deliveries for 21 of the aircraft in the portfolio are expected to commence on close and end 270 days after. The remaining jets in the portfolio have a delivery period of around one year. The deal includes a covenant that requires a minimum of eight assets to be delivered by the end of the delivery period or a rapid amortisation event is triggered to pay down the notes, while equity holders won’t receive payments during that time.
The top three lessees make up 23.6% of the portfolio by value. This includes Air India at 10.6%, Azul at 7.3% and Austrian at 5.7%.
The top three countries make up 30% of the deal, with Brazil at the top with 12.8% by value, followed by India and Argentina at 10.6% and 6.7%, respectively.
While 2026 is expected to be a busy year for ABS deals, it remains to be seen how the ongoing Middle East war will have an impact on issuances.
Castlelake’s newly formed aviation lending company Merit AirFinance marketed its $817 million aviation loan ABS deal in early March, shortly after the US-Israel war on Iran began. CLAS 2026-2 is the only aviation ABS deal to have been marketed since then as the war continues.
KBRA noted in its report that this deal has “limited exposure” to regions with greater geopolitical risk. Four aircraft are based in Africa and the Middle East, which make up around 9% by value. However, two of those aircraft are based close to the conflict in the UAE. Iran had enacted retaliatory strikes on the UAE and other countries in the region. The two aircraft make up around 5.4% of the portfolio by value.
The ratings agency further noted that the ongoing fuel price volatility, driven by the conflict, can create operational uncertainty and financial strain for airlines.
“This dynamic can weaken lessee credit profiles and liquidity, increasing the risk of lease payment deferrals, restructurings, or defaults and pressuring collections in aviation ABS transactions,” said KBRA in its report.
The deal includes a $1 million security deposit, funded at closing.
Deutsche Bank is the lead structuring agent and bookrunner on the deal. The liquidity facility was provided by Societe Generales and UMB Bank is the security trustee.