Thunderbolt Aircraft Lease Ltd./Thunderbolt Aircraft Lease US LLC $344.7 Million Notes Assigned Preliminary Ratings

Stocks and Financial Services Press Releases Tuesday April 18, 2017 09:13
NEW YORK--18 Apr--S&P Global Ratings

NEW YORK (S&P Global Ratings) April 17, 2017--S&P Global Ratings today assigned its preliminary ratings to Thunderbolt Aircraft Lease Ltd./ThunderboltAircraft Lease US LLC's $344.7 million series A, B, and C fixed-rate notes (see list).

The note issuance is an aircraft securitization transaction backed by 19 aircraft and the related leases and shares and beneficial interests in entities that directly and indirectly receive aircraft portfolio lease rental and residual cash flows, among others.

The preliminary ratings are based on information as of April 17, 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 notes (excluding the step-up amount) on each payment date, the timely interest on the series B notes (excluding the step-up amount) when they are the senior-most notes outstanding on each payment date, and the ultimate interest and principal payment on the series A, B, and C notes on the legal final maturity at the respective rating stress.

The 60.87% loan-to-value (LTV) ratio (based on the lower of the mean and median of the three half-life base values and the three half-life current market values) on the series A notes; the 77.52% LTV ratio on the series B notes; and the 82.81% LTV ratio on the series C notes.The aircraft collateral's quality and lease rental and residual value generating capability.

The portfolio contains 19 in-production narrow-body passenger planes (six A320 family, 12 B737-NG, and one A330-200). The 19 aircraft have a weighted average age of approximately 12.6 years and a remaining average lease term of approximately 3.2 years. These aircraft, though entering mid-life, are still liquid narrow-body aircraft models.

While Airbus delivered the first A320neo in January 2016 and Boeing will deliver the B737MAX in 2017, we expect that the new, more fuel-efficient models replacing all of the current A320 family and B737-NG will take many years; we view this as a moderate threat to aircraft values and incorporate it into our collateral evaluation.Many of the initial lessees have low credit quality, and 50.5% of the lessees (by aircraft value) are domiciled in emerging markets.

Our view of the lessee credit quality, country risk, lessee concentration, and country concentration is reflected in our lessee default rate assumptions.

The transaction's capital structure, payment priority, note amortization schedules, and performance triggers. Similar to other recently rated mid-life aircraft securitizations, this transaction has an excess proceeds payment mechanism that can, to some extent, mitigate the value retention risk of aging aircraft and the risk of an aircraft's green time monetizing.

The existence of a liquidity facility that equals 17 months of interest on the series A and B notes, with a floor of $0.5 million.

There is a series C reserve account (initially funded with $1 million) to cover the series C notes' interest and, at the election of the E noteholders, scheduled principal payments on the series C notes. ICF International performed a maintenance analysis before closing. After closing, ICF International will perform a forward-looking 24-month maintenance analysis annually.

The maintenance reserve account must keep a balance of the higher of the maintenance reserve minimum amount and the sum of forward-looking maintenance expenses.

The maintenance reserve account will be funded at $30 million at closing. Any excess maintenance amounts over the required amount will be transferred to the collection account to the extent not reserved by the borrowers to pay future maintenance expenses.The senior indemnification (capped at $10 million) is modeled to occur in the first 12 months.

The junior indemnification (uncapped) is subordinated to the rated series' principal payment.ALC and ALC Ireland are the servicers for this transaction.
ALC is a rapidly growing mid-tier provider of aircraft operating leases.

We view ALC's capability of servicing such aircraft assets as sufficient.Although the class B notes can pass our rating stress at 'BBB', the slow amortization speed and its subordination after year seven, in our view, present a much higher tail risk for the notes. Therefore, our preliminary rating on the class B notes is one notch lower than the model-implied rating.


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