Read PDF - Apollo Aviation

AMERICAS DEAL OF THE YEAR
Americas Deal of the Year:
Apollo Aviation ABS
The Aviation 100 Americas Deal of the
Year is awarded to Apollo Aviation for its
debut securitisation transaction, which
substantially closed oversubscribed on
November 21.
The $556.3 million Apollo Aviation
Securitization Equity Trust 20141 is comprised of two tranches: The
$422.052 million A tranche with an
initial loan-to-value of 55% and an A
rating from Kroll Bond Rating Agency,
priced at 5.125%. The $134.289 million
B notes, with an LTV of 72.5% and a
BBB Kroll rating, priced at 7.375%.
Both tranches have a final maturity of
November 15, 2029.
The notes are secured by a pool
of 40 aircraft, with an average age of
14.2 years and an average remaining
lease term of 3.6 years. The aircraft
are all in production and currently
on lease to 20 airlines in 15 countries.
The narrowbody pool, comprised of
35 aircraft, accounts for 76.1% of the
initial portfolio and includes a mix of
1 Airline Economics January/February 2015
A319/320/321 and 737-700/800 as
well as older models of the 737 (-600/900). The five widebodies are A330200/300, representing 23.9% of the
initial pool value.
Apollo
Aviation
Management
Limited is the sole servicer.
Goldman Sachs was sole structuring
agent and global coordinator. Joint lead
arrangers were Goldman Sachs Lending
Partners, DVB Capital Markets,
and Crédit Agricole Corporate &
Investment Bank.
Wells Fargo was the Facility Agent
and Trustee, with DVB Bank as
Liquidity Facility Provider.
The deal was oversubscribed and
succeeded in attracting a similar
investor base to the Castlelake
securitisation that closed in March
although the tighter pricing on both
tranches and the younger age of the
pool of aircraft attracted new insurance
investors that are reported to have been
hesitant to join the Castlelake deal.
With
these
older
aircraft
securitisations, maintenance exposure
is a heightened concern for investors.
For Apollo however this risk partially
mitigated by the assumed liquidation
of older aircraft upon the scheduled
expiration of the initial leases since
there is limited reliance on the releasing of aircraft assets within AASET
2014-1 compared to other, younger,
aircraft ABS transactions. Moreover
the transaction is expected to generate
significant cash flows from the
underlying leases, as older aircraft can
generate high cash flow levels relative
to their low asset values through active
management and technical expertise.
Kroll projects the rental income for
AASET 2014-1 to total approximately
$148.3 million in the first year
(including $101.5 million of base rent
and $46.8 million of supplemental
rent), resulting in strong cash
flow coverage.
The fact Apollo is a leading
www.airlineeconomics.co
AMERICAS DEAL OF THE YEAR
participant in the aviation part-out
market and has managed the partout of more than 80 airframes and
approximately 185 engines in the past
three and a half years also helps to
mitigate risk in this transaction.
Over the past two years, Apollo
Aviation’s
total
assets
under
management (AUM) have risen by 50%
to $1.5bn. 40% of Apollo’s total revenue
is generated by parting out of older
airframes and engines – it currently has
over 100 airframes and 250 engines on
consignment – however, Apollo expects
to make $200 million in revenue from
leasing income. At the end of 2013,
Apollo had 57 aircraft and 36 engines
on lease – this is an increase over two
years ago when it leased 50% of its
assets in its fund – SASOF – where the
majority of the aircraft purchased were
parted out almost immediately.
Under SASOF, Apollo was restricted
in that it could only purchase aircraft
with leases attached of up to two
years. For SASOF II, Apollo has more
flexibility and can purchase aircraft with
longer-life leases of up to five years. Bill
Hoffman, Chairman of Apollo Aviation,
says that he would expect to have 100
aircraft on lease by the end of 2015.
“The demand is there for airlines to
lease older, in production aircraft but
www.airlineeconomics.co
we also have had a lot more flexibility
with SASOF II to invest in aircraft with
longer-life leases,” he says. “On average
the aircraft in AASET have a remaining
lease of over three years. A much
smaller percentage of our fleet is being
parted out in the short term. Apollo
remains committed to buying older inproduction aircraft, with a focus on late1990s 737NGs and A320CEO-family
aircraft. We are focused on bringing
value to our investors and aircraft in the
10-14 year old range tend to provide the
best returns.”
Robert Korn, President of Apollo,
concurs: “Our basic investment strategy
hasn’t changed – we are committed to
buying in-production, mid-life aircraft
and those with short-term leases
from anywhere from a few months to
five years attached provide the most
attractive opportunities for us. We are
still parting out aircraft but are not
acquiring aircraft on the ground as
frequently as we had in the past. As we
are completing more lease transactions,
we have a growing number of lessees
from around the world. We are not
focused in one jurisdiction over another;
we focus where the opportunities are,
which are geographically diversified as
far as the lessees are concerned.”
Apollo Aviation remains committed
to acquiring post-1997 A320s, 737NGs,
A330s and 777s, although it has
acquired some 747s since it had plans
for their engines.
A renewed focus for Apollo has
been making a conscious effort to buy
engines that are due for an overhaul.
Previously the company was focused on
acquiring engines that had a significant
amount of green time remaining.
However the demand for engines is
such that it makes commercial sense
for Apollo to acquire certain engines
due for overhaul – at the right price –
overhaul them and lease them back out.
“We are overhauling CF6-80 engines
and CFM56-5A engines currently and
are looking to start a CFM56-5B engine
overhaul program,” says Korn. “We
have also overhauled engines on some
747s recently and leased them back
out into the market. This trend will
continue. We started Apollo by buying
JT8D engines for overhaul and leasing
them back out some ten years ago – the
market has moved to make this strategy
profitable again.”
The returns in the space are attractive
for investors and as such there are a few
new entrants into this space. “There
is clearly competition,” says Hoffman,
“but I am not sure there has been a clear
increase. There is probably more capital
being invested in this space but there
are more deals happening so that isn’t
surprising. More competition is only
meaningful if it changes the pricing on
the deals that we see. Our target aircraft
models are monitored closely and the
appraisers do not show much of an
increase on those types year over year.
Some of the most attractive ones have
ticked up marginally, while some have
continued to drift downwards – so there
is clearly no direction.”
Korn too isn’t fazed by new
competition. Apollo is focused on
aligning its strategy to that it agreed
with investors in its funds. “There
is a lot of new capital coming into
the market and a lot of deals pass us
by because they don’t work for us –
somebody is funding those deals,” he
says. “We are focused on delivering on
the promises made to our investors.
We are very transparent – our business
model is easy to understand and easy
for our investors to underwrite.”
Airline Economics January/February 2015 2
$556.3 million
Apollo Aviation Securitization Equity Trust 2014-1
TRANSACTION PARTIES:
Servicer
Sole Structuring Agent & Global Coordinator
Joint Lead Arrangers
December 2014
AVIATION EXPERTISE • NICHE STRATEGY • COMPETITIVE ADVANTAGES • CREATING VALUE • DISCIPLINED INVESTING
MIAMI
DUBLIN
SINGAPORE
APOLLO AVIATION GROUP: 848 BRICKELL AVENUE, SUITE 500 • MIAMI, FL 33131 USA
WWW.APOLLO.AERO