Willis Lease Finance Corp, the Florida-based aircraft leasing company, raised $410m with an aircraft engine lease securitization on Thursday, the first public or 144A aviation ABS deal for over a year.
Pandemic travel restrictions and the Russia-Ukraine war halted issuance, and although some deals were expected to hit the public market this year, it has been on pause since June 2022.
Willis Lease Finance’s WESTF 2023-A is its eighth aviation ABS, according to KBRA’s presale report. It priced the last one in May 2021, according to Finsight data.
WESTF 2023-A offered one class of notes, rated A/A by Fitch and KBRA, with a 4.55 year average life. They were priced at 350bp over the I-curve, in line with initial price talk of 335bp-365bp. The coupon landed at 8% and the yield at 8.461%.
“There's no way this was the desired outcome when the trade started, or even close to it,” said an investor in aircraft ABS.
Engine lease deals are usually priced more widely than aircraft ABS, the investor said.
However, interest rate volatility has also pushed financing costs up. The three year Treasury yield ended Thursday at 5.01%, up from 4.79% a month ago on September 19. The five year had risen from 4.51% to 4.95%.
"That is going to be a very difficult precedent in the aviation market,” the investor said. “These are assets that on an unleveraged yield trade below 8%. The market is literally upside down. You're financing at a higher cost of capital than where you can buy assets.”
Market participants will also have to rethink the sustainability of business models that rely on securitization in the sector, according to the investor. He added: “I think that should wake a lot of bank risk departments up.”
On the other hand, the issuer and investors were both happy about the deal execution, according to a banker close to the deal.