Thunderbolt Aircraft Lease Ltd./Thunderbolt Aircraft Lease US LLC

Transcription

1 Presale: Thunderbolt Aircraft Lease Ltd./Thunderbolt Aircraft Lease US LLC This presale report is based on information as of April 17, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings Series Preliminary rating(i) Preliminary amount (mil. $) Size (%) LTV (%)(ii) Legal final maturity date A A (sf) May 2032 B BBB- (sf) May 2032 C BB (sf) May 2032 (i)the ratings are preliminary and subject to change at any time. (ii)loan amount divided by the lower of the mean and median of three appraisers' half-life base values and half-life current market values. LTV--Loan-to-value ratio. Transaction Overview The series A, B, and C notes are co-issued by Thunderbolt Aircraft Lease Ltd. (Tbolt Cayman), a Cayman Islands exempt company and Irish tax resident, and Thunderbolt Aircraft Lease USA LLC (Tbolt USA), a Delaware limited liability company and a wholly owned subsidiary of Tbolt Cayman. The series are backed by a portfolio of 19 in-production narrow-body and wide-body aircraft and the related leases. The 19 in-production narrow-body aircraft portfolio comprises six A320 family, 12 B737-NG family, and one A aircraft. The 19 aircraft have a weighted average age of Primary Credit Analyst: Jing Xie, CFA, New York (1) ; jing.xie@spglobal.com Secondary Contact: Anna Qi, New York (1) ; chang.anna.qi@spglobal.com See complete contact list on last page(s) APRIL 17,

2 approximately 12.6 years. Currently, all the aircraft are leased to 17 airlines worldwide with a 3.2-year weighted average remaining lease maturity. The aircraft sellers are affiliates of Air Lease Corp. (ALC). ALC will be the servicer for Tbolt USA and ALC Aircraft Ltd. (ALC Ireland, a subsidiary of ALC and guaranteed by ALC) will be the servicer for Tbolt Cayman. The series A and B notes follow a scheduled amortization of a 14-year straight line to zero in the first five years, and a 10-year straight line to zero in years six and seven. The series C notes follow a scheduled amortization of a seven-year straight line to zero. Similar to the majority of the recently rated aircraft securitization transactions, this transaction has an expected final payment date of seven years after closing, after which the series A and B notes' amortization will then be full turbo. However, unlike the recently rated mid-life aircraft securitization transactions, this transaction's rated notes do not have partial cash sweep. This transaction has an end-of-lease payments allocation mechanism that helps mitigate the risk of monetization of an aircraft's green time (or maintenance status). Specifically, if the transaction decides not to use the end-of-lease payments to restore an aircraft but instead to pay such cash through the rental waterfall, there is the risk that the value of the portfolio over time will fall below the half-life values that we model without a commensurate amortization to protect the note principal. Profile Expected closing date May 15, Issuers Collateral Sellers Servicers Liquidity facility provider Managing agent Trustee, security trustee, paying agent, registrar, and operating bank Arrangers Thunderbolt Aircraft Lease Ltd./Thunderbolt Aircraft Lease USA LLC. 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. Affiliates of Air Lease Corp. Air Lease Corp. and ALC Aircraft Ltd. Citibank N.A. Phoenix American Financial Services Inc. Deutsche Bank Trust Co. Americas. Bank of America Merrill Lynch and Mizuho Securities. Rationale The preliminary ratings assigned to Thunderbolt Aircraft Lease Ltd./Thunderbolt Aircraft Lease USA LLC's $344.7 million series A, B, and C fixed-rate notes 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 [LMM] 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 APRIL 17,

3 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 A ). 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 (for more details see the Maintenance Cash Flow Assumptions section). 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. Transaction Strengths The transaction's strengths include: A portion (based on the then-current aggregate LTV ratio) of the end-of-lease payments will be allocated to the series A, B, and C notes according to their pro rata percentage (unpaid amounts will accrue to subsequent payment periods). The scheduled principal payments of the series A, B, and C notes in the following periods will not be adjusted down to reflect end-of-lease payments received in this period; therefore, the scheduled principal payments are maintained. Applying a portion of end-of-lease payments to pay principal on the notes benefits the lenders, particularly in transactions backed by mid-life and older aircraft/engine assets. When a mid-life or older aircraft returns from a lease, the lessor may not spend the end-of-lease adjustment for maintenance to restore aircraft value APRIL 17,

4 because the increased aircraft value is unlikely to be more than the maintenance expense spent. In transactions where the end-of-lease payments flow through the collection account payment priority and do not adjust down the notes' scheduled target principal balance in the future payment periods, the investors suffer from the value of the aircraft declining without being compensated by receiving the end-of-lease payment. The servicer, Air Lease Corp., is an experienced mid-tier aircraft lessor. The transaction has performance triggers, including the aircraft utilization rate (75%) and debt service coverage ratios (DSCRs; 1.15x for the cash sweep and 1.20x for the cash trap), to speed up the series A and B notes' principal amortization or retain available cash if the trigger tests fail. The series A notes' initial LTV is lower than that of the other recently rated mid-life transactions. The excess disposition proceeds after paying the series A and B notes' disposition paydown amounts in the disposition waterfall can be used to pay unpaid series A and B notes' scheduled principal payment amount under the regular waterfall. The transaction has a maintenance reserve mechanism that has a forward-looking feature, and the maintenance reserve account is funded with $30 million at closing. The transaction has a liquidity facility, which is 17 months of scheduled interest on the series A and B notes. If an early amortization event or a rapid amortization event has occurred and is continuing, the series A notes will receive full cash sweep after senior expenses and the series A and B notes' interest are paid; the series B notes will not receive any principal payment before the series A notes' full cash sweep. Transaction Weaknesses The transaction's weaknesses are: Cyclical demand, aircraft lease rates, and customer airlines' frequently weak credit quality are inherent risks in the aircraft leasing business. The aircraft in this transaction are predominantly mid-life aircraft, ranging from 11 to 16 years of age, though all of them are in-production models. Some of the aircraft in this portfolio are approaching the end of their economic useful lives and are expected to be sold or parted out rather than re-leased after their existing lease expires. Older in-production aircraft typically require heavier maintenance than younger in-production aircraft. The initial lease rate (1.09%, based on LMM of half-life values), as measured by the portfolio's weighted average lease rate factor (LRF) based on aircraft half-life value, is lower than our LRF assumption (i.e. at LIBOR 0.25%, a 13-year-old aircraft's LRF is 1.18%). Seven of the 19 initial leases have a rent step-down mechanism, which means the lease rental will decline after the transaction closes. The initial leases' weighted average remaining lease term is 3.2 years, shorter than most of the recently rated mid-life aircraft securitization transactions. A shorter remaining lease term increases the re-leasing risk, especially in an industry downturn. Although the series A notes' initial LTV is relatively low, the series A and B notes' scheduled amortization (14-year straight-line amortization in the first five years, and 10-year straight-line amortization in years six and seven) is slower than that of other mid-life transactions. Unlike other mid-life aircraft transactions, this transaction does not have partial rapid amortization, which usually amortizes the notes faster during year five, six, and seven. After the end of year seven, the class B notes will not receive any principal payment until the class A notes are paid in full. This is unlike most aircraft transactions where the class B notes can receive scheduled principal payment before the class A notes' turbo principal payment. The majority of the aircraft in the portfolio are owned by pre-existing aircraft-owning entities (AOEs) that were APRIL 17,

5 established more than one year ago. The borrower has no arrangement to create new AOEs for these aircraft, and it has not made arrangements with the related lessee to issue an officer's certificate stating no claims against these pre-existing AOEs or the borrower. A potential liability claim arising from the pre-existing AOEs' prior activities could have a negative impact on this transaction. Many of the lessees have low credit quality, which is not uncommon in aircraft securitizations. Many airlines do not have access to capital and thus turn to aircraft lessors as a means of acquiring aircraft. Often older and out-of-favor aircraft are more likely to be leased to weaker airlines. This transaction can sell aircraft at a price lower than the debt target price, up to 10% of the adjusted portfolio value as of the closing date's anniversary annually, subject to unanimous directors resolution. Mitigating Factors The following factors partially mitigate the transaction's weaknesses: In addition to our standard cash flow stress assumptions we published in August 2010, we incorporated an sensitivity analysis focused on end-of-useful life assumptions with a shorter life and longer-lasting value decline (see "Revised Cash Flow Assumptions And Stresses For Global Aircraft And Aircraft Engine Lease Securitizations," published Aug. 26, 2010). Our lease rate model is continuously calibrated to reflect updated lease yield levels. Our cash flow assumptions consider the lessee portfolio concentration, the lessees' credit quality, and the aircraft/engine model concentration. The pre-existing AOEs have been limited to owning, acquiring, and leasing aircraft. All prior financings on the aircraft in the portfolio will be paid off by this transaction. In addition the local counsel will perform lien searches, and the aircraft transferor will provide representation and warranties. Therefore, we view the risk from their past activities as insignificant, but applied an transition cost ($100,000 for each aircraft) when the related lease under the pre-existing AOE defaults in our projection (see the Pre-existing AOEs section below). Our preliminary rating on the class B notes is one notch lower than the model-implied rating to reflect the class B notes' slow amortization and structural subordination to the class A notes following the end of year seven. Legal Structure Tbolt Cayman is a bankruptcy-remote exempt company newly established in the Cayman Islands and is a resident in Ireland for tax purposes. Tbolt USA is a Delaware limited liability company and a wholly owned subsidiary of Tbolt Cayman. All of the ordinary share capital issued by Tbolt Cayman will be beneficially owned by a charitable trust organized under the laws of Ireland. Each issuer will have a board consisting of three directors with at least one independent director. Only Tbolt Cayman will issue the E certificates. The issuers are not expected to directly own any aircraft but will own directly or indirectly 100% of the shares or beneficial interest in each of the AOEs, which own 19 aircraft. Each issuer will be liable for both issuers' obligations under the notes. APRIL 17,

6 As security for their obligations under the notes, the issuers and their subsidiaries will pledge the following to the security trustee: The interests in the aircraft and engines; The beneficial interests in the AOEs and in certain other wholly owned subsidiaries; The leases and associated payments; The accounts; The cash on hand and invested cash; The interests under any hedge agreements and the liquidity facility; Certain other collateral; and The collateral proceeds. APRIL 17,

7 The transaction features the registration of interests under the Cape Town Convention and its related aircraft equipment protocol (the Convention), to the extent applicable. The Convention is an international treaty that creates a centralized, electronic registry for interests, referred to as international interests, in "aircraft objects" such as those in the portfolio. When international interests are created and assigned, they must be registered under the Convention to ensure that the interests and their relative priorities are effective against other subsequently registered international interests. Each aircraft owner is located in a contracting state under the Convention and is expected to pledge interest in its aircraft and engines to the security trustee, which is expected to be registered as an international interest under the Convention. Other interests in the aircraft that may be registered under the Convention include certain lease agreements and international interest assignments and contracts of sale. Similar to other aircraft securitizations, local-law mortgages generally will not be filed in the aircraft registries where the aircraft are registered even though security interests will be granted under the security agreement and, in some cases, registered under the Convention. If the security granted under the security agreement is not effective in a local jurisdiction because a mortgage has not been filed, then a registration under the Convention would not necessarily enable creditors to exercise certain direct rights and remedies regarding the aircraft. However, if an international interest under the Convention is created but not registered, then the unfiled interest could be primed by a subsequently filed international interest in terms of the international registry priority scheme. Transaction Comparison Table 1 Transaction Comparison(i) Thunderbolt Aircraft Lease Ltd. Falcon Aerospace Ltd. Servicer Air Lease Corp. Dubai Aerospace Enterprise (DAE) Ltd. LMM of aircraft half-life base values and half-life current market values (mil. $) Class AA initial LTV (%)(ii) Class AA initial rating Class A-1 initial LTV (%)(ii)(iii) Class A-1 initial rating(iii) A (sf)(preliminary) A (sf) A- (sf) Class B-1 initial LTV (%)(ii)(iii) Class B-1 initial rating(iii) BBB- (sf)(preliminary) BBB (sf) BBB- (sf) Class AA's scheduled amortization (years) Merlin Aviation Holdings DAC ACG Aircraft Leasing Ireland Ltd. APRIL 17,

8 Table 1 Transaction Comparison(i) (cont.) Class A and B's scheduled amortization (years) 14-year-to-zero amortization in the first five years; 10-year-to-zero amortization afterwards 15-year-to-zero amortization in the first two years; 13-year-to-zero amortization afterwards Expected maturity (years) No. of aircraft Weighted avg. age (years) Weighted avg. remaining lease term (years) Developing market exposure (%) Narrow bodies/wide bodies/cargo/regional jet (%) Largest initial country concentration (%) /8.17/0/0 100/0/0/0/0 100/0/0/0 U.S. (25.92) Indonesia (18.51) U.K. (10.95) Largest initial lessees (%) United Airlines (11.91) Garuda (18.51) Jet2.com (10.95) Labrador Aviation Finance Ltd. Blackbird Capital Aircraft Lease Securitization Apollo Aviation Securitization Equity Trust Servicer GECAS Air Lease Corp. Apollo Aviation Management Ltd. LMM of aircraft half-life base values and half-life current market values (mil. $) Class AA initial LTV (%)(ii) Class AA initial rating Class A-1 initial LTV (%)(ii)(iii) 891 1, AA (sf) Class A-1 initial rating(iii) A (sf) A (sf) A (sf) Class B-1 initial LTV (%)(ii)(iii) Class B-1 initial rating(iii) BBB (sf) BBB (sf) BBB (sf) Class AA's scheduled amortization (years) Class A and B's scheduled amortization (years) year-to-zero amortization for class A and 11.8-year-to-zero amortization for class B Expected maturity (years) No. of aircraft Weighted avg. age (years) Weighted avg. remaining lease term (years) Developing market exposure (%) APRIL 17,

9 Table 1 Transaction Comparison(i) (cont.) Narrow bodies/wide bodies/cargo/regional jet (%) Largest initial country concentration (%) 64.52/35.48/0/ /48.15/0/ /19.7/0/0 Qatar (15.02) Netherlands (16.15) U.S. (16.95) Largest initial lessees (%) Qatar Airways (15.02) KLM (16.15) Virgin America (8.50) Harbour Aircraft Investments Ltd. Apollo Aviation Securitization Equity Trust Castlelake Aircraft Securitization Trust Shenton Aircraft Investment I Ltd. Servicer Aergen Aviation Apollo Aviation Castlelake L.P. BOC Aviation LMM of aircraft half-life base values and half-life current market values (mil. $) Class A-1 initial LTV (%)(ii)(iii) , Class A-1 initial rating(iii) A (sf) A (sf) A- (sf) A (sf) Class B-1 initial LTV (%)(ii)(iii) Class B-1 initial rating(iii) BBB (sf) BBB (sf) BBB (sf) BBB (sf) Class A and B's scheduled amortization (years) year-to-zero amortization for class A and 12.7-year-to-zero amortization for class B Expected maturity (years) N/A No. of aircraft aircraft and six standalone engines 24 Weighted avg. age (years) Weighted avg. remaining lease term (years) Developing market exposure (%) Narrow bodies/wide bodies/cargo/regional jet (%) Largest initial country concentration (%) Minimum: about 20 for series A and 19 for series B; expected: about /0/0/ /27.65/0/ /32.12/4.00/8.99/2.62/ /25.68/8.34/5.67 U.S. (28.39) U.K. (18.19) Italy (22.08) Spain (13.52) Largest initial lessees (%) Virgin America (24.35) EasyJet (12.51) Alitalia (22.08) Air Canada (10.63) Diamond Head Aviation 2015 Ltd.(iv) ECAF I Ltd. AIM Aviation Finance Ltd. Eagle I Ltd. Servicer AWAS BBAM DVB Jetscape LMM of aircraft half-life base values and half-life current market values (mil. $) Class A-1 initial LTV (%)(ii)(iii) 375 1, Class A-1 initial rating(iii) A (sf) A (sf) A (sf) A (sf) Class B-1 initial LTV (%)(ii)(iii) Class B-1 initial rating(iii) BBB (sf) BBB (sf) BBB (sf) BBB (sf) APRIL 17,

10 Table 1 Transaction Comparison(i) (cont.) Class A and B's scheduled amortization (years) Four and 13 for series A-1 and A-2; 16 for series B Expected maturity (years) No. of aircraft Weighted avg. age (years) Weighted avg. remaining lease term (years) Developing market exposure (%) Narrow bodies/wide bodies/cargo/regional jet (%) Largest initial country concentration (%) /37.46/2.81/ /34.48/ /55.33/0/0 0/0/0/100 U.S. (16.61) Singapore (16.17) Singapore (20.89) Brazil (17.13) Largest initial lessees (%) Air Canada (11.86) Singapore (14.59) Singapore (20.89) Azul Linhas Aéreas Brasileiras S/A (17.13) CIT Aviation Finance III Ltd. RISE Ltd. Emerald Aviation Finance Ltd. AABS Ltd. Servicer CIT Aviation GECAS Avolon Aerospace GECAS LMM of aircraft half-life base values and half-life current market values (mil. $) Class A-1 initial LTV (%)(ii)(iii) Class A-1 initial rating(iii) A (sf) A+ (sf) A (sf) A+ (sf) Class B-1 initial LTV (%)(ii)(iii) N/A Class B-1 initial rating(iii) BBB+ (sf) BBB (sf) BBB (sf) Class A and B's scheduled amortization (years) Expected maturity (years) No. of aircraft Weighted avg. age (years) Weighted avg. remaining lease term (years) Developing market exposure (%) Narrow bodies/wide bodies/cargo/regional jet (%) Largest initial country concentration (%) Largest initial lessees (%) /32.2/0/ /8.7/0/0 72.7/20.8/0/ /0.0/0.0/0.0 Canada (23.66) China (17.21) U.S. (19.02) U.S. (16.54) Sunwing Airlines (13.01) Avianca (12.63) Virgin Atlantic (11.70) Royal Air Maroc (15.64) (i)all percentages and averages are weighted by the aircraft initial appraised values. (ii)based on LMM of half-life base values and half-life current market values. (iii)for all transactions except Blackbird Capital Aircraft Lease Securitization , class A-1 refers to the most senior note, and class B-1 refers to the second-most senior note. (iv)expected. LMM--Lower of the mean and median. LTV--Loan-to-value. N/A--Not applicable. APRIL 17,

11 Portfolio Overview The 19 initial aircraft in the portfolio include six A320 family, 12 B737-NG, and one A passenger planes. Table 2 Closing Aircraft Portfolio No. Aircraft model Date of manufacture Engine type Lessee LMM of HLBV and HLMV ($) (September 2016) Appraiser maintenance adjustment ($) (September 2016) Initial appraised value reported in transaction document ($) 1 A /5/2002 Trent 772B-60 SriLankan 34,000,000 5,521,071 45,769,918 2 A /27/2003 V2527-A5 Etihad 20,121,412 (2,236,561) 18,064,986 3 A /21/2005 CFM56-5B3/P TAP 26,247, ,974 26,760,008 4 A /14/2005 CFM56-5B4/P Interjet 24,314,750 4,025,231 28,561,898 5 A /29/2005 V2524-A5 Spirit 18,128,849 (3,462,391) 15,183,581 6 A /25/2005 CFM56-5B3/P Maldivian 26,300,000 (100,982) 26,239,830 7 A /1/2006 V2524-A5 Volaris 18,822,204 (893,691) 18,469,342 8 B /1/2003 CFM56-7B24 Transavia 16,627,725 (51,459) 16,823,624 9 B /20/2005 CFM56-7B26 Travel Service 23,950,000 (2,170,065) 22,889, B /28/2001 CFM56-7B22 Southwest 14,540,050 (2,620,525) 12,136, B /19/2003 CFM56-7B26 Belavia 20,750,000 (659,756) 21,382, B /17/2004 CFM56-7B26 Sunwing 22,350,000 (203,120) 22,900, B /10/2003 CFM56-7B22 Georgian Airways 16,672, ,938 17,637, B /1/2003 CFM56-7B24 Transavia 16,556, ,390 17,378, B /25/2003 CFM56-7B22 Jet Time 16,524,235 1,486,149 18,253, B /15/2005 CFM56-7B26 United Airlines 17 B /21/2005 CFM56-7B26 United Airlines 24,712,480 1,936,621 27,565,912 24,854, ,392 26,015, B /21/2006 CFM56-7B27 Sun Country 25,647, ,691 26,580, B /10/2006 CFM56-7B24 SpiceJet 25,155,520 2,056,053 27,820,857 Total 416,276,191 4,960, ,433,092 LMM--Lower of the mean and median. HLBV--Half-life base value. HLMV--Half-life current market value. Initial Asset Values We have received aircraft appraisals as of September 2016 from BK Associates, Collateral Verifications, and IBA. Each appraiser provided us with the half-life base value and half-life current market value of each aircraft in the portfolio. Unlike the maintenance-adjusted value, which reflects an aircraft's actual technical status and maintenance condition, the half-life value assumes that an aircraft is halfway between major maintenance overhauls. We use the half-life value in our analysis to project future lease rentals because it is more stable than using the maintenance-adjusted value, which is volatile because it depends on an aircraft's actual maintenance status. APRIL 17,

12 To project the initial aircraft portfolio's cash flow, the half-life value we use is the LMM of the three appraisers' half-life base values and half-life current market values (except for the A where we excluded BK Associates' appraisals and Collateral Verifications' half-life base value appraisal), which total $416,276,191 for this portfolio as of September We use this half-life value in both our cash flow modeling and portfolio statistics. Using our depreciation rates, the depreciated aircraft value as of May 2017 is $398,289,753. The initial appraised value reported in the transaction documents is $ million, which equals the sum of the average of the three appraisers' half-life base values as of September 2016 and the average of the three appraisers' maintenance adjustments as of September Table 3 Initial Asset Portfolio Values Half-life base value ($) Appraisals Half-life current market value ($) BK Associates (September 2016) 426,350, ,250,000 Collateral Verifications (September 2016) 456,296, ,280,000 IBA (September 2016) 411,769, ,950,000 LMM of half-life base values and half-life current market values (except for A , we excluded BK' appraisals and CV's half-life base value)(september 2016) 416,276,191 Average of half-life base values ($) (September 2016) 431,470,000 Average of maintenance adjustment by appraisers ($)(September 2016) 4,960,000 Initial appraised value reported in the transaction documents ($) 436,430,000 LMM--Lower of the mean and median. Aircraft Asset Analysis Aircraft type APRIL 17,

13 Chart 2 Table 4 Initial Asset Portfolio Composition By Type Aircraft model LMM half-life (%) No. of aircraft Average age (years) Airframe still in production (yes/no) A Yes A Yes A Yes A Yes B Yes B Yes LMM--Lower of the mean and median. Approximately 32% of the portfolio's value consists of Airbus' A320 family aircraft: two A s (8.88%), two A s (10.67%), and two A (12.62%). The A , a medium-sized, narrow-body jet introduced in 1989, remains one of the most widely used and marketable aircraft. The A , introduced in 1994, is a similar but slightly smaller model than the A The A , introduced in 1996, is the same size as the A but is an enhanced version with longer range. Because of the enhancement, A has outsold the A Until recently, the A had not been as successful as the A or the smaller A but has become more APRIL 17,

14 popular lately as airlines seek to fly aircraft with more seat capacity. Seventy-seven airlines worldwide operate it; far fewer operate Boeing's competing B ER. The A , A , and A models have broad airline-user bases that would likely attract many potential lessees if an aircraft in the portfolio is repossessed from its original lessee. Airbus delivered its first new fuel-efficient engine option (neo) version of these planes in January 2016, but replacing all of the current A320 family will take many years. Some leasing companies and investors of aircraft-backed debt are concerned that Airbus' plans to increase production rates on the current version of the A320 family will hurt resale values. We see both of these developments as moderate threats to aircraft values and incorporated them into our collateral evaluation. However, although lease rates for these aircraft had been under more pressure than the comparable but slightly larger B since 2009, they have recently recovered somewhat. We believe some of the differential in lease rates is also because of Airbus' higher production rates (adding to global supply) and the substantial number of A s that leasing companies own. Having a high proportion of the global fleet owned by leasing companies means there are more repricing opportunities and potentially a more competitive market. Leasing companies tend to re-lease aircraft they own every three to seven years in contrast with airlines that typically own their planes for a much longer period, which can hurt aircraft values and lease rates. Approximately 60% of the portfolio's value consists of 12 Boeing 737-NG narrow-body aircraft: five B s (19.44%) and seven B s (40.22%). The B is the most successful of Boeing's family of current technology narrow-body planes with more than 4,700 orders. Its direct competitor is Airbus' A320 (see above). We consider the B to be the best aircraft collateral currently available given its extensive user base and strong residual value performance, which are narrowly ahead of the A320. The Boeing , a smaller version of the Boeing , is also a popular aircraft but with a somewhat smaller user base. However, similar to the Airbus narrow-bodies, Boeing will introduce a successor technology this year (over a year later than the introduction of the neo); the MAX versions of the B and B feature new, more fuel-efficient engines and other changes. Still, given the size of the existing B and B fleet and long backlog for both this model and its successor MAX version, we do not expect material downward pressure on values until the next decade. Approximately 8% of the portfolio's value consists of one A , a small, long-range, wide-body plane. This model, which incorporates newer technology than Boeing's competing B ER, has been successful but has come under pressure recently due to oversupply of wide-bodies, the more popular larger (although shorter range) A , and the large percentage owned by the aircraft lessors, and the delivery of large numbers of Boeing B787s. Airbus has launched a neo version of the aircraft, which is scheduled to enter service in late However, we expect it will take many years for the neo version to become more prevalent. Aircraft depreciation and useful life For aircraft that employ older technology or have other adverse asset risk factors, assumed depreciation would be more rapid and vice versa. We applied an annual compounding depreciation rate (see table 5) on the preceding year's value. Our depreciation rates generally correlate with our views on the aircraft models' resale liquidity and technological risk. We typically assume 25 years of useful life for the Airbus and Boeing aircraft in this portfolio (see table 5). In our APRIL 17,

15 sensitivity analysis, we assume 22 years of useful life. If an asset's contracted initial lease maturity is beyond the end of its useful life and if the asset's contracted initial lease is not projected to default in our stress run, we then assume this asset will be disposed at the contracted initial lease maturity rather than at the end of its useful life. Table 5 Aircraft Depreciation And Useful Life Aircraft Annual compounding depreciation (%) Airframe useful life (years) Airframe useful life (sensitivity run) (years) A A A A B B Initial asset age With a weighted average age of 12.6 years, the portfolio is viewed as a mid-life aircraft portfolio. Mid-life and older aircraft tend to have higher volatility in value retention. When there is surplus capacity, the most technologically efficient aircraft will stay in use. APRIL 17,

16 Chart 3 Lessee Analysis The top three lessees represent 28% of the portfolio by the portfolio value (see tables 6 and 7). Our CDO Evaluator considered the lessee concentration and correlations; therefore, our projected default rates at various rating stresses reflect this portfolio's lessee concentration. The initial airline lessees' overall credit quality is estimated to be well into the speculative-grade range (rated 'BB+' or below by S&P Global Ratings), which is typical for aircraft operating lease portfolio securitizations. Six of the 19 aircraft are leased to flag carriers internationally. Approximately 50.7% of the lessees (by aircraft value) are in emerging markets with growing commercial aviation industries. Our airline default modeling assumptions were similar to those we have used for most aircraft operating lease securitizations. Table 6 Lessee Country Distribution Country Asset value (%) No. of assets U.S Mexico APRIL 17,

17 Table 6 Lessee Country Distribution (cont.) Country Asset value (%) No. of assets Sri Lanka Netherlands Maldives Portugal India Czech Republic Canada Belarus United Arab Emirates Georgia Denmark Total Table 7 Lessee Distribution Lessee Asset value (%) No. of assets United Airlines SriLankan Transavia Maldivian TAP Sun Country SpiceJet Interjet Travel Service Sunwing Belavia Etihad Volaris Spirit Georgian Airways Jet Time Southwest Total Chart 4 shows the initial asset portfolio distribution by initial lease remaining maturity. APRIL 17,

18 Chart 4 Aircraft Leasing Business Outlook According to the most recent Airbus and Boeing forecasts, airline passenger traffic is expected to grow by about 4.5%-4.8% per year between 2016 and (Airbus predicts 4.5% per year between 2016 and 2035; Boeing forecasts 4.8% per year between 2016 and 2035.) Airbus forecasts 33,070 new passenger aircraft deliveries, and Boeing forecasts 39,620 during that period. Most of the aircraft will either be delivered to Asia-Pacific and emerging markets to meet demand or to replace aging aircraft in North America and Europe. The number of lessor-owned aircraft has been steadily growing. Operating leases account for over 40% of the global commercial fleet and could grow to approximately 50% in the next five to 10 years. Aircraft leasing is attractive to airlines because of lower capital outlay requirements, fleet planning flexibility, delivery position availability, and residual value risk avoidance. In addition, the lessors generally are more creditworthy, which gives them better access to capital at more attractive pricing than many airlines. On Jan. 1, 2013, export credit financing costs increased for aircraft because of higher pricing and equity contributions, which led more airlines to lease aircraft because it became more cost-efficient; more recently, the U.S. and European export credit agencies have been virtually precluded from providing guarantees on new aircraft deliveries. As a result, we expect airlines will find it more cost-efficient to lease APRIL 17,

19 aircraft; thus, lessors are expected to continue to take over some of their orders through sale/leaseback transactions. Many European banks curtailed their lending to the aviation sector during the financial crisis. Beginning in 2010, the capital markets stepped up their involvement in the aviation sector, raising secured and unsecured financing to fund new aircraft deliveries and refinance debt maturities. Not only has this trend continued, but European banks have returned to the market, and banks in other regions, particularly Asia, have either increased their lending or entered this market for the first time. In addition, some aircraft lessors have accessed other types of capital, including equity infusions from their parent companies (many are owned by financial institutions) or IPOs. A number of large aircraft portfolios have also been sold, including Genesis (to AerCap) in 2010; RBS Aviation Capital (now called SMBC Aviation) was acquired by Sumitomo Mitsui Banking Corp. in May 2012 for $7.3 billion; and in early 2013, Mitsibushi UFJ Lease and Finance Co. acquired start-up aircraft lessor Jackson Square Aviation LLC for around $1.3 billion. In addition, in May 2014, after numerous attempts to sell or issue an IPO, International Lease Finance Corp. was acquired by AerCap for $3 billion in cash and approximately 46% of the company's stock (approximate $7 billion total). In 2014, Avolon completed its IPO and was subsequently acquired by HNA Group Co. Ltd. in January 2016 and has since been combined with Hong Kong Aviation Capital Ltd. Also, in early 2016, AWAS Aviation Capital sold about 90 aircraft to Macquarie Group Ltd. Bank of China Aviation completed an IPO in mid-2016, while Aviation Capital Group Corp. has stated its intent to file for an IPO in the near future. Most recently, Avolon acquired CIT Aviation on April 4, 2017, and the combined entity became the third-largest aircraft lessor. At the same time, Chinese banks and other entities have been building up their aircraft lease portfolios. Servicer Review ALC and ALC Ireland are the servicers for the transaction. ALC will provide a performance guarantee to ALC Ireland. They will provide the transaction with re-lease remarketing, aircraft sales, and other professional services. ALC (listed on the New York Stock Exchange), founded in 2010, is a mid-tier, rapidly growing provider of aircraft operating leases. It primarily focuses on purchasing new commercial aircraft through direct orders from Boeing and Airbus, and leasing these aircraft to airlines worldwide. ALC's senior management team previously worked together at International Lease Finance Corp. (ILFC). ALC's executive chairman, Steven Udvar-Hazy, was a founder of ILFC and was its CEO until Mr. Hazy started ALC in February 2010 with former ILFC chief operating officer John Plueger, who became CEO of ALC on July 1, As of Dec. 31, 2016, the company's fleet consisted of 237-owned and 30-managed aircraft leased to 91 airlines in 53 countries. ALC's fleet is one of the youngest in the industry and is heavily concentrated in aircraft models that have strong demand and resale liquidity. Close to 50% of ALC's fleet is leased to airlines in the Asia-Pacific region (including China), where demand is expected to continue to grow at a faster pace than in any other region. We expect ALC to continue to benefit from this trend. Although the growth of the Chinese economy has slowed somewhat, we expect that the expansion of the services sector will outpace that of the industrial sector, resulting in continued strong demand for air travel. ALC is considered to be a part of the mid-tier of aircraft lessors. This tier also includes Babcock & Brown Air APRIL 17,

20 Ltd.(including Fly Leasing Ltd.), Aviation Capital Group Corp., SMBC Aviation Capital Ltd., AWAS Aviation Capital Ltd., Bank of China Aviation Pte Ltd., Avolon Holdings Ltd., and Aircastle Ltd. However, these companies' aircraft fleets are much smaller than those of first-tier lessors GE Capital Aviation Services Ltd. and AerCap Holdings N.V. in terms of both the number and value of their aircraft. ALC has achieved its current size much more rapidly than any of the other aircraft leasing companies, and it has a substantial order book for new aircraft deliveries. As of Dec. 31, 2016, ALC had 363 aircraft on order from Boeing and Airbus scheduled for delivery from 2017 through As a result, we believe that the company's growth will allow it to rank among the largest of the second-tier aircraft lessors within the next few years. ALC is rated 'BBB/Stable'. S&P Global Ratings assesses ALC's business risk profile as "satisfactory" and its financial risk profile as "intermediate." S&P Global Ratings also currently rates eight other aircraft lessors that have standalone credit profiles in either the 'BB' or 'BBB' categories, although two are rated 'A-' due to S&P Global Ratings' assessment of their strategic importance to their parents. Although ALC's primary asset focus is on young, new-technology, liquid aircraft, we believe ALC's ability to market and re-lease mid-life aircraft in a timely manner and to dispose of aircraft that are near their useful lives is sufficient due to management's longstanding experience in this sector. Other Service Providers Managing agent As managing agent, Phoenix American Financial Services Inc., provides corporate administrative services, appraisal arrangements, cash management, and other services. Maintenance appraiser The borrower contracted ICF International to forecast the transaction's life-time maintenance-related cash flows before the transaction closes. After the transaction closes, ICF International will provide a forward-looking 24-month maintenance expense projection annually. Initial liquidity facility provider Citibank N.A. (A+/Stable/A-1) will provide a liquidity facility that may be drawn on to pay expenses, any senior hedge amounts due, and interest on the series A and B notes. The rating on Citibank N.A. is consistent with our counterparty criteria to support the preliminary ratings we assigned to the series A and B notes. The transaction's threshold rating requires a long-term unsecured credit rating of 'A' or better when the series A notes are outstanding. When the series B notes are the senior-most outstanding notes, the threshold rating is 'BBB'. Aircraft Substitution The transaction cannot purchase aircraft or substitute aircraft after the end of delivery period. APRIL 17,

21 Notes Amortization Schedule Scheduled amortization The series A and B notes' scheduled principal payment follows a straight-line 14-years-to-zero amortization profile in the first five years and a straight-line 10-years-to-zero amortization profile in years six and seven. The series C notes' scheduled principal payment follows a straight-line seven-years-to-zero amortization profile. Similar to the majority of recently rated aircraft securitization transactions, this transaction has an expected final payment date (seven years after closing), after which the series A and B notes' amortization will be full turbo after scheduled principal payments. Excess proceeds payment The excess proceeds payment equals the pro rata portion of 105% of any excess proceeds collected. Excess proceeds include end-of-lease payments, proceeds or fees associated with a lease restructuring or lease termination, lease payments under a green-time lease, payments relating to the re-leasing of an asset at the time of such re-leasing, the adjusted base value of the asset is less than 75% of the product of the notes' outstanding principal balance, the aircraft's asset allocable debt percentage (at closing), and other payments by a lessee in lieu of maintenance, future lease payments, or other obligations under a lease. Early amortization An early amortization event is any of the following: DSCR is below 1.15x within a three-month period from the six-month anniversary of the initial closing date; or The utilization test is breached (less than 75% of the adjusted portfolio value of the aircraft is utilized) within a three-month period. Rapid amortization A rapid amortization event is the occurrence of the seventh anniversary of the initial closing date. If a rapid amortization event or an early amortization event has occurred and is continuing, as long as no event of default has occurred and is continuing, the series A and B notes will receive 100% of the remaining available collections in a sequential order. Cash trap A DSCR cash trap event occurs on a payment date occurring on or after the sixth payment date after the initial closing date when the DSCR for that payment date or either of the two immediately preceding payment dates is less than 1.20x. If a DSCR cash trap event has occurred and is continuing but no senior rapid amortization event has occurred and is continuing, all the remaining collections will be transferred to the cash trap account. APRIL 17,

22 Payment Priority Payment priority before an event of default The collection account amount (lease rental and net disposition proceeds) is payable on each payment date in the following priority if there is no event of default (see table 8). Table 8 Collection Account Payment Priority (Before An Event Of Default) Priority Payment 1 Expenses including service provider fee and indemnification amounts capped at $10 million. 2 Pro rata, interest payments on the series A notes (other than step-up amounts) and hedge payments, if any. 3 Interest payments on the series B notes (other than step-up amounts). 4 Pro rata, to top up the liquidity facility reserve account and to pay liquidity facility advance obligations. 5 So long as an early amortization event or a rapid amortization event has not occurred and is not continuing, to the series A noteholders, the scheduled principal payment amount for the series A notes. 6 So long as an early amortization event or a rapid amortization event has not occurred and is not continuing, to the series B noteholders, the scheduled principal payment amount for the series B notes. 7 To the security deposit account, the security deposit required amount. 8 To the maintenance reserve account, (a) so long as an early amortization event or a rapid amortization event has not occurred and is not continuing, an amount equal to the lesser of (i) the maintenance reserve required amount and (ii) 80% of available collections remaining after distributions made pursuant to steps 1 through 7 or (b) upon the occurrence and during the continuance of an early amortization event or a rapid amortization event, the maintenance reserve required amount. 9 During a cash trapping event and in the absence of an early amortization event or a rapid amortization event, all remaining amounts to the cash trap account. 10 If an early amortization event or a rapid amortization event has occurred and is continuing, to the series A notes until the outstanding principal balance has been paid in full. 11 If an early amortization event or a rapid amortization event has occurred and is continuing, to the series B notes until the outstanding principal balance has been paid in full. 12 To the series C noteholders, the series C payment-in-kind balance, if any, for the series C notes. 13 To the series C noteholders, interest payments due and payable to the series C notes. 14 To the series C noteholders, the scheduled principal payment amount for the series C notes. 15 If an early amortization event or a rapid amortization event has occurred and is continuing, to the series C notes until the outstanding principal balance has been paid in full. 16 After the expected final payment date, step-up interest on the series A notes. 17 After the expected final payment date, step-up interest on the series B notes. 18 Subordinated expenses above the cap amount and subordinated hedge payments, if any. 19 Outstanding disposition premium first, to the series A notes, second, to the series B notes and, third, to the series C notes. 20 To the aircraft disposition contribution account, an amount equal to any deposit that is designated in a board resolution, if applicable. 21 To the aircraft purchase account, an amount equal to any accrual for discretionary aircraft modifications that is designated in a board resolution, if applicable. 22 On and after the earlier of the date all of the notes are paid in full and the last final maturity date, to pay intercompany obligations between Tbolt Cayman and Tbolt USA. 23 Pay a distribution by Tbolt USA to Tbolt Cayman. 24 To the E certificate, all remaining amounts. DSCR--Debt service coverage ratio. APRIL 17,

23 Payment priority following an event of default The lease rental and the net disposition proceeds are payable on each payment date in the following priority after an event of default (see table 9). Table 9 Collection Account Payment Priority (Following An Event Of Default) Priority Payment 1 Expenses including service provider fee and indemnification amounts. 2 Liquidity facility advance obligations. 3 Pro rata to pay series A notes' interest amount and hedge payment; 4 Series A notes' outstanding principal balance. 5 Series B notes' interest amount. 6 Series B notes' outstanding principal balance. 7 Series C notes' payment-in-kind balance. 8 Series C notes' interest amount. 9 Series C notes' outstanding principal balance. 10 On and after the expected final payment date, series A notes' step-up amount. 11 On and after the expected final payment date, series B notes' step-up amount. 12 Subordinated hedge payments. 13 Disposition premium first to series A notes, second to series B notes, and third to the series C notes. 14 On and after the earlier of the date all of the notes are paid in full and the last final maturity date, to pay intercompany obligations between Tbolt Cayman and Tbolt USA. 15 Pay a distribution by Tbolt USA to Tbolt Cayman. 16 All remaining amounts to the E certificateholders. Payment priority for aircraft disposition distribution So long as no event of default or rapid amortization event has occurred and is continuing, the balance in the aircraft disposition account allocable to a subject disposition and/or excess proceeds, as applicable, to be applied in the following order of priority on a payment date. Table 10 Disposition Account Payment Priority (No event of default or rapid amortization event has occurred and is continuing) Priority Payment 1 Repay liquidity facility drawn amount and interest. 2 Unpaid sales fees to the servicers. 3 Disposition paydown amount to the series A notes. 4 Disposition paydown amount to the series B notes. 5 Pro rata, 5% of disposition paydown amount to the series A notes and 5% disposition paydown amounts to the series B notes. 6 Disposition hedge termination payment. 7 Disposition premiums to series A and B notes, pro rata. 8 First, excess proceeds payment to the series A notes; Second, excess proceeds payment to the series B notes. 9 During an early amortization event, series A notes' outstanding principal amount. 10 During an early amortization event, series B notes' outstanding principal amount. APRIL 17,

24 Table 10 Disposition Account Payment Priority (No event of default or rapid amortization event has occurred and is continuing) (cont.) Priority Payment 11 Unpaid series A notes' scheduled principal payment amount under table Unpaid series B notes' scheduled principal payment amount under table % of disposition paydown amount to the series C notes. 14 Disposition premium to the series C notes. 15 Excess proceeds payment to the series C notes. 16 During an early amortization event, series C notes' outstanding principal amount. 17 Unpaid series C notes' scheduled principal payment amount under table Pay intercompany obligations between Tbolt Cayman and Tbolt USA. 19 All remaining amounts, to the E certificateholders. Events Of Default Each of the following constitutes a borrower event of (subject to certain cure periods and grace periods) under the borrower's document: Failure to pay when interest (excluding any step-up amount) is due on the series A notes or failure to pay when interest (excluding any step-up amount) on the series B notes is due when the series B notes are the senior-most series outstanding, and the failure is not cured in five business days; Failure to pay the series A, B, or C notes' outstanding principal or failure to pay all accrued and unpaid interest amounts (excluding step-up amounts) on the series A, B, or C notes on the legal final maturity date; Failure to pay any other amount when due and payable in connection with any notes to the extent that there are available amounts in the collection accounts or under the liquidity facility, and the failure is not cured in ten business days; Failure to comply with any of the representations, warranties, covenants, or obligations under the transaction documents; The issuers' voluntary or involuntary bankruptcy; or A judgment or order for the payment of money exceeding 5% of the aggregate adjusted portfolio value. Cash Flow Analysis Assumptions To assess the portfolio's ability to service the rated series A, B, and C notes, we conducted our own stress tests built around a few deterministic scenarios. The stress test assumptions include: Lessee defaults; Reduced rental rates on leases during a recession; Diminished residual value for aircraft during a recession; The repossessed aircraft's off-lease time period; New leases' shortened terms; Remarketing/reconfiguration/repossession (RRR) costs; Deferred maintenance; and APRIL 17,

25 Reduced security deposit requirements. Recession assumptions In general, we assume one recession will occur in every seven- to 10-year commercial aviation industry cycle, which reflects the industry's historical averages. For aircraft with 25-year useful lives, we typically model three four-year-long recessions. During the first two modeled recessions, we usually stress both the lease rates and residual values. For the third recession, when we believe most of the planes in the portfolio would have reached the end of their useful lives, we usually stress only the residual values because the aircraft's sale will likely generate the majority of the cash flow during this recession. As the transaction's remaining cash flow lasts for only 17 years under our useful life assumption, we shortened the third recession to two years. Table 11 Recession Timing Rating A BBB- BB Recession 1 start (mos.) Recession 2 start (mos.) Recession 3 start (mos.) Length of the first and second recessions (years) Length of the third recession (mos.) Lessee defaults assumptions We use our CDO Evaluator to generate the aircraft portfolio-level default rate. The simulation model inputs include lessee name, lessee credit quality, aircraft value, correlation within the airline industry, lessee country, country rating, and correlations among countries and regions. For airline lessees in the portfolio that S&P Global Ratings does not rate, we will provide a credit assessment based on public information. In general, we view the airline industry as high-risk. Our assessment reflects our view of the sector's high-risk cyclicality based on observed cyclicality in revenue and profit margins and its moderately high-risk competitive risk and growth. This model enables us to address lessee industry, country, and region by running 500,000 correlated simulation scenarios to address the lease portfolio's concentration risk instead of setting a hard percentage limit on lessee, country, and region concentration. Under our default simulation model, a concentrated portfolio will have a higher portfolio default rate and less generated cash flow. Once the portfolio default rate is determined, we run a few deterministic default patterns such as defaulting by highest to lowest aircraft value, defaulting by lowest to highest credit quality lessee, and defaulting by highest to lowest lease rental. In all of the runs, defaulting by highest to lowest aircraft value usually provides the most onerous result, and we use this as a rating run. Table 12 Lessee Default Rate Rating A BBB- BB Lessee default rate (recession 1) (%) APRIL 17,

26 Table 12 Lessee Default Rate (cont.) Rating A BBB- BB Lessee default rate (recessions 2 and 3) (%) Lease rate assumptions in and outside recessions The lease rates outside recessions are based on the interest rate environment and aircraft age. During recessions, we apply reductions to a projected base-case depreciated value to stress lease rates and values. The decline magnitude is generally determined by the aircraft model's liquidity and technology level, the servicer's remarketing and disposition capability, the aircraft diversification, and the transaction's rating level. Such lease rate/sale-to-value declines reflect our view of a particular portfolio's ability to maintain cash flow consistent with the ratings on obligations that are backed by the portfolio during recessions. This stress is intended to result in lower residual values of the aircraft or the aircraft engines sold or lower rental rates on planes or aircraft engines re-leased during recessions. We model the lease rate decline in full during the second and third years of a recession, but we apply 50% of the declining lease rate in the first and last years of the recession. This assumption reflects our view that aviation industry recessions, particularly the aircraft values' and rental rates' decline and recovery, typically take time. Table 13 Lease Rate/Value Decline Rating A BBB- BB Value decline (recession 1) (%) Value decline (recessions 2 and 3) (%) Repossession and remarketing period assumptions The repossession period is the time it takes for the lessor to repossess an aircraft or an aircraft engine if the defaulting lessee has not agreed to a voluntary return of the equipment. The remarketing period is the time necessary to find a new lessee once the aircraft or engine has been returned to the lessor. In summary, we assume three months aircraft-on-ground time outside a recession and six to 12 months during a recession. Within a recession, we assume a longer remarketing period. Table 14 Repossession/Remarketing Time Rating A BBB- BB Repossession/remarketing time (in recession) (mos.) Repossession/remarketing time (outside recession) (mos.) RRR cost assumptions If a lessor has to repossess an aircraft or aircraft engine, it will typically incur various costs related to legal work, insurance, pilot expenses, fuel, storage, technical check, and deregistration documents. These costs are in addition to the refurbishment or modifications necessary to re-lease the aircraft or the aircraft engine. We generally assume a APRIL 17,

27 wide-body plane has higher RRR costs than a narrow-body plane, a passenger plane has higher RRR costs than a freighter, and higher RRR costs can occur during a recession. Table 15 Repossession/Remarketing/Refurbishment Costs Rating Repossession costs (narrow-body passenger and regional) ($) Repossession costs (wide-body passenger) ($) A BBB- BB 500,000 in recession; 350,000 outside recession 1,500,000 in recession; 1,000,000 outside recession 500,000 in recession; 350,000 outside recession 1,500,000 in recession; 1,000,000 outside recession 500,000 in recession; 350,000 outside recession 1,500,000 in recession; 1,000,000 outside recession Lease terms assumptions For re-leasing events, we typically assume lease terms of three years during each recession. We also assume five-year lease terms for re-leasing events outside of a recession. Table 16 New Lease Term Rating A BBB- BB Lease term (in recession) (years) Lease term (outside recession) (years) Security deposit assumptions Similar to most aircraft securitizations rated by S&P Global Ratings, the seller transfers the security deposits under the initial leases to the borrowers when the related aircraft is delivered into the transaction. Security deposits held by the borrowers can help partially offset the defaulted rent and RRR costs if a lessee defaults. We typically incorporate the security deposits into our modeling after reducing the amount by a haircut up to 40% of the security deposits for initial leases (the higher percentage reductions correspond to the higher rating levels). For modeling purposes, we assume no security deposits for subsequent leases. Table 17 Security Deposit Haircut Rating A BBB- BB Security deposit haircut (%) Aircraft Maintenance Aircraft maintenance, which is heavily regulated, is essential in aircraft operation to keep them in serviceable and reliable condition. An aircraft's maintenance status is also important in determining its value, especially for older aircraft. Depending on the type of work, such as airframe maintenance, airframe component maintenance, and engine maintenance (including engine performance restorations and limited-life part replacements), aircraft maintenance can be costly. APRIL 17,

28 Lessors typically manage the maintenance expense exposure by either requiring lessees to pay maintenance reserves (also referred to as maintenance or utilization rent) during the lease or requiring an end-of-lease maintenance-adjustment payment if no maintenance reserve is collected. In the former, the regularly collected maintenance reserves are typically calculated based on flight hours and flight cycles. When due, lessees typically have the maintenance work done, pay the maintenance provider, and then claim a reimbursement from the lessor from a maintenance reserve account (funded by a maintenance reserve collection). In the latter, if the lessee defaults on the lease and doesn't pay an end-of-lease maintenance-adjustment payment, the lessor will have to bear the potential maintenance exposure when the aircraft is returned. For this portfolio, the initial aircraft leases contain provisions specifying maintenance standards and the aircraft's required condition on redelivery. Some of the initial leases require the lessee to provide monthly maintenance reserves, and others do not have regular payment provisions. Specifically, of the initial 19 leases, 13 require monthly cash maintenance reserve payments. Maintenance Cash Flow Assumptions Maintenance cash flow is an integral part of our cash flow model. We input the aircraft maintenance cash flow (month-by-month maintenance reserves and expenses) ICF International generates into our overall cash flow model and model the maintenance account activity per the maintenance account mechanism outlined in the transaction documents. For the initial fleet, the ICF International model forecasts each aircraft's utilization rates and conditions, according to the existing contractual lease terms and projected future lease terms, together with the associated maintenance-related cash flows. Specifically, the model predicts the timing and lessor-related inflows and outflows associated with airframe (heavy checks), engine (performance restorations and life-limited part replacements), and component (landing gear and auxiliary power unit overhauls) maintenance. The model does not forecast cash flows for remarketing, lease transition, repossession, etc. The ICF International analysis includes both base- and stress-case scenarios. The base-case scenario (a cash flow run without any stresses) assumes all aircraft remain subject to existing lease agreements through the initial leases' contractual expiration dates, and then that each aircraft will be re-leased to consecutive new lessees until each aircraft reaches its assumed retirement age. Among other assumptions, the base-case scenario assumes that all payments are made in a timely manner and that no events of default occur. For the stress-case scenarios, ICF International provided stress scenario maintenance projections using a set of stress scenario assumptions consistent with our sector-wide stress maintenance projection assumptions as outlined in "S&P Outlines Maintenance Analysis For Aircraft/Aircraft Engine-Backed Securitizations," published June 11, The article outlines recessionary periods, default rates, default timing, RRR duration, the new lease's length, the percentage of subsequent leases paying a maintenance reserve, and maintenance delay timing. Given the uncertainty as to how many new leases would require maintenance reserve payments after the initial leases mature, the stress maintenance projection assumes that the number of leases that have maintenance reserve requirements will decline by 50% after APRIL 17,

29 the initial leases mature in the stress-case scenario. The stress maintenance projection further assumes that aircraft subject to defaulted leases have had no major maintenance performed within the 12 months before the default so that the transaction will bear any required major maintenance costs. Utilizing these assumptions and ICF International's own assumptions on aircraft and engine maintenance expenses and timing, ICF International ran a set of Monte Carlo simulations involving 250 trials in which specific lease defaults and the timing of such lease defaults varied and then took the average of the maintenance-related cash inflows/outflows. Under a "high" default rate scenario, for the maintenance cash flow period up to the end of the asset's useful life, ICF International projected the total maintenance-related cash inflows to equal approximately $303 million in an 'A' rating stress, $315 million in a 'BBB-' rating stress, $322 million in a 'BB' rating stress, and $386 million in a base case; the total maintenance-related outflows would equal approximately $362 million in an 'A' rating stress, $366 million in a 'BBB-' rating stress, $373 million in a 'BB' rating stress, and $324 million in a base case. Therefore, the cumulative projected maintenance profit/loss equals approximately $59 million loss in an 'A' rating stress, a $51 million loss in a 'BBB-' rating stress, a $51 million loss in a 'BB' rating stress, and a $62 million surplus in a base case. Chart 5 shows the cumulative maintenance profit/loss under base-case, 'A', 'BBB-', and 'BB' stress scenarios. Chart 5 APRIL 17,

30 The transaction has a maintenance reserve account that is expected to have a $30 million initial balance. According to the transaction documents, the maintenance reserve will be put into the collection account. The maintenance expenses will be drawn first from the maintenance reserve accounts and, if insufficient, then from the collection account. After paying senior fees, interest on the series A and B notes, liquidity facility advances, the series A and B notes' scheduled principal payments, and security deposit reserve amount, 80% of the remaining available collection (if no early amortization event or rapid amortization event has occurred and is continuing) or 100% of the remaining available collection (if an early amortization event or a rapid amortization event has occurred and is continuing) will be used to top up the maintenance reserve account so that the maintenance reserve account can maintain a required amount equal to the higher of the maintenance reserve minimum amount and the sum of the following projected future months' maintenance expenses: Before the third anniversary of the initial closing date, 100% of maintenance expense in month one, 90% in month two, 80% in month three, 70% in month four, 70% in month five, 60% in month six, 60% in month seven, 50% in month eight, 50% in month nine, 40% in month 10, 20% in month 11, and 10% in month 12. On and after the third anniversary of the initial closing date, 100% of maintenance expense in month one, 90% in month two, 80% in month three, 70% in month four, 60% in month five, 50% in month six, 40% in month seven, 30% in month eight, 20% in month nine, and 10% in month 10. The maintenance reserve minimum amount equals to: $32 million from month one to month 12 after the initial closing date; $29.25 million from month 13 to month 24 after the initial closing date; $20 million from month 25 to month 36 after the initial closing date; $15 million from month 37 to month 48 after the initial closing date; $15 million from month 49 to month 60 after the initial closing date; $10 million from month 61 to month 72 after the initial closing date; $5 million from month 73 to month 84 after the initial closing date; and $3 million thereafter. After the transaction closes, ICF International will perform maintenance expense projection for the forward-looking 24 months once a year. Amounts on deposit in the maintenance reserve account may be used only to fund maintenance costs. Cash Flow Analysis Results Our ratings approach considered cash flow primarily from the 19 assets in the portfolio. Cash is generated from lease or replacement lease payments, aircraft/engine disposition proceeds, and the liquidity facility. Under our stress scenarios commensurate with our preliminary 'A (sf)' rating, the cash flow results showed that timely interest and ultimate principal on the series A notes would be paid off by March Under our stress scenarios commensurate with the preliminary 'BBB- (sf)' rating, the cash flow results showed that ultimate interest and principal on the series B notes would be paid off by March Under our stress scenarios commensurate with the preliminary 'BB (sf)' rating, the cash flow results showed that ultimate interest and principal on the series C notes would be paid off APRIL 17,

31 by November Chart 6 below shows the lease revenue projections in 'A' rating run, 'BBB-' rating run, and 'BB' rating run, and base-case scenarios. Chart 6 Chart 7 below shows the series A, B, and C notes' scheduled amortization curves. APRIL 17,