News Column

Fitch Rates CIT Aviation Finance III Ltd.

July 3, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns the following rating and Outlook to CIT Aviation Finance III Ltd. (CAF III):

--$ 640,000,000 class A-1 notes 'Asf'; Outlook Stable.

The CAF III notes are backed by payments pursuant to operating leases and disposition proceeds on a portfolio of 21 narrowbody, four widebody and three regional commercial aircraft manufactured by Airbus (A), Boeing (B) and Embraer (E). CIT Aerospace International (CITAI) is servicer of the assets, responsible for ongoing leasing activities, including remarketing and servicing of new leases, procuring maintenance and disposition of the aircraft, as directed by the CAF III board.

Key Rating Drivers

Quality of the Portfolio: The pool is of high quality, of a majority of which comprises young tier 1 aircraft with generally long expected remaining useful lives. However, the pool also has material concentrations of older aircraft and tier 2 assets, which Fitch perceives to be less liquid and were stressed accordingly. The transaction benefits from a long average remaining lease term.

Technological Risk Related to the Assets: Despite their current popularity, the pool is predominantly composed of aircraft that face replacement programs in the latter half of this decade. Fitch expects that the large operator bases and long lead time to replace these assets will partially mitigate this risk.

Concentrations in Poor Credit Quality Lessees: CAF III carries significant lessee concentrations, and all leases are extended to unrated or speculative grade lessees. Fitch assumed unrated lessees would perform consistent with a 'B' Issuer Default Rating (IDR) to reflect increased default risk. The rating was assumed to be one notch to one category lower during assumed recessionary periods.

Cyclicality of the Commercial Aviation Industry: Commercial aviation has historically been subject to significant cyclicality stemming from macroeconomic downturns. These periods are typically marked by reduced asset utilization, values and lease rates. Fitch's analysis assumes multiple periods of significant volatility in asset values and lease rates over the life of the transaction.

Structure, Credit Enhancement and Cash Flow Stress Results: Credit enhancement (CE) is primarily composed of overcollateralization (OC) and a liquidity facility. The transaction also benefits from DSCR and utilization rate performance triggers, which could accelerate amortization. Fitch created multiple cash flow scenarios to evaluate the structure, as detailed in this report.

Heavy Servicer Reliance: CAF III will depend on CITAI's ability to collect lease payments and maintenance reserves, remarket and potentially repossess the aircraft following lessee default and procure maintenance, among other functions, which are all crucial to the assets' values and transaction performance. Fitch believes CITAI, a leading aircraft lessor, to be capable of performing these functions on behalf of CAF III.

The proceeds of the offering by CAF III will be paid primarily to affiliates (or associated trusts) of CITAI selling the aircraft to CAF III. CITAI is a wholly owned subsidiary of CIT Group Inc. (Not rated publicly by Fitch).

RATING SENSITIVITIES

Due to the correlation between the global economic conditions and the airline industry, the ratings may be impacted by the strength of the macro environment over the remaining term of these transactions. A such, in its review of CAF III Fitch evaluated scenarios that simulated various timing and severity of future recessions that would impact the transaction through reduced aircraft values, lease rates and utilization levels. Under these scenarios, the class A-1 notes showed little rating sensitivity.

Additionally, changes in the airline industry can have significant impact on the ratings of these transactions. If the timing of or degree of technological advancement commercial aviation space differed materially from Fitch's expectations, performance could be affected. Similarly, factors influencing the supply of and demand for the certain aircraft types present in the trust portfolios could impact Fitch's view of the transactions' ability to avoid a default on the notes and, thus, could result in negative rating actions. In a review of sensitivities designed to mimic significant drops in aircraft demand and shorter asset useful lives owing to these factors, the class A-1 notes were shown to have only minor rating sensitivity, retaining investment grade ratings in all cases.

Fitch's stress and rating sensitivity analysis are discussed in the presale report titled 'CIT Aviation Finance III Ltd.', dated June 27, 2014, which is available on Fitch's web site.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Rating Criteria for Aircraft Operating Lease ABS', dated April 11, 2014;

--'Global Structured Finance Rating Criteria' dated May 20, 2014;

--'CIT Aviation Finance III Ltd.' dated June 27, 2014;

--'Counterparty Criteria for Structured Finance and Covered Bonds' dated May 13, 2013.

Applicable Criteria and Related Research:

Global Rating Criteria for Aircraft Operating Lease ABS

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742479

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821

CIT Aviation Finance III Ltd. (US ABS)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750852

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=837899

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Peter Manofsky

Director

+1-312-368-2068

Fitch Ratings, Inc.

70 W. Madison St.

Chicago, IL 60602

or

Secondary Analyst

Timothy McNally

Analyst

+1-212-908-0870

or

Committee Chairperson

John Bella Jr.

Managing Director

+1-212-908-0243

or

Media Relations

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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