Feature: ABS, a mysterious absence

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29 April 2011

Lenders and lessors discuss how the asset-backed securitization market will return and what deals may look like.

Securitization became a bad word when the capital markets closed in September 2008. Babcock & Brown Aircraft Management was the last aviation issuer of securitized paper, in 2007. So while the capital markets have returned for other aviation products, aviation asset-backed securities (ABS) have not.

However, lenders and lessors say the next securitization may not be far off. Other transportation sectors, such as rail and shipping, have already closed ABS transactions in the past six months. There appears to be investor demand for asset-backed paper, but when aviation ABS deals will return remains a mystery.

Structural changes
There have been two generations of aircraft securitization. In the first phase, the deals where highly structured, highly leveraged, had many mezzanine- and junior-type tranches and left little room for volatility of cash flows.

"Because of the high leverage, they had onerous conditions on the operator in terms of the flexibility to manage underlying assets,"...

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