Understanding loans on Ablrate

The most recent loans have been the two "New Marine Containers" loans for borrower Ca******. You can find them on the secondary market because they filled shortly after being made available. The physical containers from the loan without July 2015 are currently either in the container ship at Felixtowe container port, ashore there or in transit to their UK locations at the moment because ti appears that the ship Merete Maersk that they were shipped on is in Felixtowe at the moment. Don't know which ship the July loan's containers is on but they are probably in transit in the far east at the moment.

The container loans are secured on a combination of the physical containers and the invoice for the agreed purchase of part of the container order. The loans pay 14% interest with no capital repayments until the end but you're unlikely to find them on the secondary market at 14%, 10-12% is more likely.

Hello stevio. Feel free to drop one of us a line by email or DM on the site (ablrate is the boss). We have a document lurking that may answer some of your questions.

In answer to some of your questions :


Who owns the aircraft?



Generally the aircraft are owned by a special purpose company and this will be a company (Special Purpose Vehicle (SPV or SPC)) containing just one aircraft and the associated rights to lease payments, insurance etc. This keeps everything segregated so that a failure to pay on one contract does not impact another.


What happens to the aircraft if loan is not paid?


There are two situations here that you need to consider. 

1. If a lease payment is not made, generally there would be enough cash in the SPV (from overpayments and maintenance reserves) to make the loan payments for a short time anyway. If it was a continuing situation we would seek to terminate the lease and find a new client for the aircraft. 

2. If a loan monthly payment is not made, Ablrate Assets Ltd acting on behalf of the lenders would pursue the SPV and if necessary force a re-lease or enforce a sale to recover money. We have a charge over the aircraft that effectively allows us to ground it if payments are not made in a timely manner (we hold something called a deregistration certificate).


The final point is that the repayment of capital depends upon us being able to re-sell the aircraft or re-finance it at maturity of the loan. Bearing in mind that we know with 3 years notice when a loan is due to mature, we work with the borrower to ensure that ducks are lined up to make the repayments.


How much security is there in the aircraft, who else has a claim on it and where in line would we stand?



"It depends". If we grow fast enough then our loans will be senior because we will be providing all of the financing. In some cases we are a second charge. We always clarify this. Bear in mind that the profit for the lessor (ie. Phoenix mainly) comes at the end of the lease. Over the life of the loan they take a very low fee per month to cover administration costs and everything else goes into the SPV. They aim to make their money by selling or re-financing at maturity and only get paid out AFTER the lenders.

What's the depreciation like on an aircraft?



"It depends" . I can send you a depreciation table on ATRs as a good example. They are generally assumed to have a 25 year life and depreciate fastest in the first five years. All of our loans contain a predicted future value of the aircraft. In the sector that we deal in, generally depreciation is low and the aircraft have historically outperformed predicted future values by a good margin.


How easy is it to sell an aircraft - how long to sell?



We have a long lead time and so whilst it can take weeks to sell an aircraft, we have years to arrange the sale or re-lease. Generally our aircraft would be sold "lease attached" which makes them more desirable.

Some loans with the same company are showing as missed payments - but was does that actually mean?


That means that the boss has accidentally paid it into lender accounts after midnight instead of at 23.59. None of our loans have ever had a late payment.

Who's leasing to who?



Generally, we are providing use of the aircraft to a leasing company (often Phoenix) who then lease it to an airline, government or corporate. The lease cashflows are then paid to the SPV and Phoenix are paid a management fee. This is always detailed. Sometimes the lease is for the full length of the loan but sometimes it is shorter or longer. The key to valuing an aircraft is to understand who is leasing it. For example, we have a few out to government-owned airlines who are highly unlikely (imho) to default because they need to keep the routes operating. We also lease to corporates who are delivering bits and pieces to remote Indonesian company outposts etc


Phoenix Aircraft Leasing is?



Phoenix is run by Tony Griffin who is an old hand in the market. Our sector is about personal relationships - we aren't trying to lease A380s to Emirates (largely cos that would only yield around 3%). 

What are maintenance reserves?



The great thing about aircraft is that they are heavily monitored independently by a company called Ascend. They record all take-offs, landings, pressurisations etc so we can see how heavily used the aircraft is. In conjunction with a lot of due diligence before we lend on an aircraft, we know its exact state and can accurately predict exactly when things need servicing, when tyres need replacing etc. We want the aircraft to come back in a good state and when we sign a lease we give the lessee a list of anticipated repairs over the life of the lease and the cost. They are responsible for these costs. However, instead of relying upon them having the cash on hand, we charge a "Maintenance Reserve" each month that allows us to build up a pot of money to pay for repairs as they fall due. At a simple level, we would receive X per month based upon spending 6X in month 6. This means that no lessee should ever have an unexpected maintenance expense. This money is held in the SPV. Generally the actual expenses are lower than what we collect. If a lessee defaults they would struggle to recover this extra cash from us as we would set off against expenses and missed payments so whilst technically we wouldn't normally include this as security, it is a bit of a case of "possession is 9/10 of the law".


If a company is leasing an aircraft for x, do we not need to know how much they make from using the aircraft and selling the seats onboard etc to know if that covers the amount they are paying for the lease?


Generally I would say not. It would however be prudent to consider the financial strength of the lessee though, which is why we are selective on who we lease to - can they afford the payments and do they have a good history? We do not lease to people who have previously missed lease payments to anyone. 

This link should help with aircraft valuations. 

Andy, are there likely to be any more aircraft loans in the forseeable future? I'd much rather be investing in those than bundled SME loans (or even shipping containers!)

Me too. In my opinion and in general terms you can't beat aircraft loans for the level of security offered.

I suspect the answer to your question depends on getting the underwriting sorted as well as launching Ablrate in Singapore and Australia (which doesn't seem to have happened yet) which should reduce the level of underwriting required.