S&P: Ratings On Blade Engine Securitization Ltd. Series 2006-1 Class A-1, A-2, And B Notes Lowered
The rating actions primarily reflect the rated notes' increased loan-to-value (LTV) ratios, the underlying engine portfolio's deteriorated rental and residual cash-generating ability, and the fact that the class A-1 and A-2 notes still receive the minimum principal payments while the class B notes' interest is covered by the junior reserve.
The aircraft engine portfolio consisted of 36 engines as of September 2016. The majority of the engines are powered on end-of-production aircraft, which typically diminishes the engines' re-leasing and sale prospects. In recent years, a few engines in the portfolio have been sold at a price below the note target price. With the lower of the mean and median (LMM) of the updated maintenance-adjusted base values of the portfolio as of June 2016, and with the adjustment made for off-lease engines (which results in a $221 million adjusted engine value), the LTV of the class A-1 and A-2 notes rose to about 90% and the LTV of the class B notes rose to about 98% as of September 2016.
In recent payment periods, the class A-1 and A-2 notes had only received minimum principal payments, while the class B notes had not received any minimum principal payments. The class B notes' interest had been covered by the junior cash reserve. As of Sept. 15, 2016, the junior cash reserve had a balance of $2.59 million, and the class B notes' interest paid was $61,103.
The class A-1 and B notes have floating-rate coupons. The transaction currently has an interest rate hedge, which causes a cash flow drag to the deal ($0.44 million as of the Sept. 15, 2016, payment date). In our analysis, we considered both rising and forward interest rate scenarios.
We will continue to review whether, in our view, the ratings assigned to the notes remain consistent with the credit enhancement available to support them, and we will take further rating actions as we deem necessary.