Aircraft Lessors Face Short-Term Challenges Executing ABS Funding

Higher interest rates, widening spreads and ongoing bond market volatility has raised challenges for aircraft leasing companies that intend to issue asset-backed securities (ABS) in 2022. Currently, the ABS market is an ineffective funding source on a cost basis, and only one operating lease aircraft ABS transaction has been issued year to date, well behind 2021 issuance levels that saw eight deals issued during H1 2021 (16 in total last year). DBRS Morningstar believes this negative trend may be short term in nature until the ABS market volatility subsides—the first 2022 deal was issued and priced only now in early June. The stunted issuance can affect lessors requiring immediate financing in 2022, especially the smaller, newly established lessors as they may rely primarily on ABS for funding and cannot raise funds in the unsecured markets, and now potentially face challenges to raise financing for their platforms.