Morningstar DBRS Finalizes Provisional Credit Ratings on AASET 2024-2

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following notes issued by AASET 2024-2:

--$436,062,000 Series A Notes at A (sf)
--$44,238,000 Series B Notes at BBB (high) (sf)

CREDIT RATING RATIONALE/DESCRIPTION
-- The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, "Baseline Macroeconomic Scenarios for Rated Sovereigns September 2024 Update," published on September 25, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

-- The transaction capital structure, including available credit enhancement (CE):
1) CE comprises of overcollateralization (OC) as measured by loan-to-value ratios totaling 69% for the Series A Notes and 76% for the Series B Notes; the sizing of the available liquidity facility to cover Series A interest payments and other senior fees/payments for a nine-month period; Series B interest reserve account to cover six months of missed Series B interest; various reserve accounts to pay certain expenses and aircraft maintenance expenses; and available letters of credit ($8.299 million).

-- The cash flows expected to be generated by the pool under Morningstar DBRS' stressed cash flow scenarios for the applicable credit ratings are sufficient to repay the Notes in accordance with the transaction terms and documents. Morningstar DBRS' credit ratings address the timely payment of interest and ultimate payment of principal on the Series A Notes by the legal final maturity date, and the ultimate payment of interest and principal on the Series B Notes by the legal final maturity date. The credit ratings do not address the subordinated waterfall payment of the Step-Up Interest due on the Notes after the anticipated repayment date (ARD).

-- The initial pool backing the transaction comprises 20 narrowbody (NB) and one widebody (WB) aircraft. And 41% comprises new technology aircraft (NTA) including Airbus (A) 320neos (six), and 59% comprises current technology aircraft (CTA) consisting of A320-200s (nine), A321-200s (three), Boeing (B) 737-800s (two), and one A330-300, a WB CTA. The NB assets are in-demand, marketable aircraft because of their fuel efficiency, sizable orderbook, and dominant commercial market presence with a large operator base.

-- Strong, cash-generating aircraft assets support this transaction, given their long remaining useful life and overall initial lease terms:
1) The aircraft portfolio is young with a weighted-average (WA) age of 7.5 years, and approximately 17.5 years of remaining economic useful life based on an assumed economic useful life of 25 years. The WA initial lease term is 5.8 years with a WA original term of 10.9 years. The majority of the aircraft are on their first lease since their manufactured date.

-- Morningstar DBRS used its proprietary CLO Asset Model to derive default rates for A (sf) and BBB (sf) credit rating pool-level scenarios. The model accounts for lessee concentration risk based on the number of initial lessees, lessees' default probabilities, and collateral tenor:
1) Currently, 22% of the aircraft are leased to publicly rated airline lessees with a Morningstar DBRS equivalent corporate default credit ratings of BB (high) (sf) to B (high) (sf). A significant portion of nonrated airlines were assigned CCC (sf) category credit ratings, and 20% of lessees were assumed rated at B (low) (sf) based on certain corporate operational, market, fleet, credit, and overall business risk attributes.
2) CAP's historical fleet performance data were used to derive Morningstar DBRS' aircraft asset assumptions and stresses, including end-of-lease (extensions, remarketing, sales) lease terms, repossession, and remarketing downtime; and costs and residual realization. CAP's historical data set provided was supplemented with historical fleet servicing market data. All assumptions and stresses assigned fall within stated methodology ranges.

-- AASET 2024-2 structural features are generally consistent with prior AASET transactions including a seven-year expected ARD and 25-year legal final maturity; a nine-month liquidity period to cover Series A interest and other shortfalls; cash sweep/trap triggers; minimum debt service coverage ratio (DSCR); higher allocable amounts due from excess proceeds (105% of the proceeds) and net sales proceeds (105%); and lessee obligor, country, and region concentration limits present.

-- Notable structural differences versus AASET 2024-1 (nonrated) include:
1) The Series B Principal payment is made at a higher waterfall step in AASET 2024-2 than in AASET 2024-1; it is paid right after the Series B Interest, while AASET 2024-1 had Series B Principal paid after payments to Series B Interest, security deposit account top-up, and junior maintenance reserve account top-up.
2) The Notes' monthly amortization schedules are slightly faster for non-NTA NBs and WBs, ranging from 7% to 10% per annum on average, per aircraft based on aircraft type and age--compared with 5.00% (when less than a certain age threshold) to 6.25% in AASET 2024-1, while being consistent for NTA NBs. Scheduled amortization for all aircraft (other than the WB) steps up, after the ARD, to 9% in AASET 2024-2, similar to the prior transaction.
3) The Series A DSCR cash sweep (1.20 times (x)) and cash trap (1.25x) triggers are higher in AASET 2024-2 versus AASET 2024-1 (at 1.15x and 1.20x, respectively). There is an additional DSCR cash sweep trigger in AASET 2024-2 where a rapid amortization event would occur if the Series A/B DSCR were less than 1.10x.

-- The strong capabilities of CAP as servicer. Morningstar DBRS conducted a CAP/CAML operational review in November 2022 and considers them to be adequate aircraft lessors and servicers, with extensive experience managing aircraft and engine assets of all ages through many global and historical economic and aviation cycles, including managing their securitized asset-backed security transactions.

Morningstar DBRS' credit ratings on the Series A and Series B Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest and outstanding principal balance.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the associated Step-Up Interest.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is Rating Structured Aircraft Transactions (August 6, 2024), https://dbrs.morningstar.com/research/437544.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Currency Stresses for Global Structured Finance Transactions (January 30, 2024), https://dbrs.morningstar.com/research/427281
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Operational Risk Assessment for U.S. ABS Originators and Servicers (August 6, 2024), https://dbrs.morningstar.com/research/437545
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
-- Global Methodology for Rating CLOs and Corporate CDOs and the CLO Insight Model v1.0.1.4 (September 19, 2024), https://dbrs.morningstar.com/research/439759

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.