KBRA Places Castlelake Aviation Limited’s Ratings on Watch Upgrade

KBRA places the BB+ issuer rating of Castlelake Aviation Limited (“CA Ltd” or “the Company”) and the BB+ rating on the senior unsecured notes issued by Castlelake Aviation Finance DAC and guaranteed by the Company, on Watch Upgrade. KBRA also places the BBB- rating on the senior secured Term Loan B issued by Castlelake Aviation One DAC and guaranteed by the Company on Watch Upgrade.

Key Credit Considerations

The placement of the ratings on Watch Upgrade follows the announcement that Avolon, a leading global aircraft lessor (rated BBB+ with a Stable Outlook by KBRA) has entered into a definitive agreement to acquire CA Ltd, an aircraft lessor entity managed by global alternative investment manager, Castlelake L.P. (Castlelake). The Watch Upgrade status reflects KBRA’s view that, if the acquisition closes, CA Ltd will become part of the larger Avolon enterprise which has a stronger credit profile than CA Ltd. The acquisition would add an attractive $5 billion 118-aircraft portfolio held by CA Ltd to Avolon’s fleet and is expected to close in 1Q 2025, subject to regulatory review and customary closing conditions.

CA Ltd is an aircraft leasing company that was established in 2021 by affiliates of Castlelake, to complement Castlelake’s aviation investment strategy by focusing on new to young mid-life aircraft. CA Ltd’s ratings are supported by appropriate Gross Debt-to-Equity leverage of 2.4x (and target range of 2.5x-3x Debt-to-Equity) and adequate liquidity comprised of $79 million cash and $664 million of undrawn RCF capacity as of June 30, 2024 (2Q24), as well as a portfolio of primarily young, narrow-body aircraft. As 2Q24, CA Ltd’s portfolio was comprised of predominately new technology aircraft, had a weighted average aircraft age of 5.2 years, and a weighted average remaining lease term of 8.6 years. Across its platform, Castlelake has approximately $24 billion of assets under management in private funds and ABS debt structures including a fleet of 250 aircraft.

Rating Sensitivities

If the acquisition closes, we expect this to result in an upgrade of CA Ltd’s ratings. If the acquisition is not completed, the Outlook could be revised to Negative or the ratings could be downgraded if the Company is unable to improve portfolio diversity and maintain fleet quality metrics, if leverage increases above targeted levels, and/or if the Company’s profitability metrics, funding availability or liquidity profile decline.

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Methodologies