Fitch Ratings has assigned Air Lease Corporation's (Air Lease; BBB/Stable) USD600 million, 5.85% fixed-rate, five-year senior unsecured sukuk issuance (ISIN: XS2567397711), issued through Air Lease Corporation Sukuk Ltd. (Air Lease Sukuk) a final rating of 'BBB'.
The rating is in line with the expected rating Fitch assigned to Air Lease Sukuk's unsecured sukuk issuance on Feb. 27, 2023 (see 'Fitch Rates Air Lease's Inaugural Sukuk Issue 'BBB(EXP)' on www.fitchratings.com for further details).
Air Lease Sukuk, in its capacity as issuer and trustee, is an exempted company with limited liability incorporated in the Cayman Islands under the Companies Act (as amended) on Oct. 27, 2022. Air Lease Sukuk has been incorporated solely for the purpose of participating in the sukuk transaction governed by the underlying Transaction Documents to which it is a party.
Air Lease's ratings are unaffected by today's rating action. Proceeds of the issue are earmarked for general corporate purposes (which could include refinancing of upcoming debt maturities) and hence is broadly neutral with regard to leverage. Key rating drivers and rating sensitivities relating to Air Lease's ratings can be found in Fitch's most recent rating action commentary ('Fitch Affirms Air Lease Corporation at 'BBB'; Outlook at Stable') published on June 28, 2022 and available on www.fitchratings.com.
Key Rating Drivers
The senior unsecured sukuk rating is in line with Air Lease's Long-Term Issuer Default Rating (IDR) and senior unsecured debt rating of 'BBB'. The sukuk ratings are driven solely by Air Lease's IDR. This reflects Fitch's view that default of these senior unsecured obligations would reflect the default of Air Lease in accordance with the agency's rating definitions.
Fitch has given no consideration to any underlying assets or any collateral provided, as the agency believes that Air Lease's Sukuk's ability to satisfy payments due on the certificates will ultimately depend on Air Lease satisfying its unsecured payment obligations to the trustee as per the applicable transaction documents.
In addition to Air Lease's propensity to ensure repayment of the sukuk, in Fitch's view, the company would also be required to ensure full and timely repayment of Air Lease Sukuk's obligations due to its various roles and obligations under the sukuk structure and documentation, especially but not limited to the features explained below.
Pursuant to the service agency agreement, Air Lease, as servicing agent, will ensure sufficient funds are available to meet the periodic distribution amounts payable by the trustee under the certificates on each periodic distribution date. Air Lease can take other measures to ensure that there is no shortfall and that the payment of principal and profit are paid in full, and in a timely manner.
On any dissolution or default event, the trustee will have the right under the purchase undertaking to require Air Lease to purchase and accept the transfer and assignment of all of the wakala assets together with all of the trustee's rights, title, interests, benefits and entitlements in, to and under the wakala assets at the exercise price. The exercise price is intended to fund the dissolution distribution amount payable by the trustee for the redemption of the relevant certificates in full, which should equal the sum of the outstanding face amount of such certificates, and any due and unpaid periodic distribution amounts relating to such certificates.
Under the purchase undertaking, the company has undertaken that in case the exercise price is not paid, it shall as an independent, severable and separately enforceable obligation fully indemnify the trustee for the purpose of redemption in full of the outstanding certificates. This is conditional on Air Lease remaining in actual or constructive possession, custody or control of all or any part of the wakala assets at the time of delivery of the exercise notice, failure of which will result in no amounts being payable by Air Lease.
Fitch will review the sukuk rating if the IDR drops from current levels, or upon the emergence of any information or events that could jeopardize the payment conditions under the indemnity.
The payment obligations of Air Lease under the service agency agreement and purchase undertaking agreement are direct, unconditional, unsubordinated, and (subject to certain negative pledge provisions) unsecured obligations and shall at all times rank at least pari passu with all other present and future unsecured and unsubordinated obligations of Air Lease.
The sukuk documentation includes an obligation for Air Lease to ensure that at all times, the tangibility ratio (calculated as the aggregate value of the wakala assets forming part of the wakala portfolio to the wakala portfolio value) is more than 50%. Failure of Air Lease to comply with this obligation shall not constitute an obligor event.
However, if the tangibility ratio falls to 50% and below but stays above 33%, the services agent will take the steps (in consultation with the Shari'a advisor) required to ensure the tangibility ratio is restored to more than 50%. If the tangibility ratio falls below 33% (tangibility event), each certificate holder can exercise a put option to have their holdings redeemed, in whole or in part, and the certificates will be delisted from any stock exchange on the day falling 15 days after the put right redemption date. In such an event, there would be implications on tradability and listing of the certificates.
Fitch expects Air Lease to maintain the tangibility ratio at above 50% throughout the tenor of the sukuk. This is supported in particular by Air Lease's high-quality aircraft fleet (417 units with a weighted average age of around 4.5 years as at Dec. 31, 2022), which is almost entirely unencumbered. As at FYE 2022, the combined value of unencumbered assets amounted to $26.7 billion, which corresponds to significant headroom against a tangibility ratio of 51%.
In addition, liquidity is robust, comprising $766 million in unrestricted cash on hand and $6.1 billion in committed revolver capacity as at FYE 2022. This indicates that Air Lease is well-positioned to top-up the sukuk issuance if needed.
In a total loss event (unless the wakala assets have been replaced), if there is a shortfall from the insurance proceeds, Air Lease undertakes to pay the total loss shortfall amount. If the service agent is not in compliance with the obligation to insure the assets against total loss event, it will immediately deliver written notice to the trustee and the delegate of such non-compliance and the details thereof, and this will constitute an obligor event.
The documentation includes a negative pledge provision that is binding on Air Lease, a change of control clause related to a potential repurchase event, cross default language which is aligned to the cross-default language in Air Lease's other outstanding securities.
The transaction is governed by English law. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating on the certificates reflects the agency's belief that Air Lease would stand behind its obligations.
When assigning ratings to the certificates to be issued, Fitch does not express an opinion on certificates' compliance with sharia principles.
RATING SENSITIVITIES
TRUST CERTIFICATE ISSUANCE
The rating of the trust certificates issued is principally sensitive to changes in Air Lease's Long-Term IDR. The ratings could also be sensitive to changes to the roles and obligations of Air Lease under the sukuk's structure and documents.
Fitch will review the sukuk rating if the IDR drops from current levels, or upon the emergence of any information or events which could jeopardize the payment conditions under the indemnity.
Factors that could, individually or collectively, lead to negative rating action/downgrade of Air Lease's IDR:
Macroeconomic headwinds that pressure airlines and negatively affect the company's cash flow generation, profitability, and liquidity position could yield negative rating actions. Negative rating pressure could also arise from a material increase in secured debt levels, leverage approaching or above 3.0x, resulting from capital returns, impairments or a higher risk appetite; liquidity coverage approaching or falling below 1.0x; or an inability to maintain a fleet profile comprised of highly liquid Tier 1 aircraft and manageable widebody exposure;
A key person event with respect to Executive Chairman of the Board, Steven Udvar-Hazy or CEO and President, John Plueger would not lead to an immediate downgrade, but would be evaluated in the context of the potential impacts on Air Lease's strategic direction, industry relationships and risk appetite.
Factors that could, individually or collectively, lead to positive rating action/upgrade of Air Lease's IDR:
Differentiated risk management and asset quality performance, while maintaining leverage around 2.5x, unsecured debt to total debt at-or-around current levels, a robust funding profile from revolver availability and liquidity coverage well in excess of 1.0x could yield positive rating actions. A material reduction in the size of the orderbook relative to the owned fleet and proactive management of near-term debt maturities could also drive positive rating momentum.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
AIR LEASE CORPORATION 
