NOTE: Article originally published in AirFinance Journal: Exclusive: Stratos Launches ABS Portal
Dublin, Ireland – November 27, 2023: Asset manager and servicer Stratos has launched an innovative reporting system for its asset-backed securitization (ABS) Jol-Air 2019.
The enhanced reporting portal features information per aircraft MSN on lease rate ranges, maintenance status, forward maintenance projections, and estimated end-of-lease compensation payments for investors.
In an interview with Airfinance Journal, Chief Executive Officer Gary Fitzgerald says the product was launched on 14 November with technology solutions company Aerlytix.
Aerlytix CEO Alan Doyle expresses his satisfaction with the collaboration with Stratos in developing an ABS investor portal for the JOL Air-2019 ABS.
"We are delighted to partner with Stratos to enhance the analysis available for ABS investors. This product, designed to extend across all ABSs, will drive transparency and productivity in the industry. Overall, it enhances our expanding suite of offerings to lessors, banks, and investors."
Alan Doyle - Aerlytix CEO
Fitzgerald says the reporting system was prompted by investor inquiries trying to understand value in the ABS market over recent years. "Before Covid, details in an ABS monthly noteholder report were not too much of an issue for noteholders or even for secondary trading," he comments.
"But after some heavy lease restructurings related to Covid, investors have struggled to value ABS holdings and have recently inquired about breakdowns per aircraft, jurisdictions, maintenance status, etc. Having conversations with them, we realized that they have been missing crucial information on all aircraft ABS transactions."
He says that in ABS deals noteholders receive monthly reports which are without much substance.
"For instance, noteholders get the full total amount of income but no breakdown per aircraft, no accurate maintenance status, and no end-of-lease details.
He adds: "Limited reporting is a legacy issue from the early 1990s when securitization transactions in the aircraft finance market started. This became the template for aircraft ABS issuances and as a result, they have become the most opaque structured asset instruments – unlike car loans, containers, rail car industries where information on individual loans is available for most transactions."
He believes that this reporting system should become normal reporting for ABS structures.
"We have had hugely positive feedback from the biggest noteholders in our securitizations. Investors can access the platform at any time rather than waiting for a monthly noteholder report; they can finally establish a valuation from the bottom up."
"We have turned ourselves into a digital servicer by allowing our clients to access their aircraft and see the details of their investments."
Fitzgerald says Stratos is differentiating itself from other platforms, especially the large asset managers and lessors, which may have hundreds of aircraft in their portfolios and ABS structures.
"For us, using the system is about opening access to our investors. Some lessors use the system for their own pricing models, but if you are a large lessor with a portion of ABS exposure, you may not want to share information to this level for just a small portion of your overall portfolio."
Fitzgerald says the ABS sector has to become more transparent. "In the capital markets, the primary issuances are bought by say 20-30 institutions that may invest $5 million up to $100 million worth of notes. But the secondary trading is very small and relatively inactive."
He adds that occasionally some opportunistic buyers may jump into the market and have access to some heavily discounted notes, but they are trading on bond economics and not kept up to date on exactly how each portfolio has developed.
"This product helps every institution to better understand the value of its underlying asset investment."
"This product helps every institution to better understand the value of its underlying asset investment."
Gary Fitzgerald - Stratos CEO
Fitzgerald believes that the wider use among the asset managers should ‘massively’ increase liquidity in secondary ABS market trading.
"Removing opacity in this segment can only improve attractiveness for bonds," he adds.
For him, banks have been slowly pulling away from the aircraft finance sector because of the cost of capital allocation and increasingly punitive regulation affecting the banking sector.
"The only segment large enough to replace such a huge volume of bank lending capacity over time is the capital markets where you have properly rated, properly reported securitized structures which are re-traded in a liquid secondary market so they can be underwritten by pension funds and insurers. Up to now, there has been relatively little trading in the secondary market, and we need to change this momentum."