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Rating Action:

Moody's downgrades Blade Engine Securitization Ltd. Series 2006-1 aircraft engine lease backed ABS

17 Feb 2017

Approximately $214 million of asset backed securities affected

New York, February 17, 2017 -- Moody's has downgraded the ratings of the Class 2006-1A-1, 2006-1A-2, and 2006-1B Notes (notes) issued by Blade Engine Securitization Ltd. Series 2006-1.

The complete rating action is as follows:

Issuer: Blade Engine Securitization Ltd. Series 2006-1

2006-1A-1, Downgraded to Caa1 (sf); previously on Apr 26, 2016 Downgraded to B3 (sf)

2006-1A-2, Downgraded to Caa1 (sf); previously on Apr 26, 2016 Downgraded to B3 (sf)

2006-1B, Downgraded to Ca (sf); previously on Apr 26, 2016 Downgraded to Caa3 (sf)

RATINGS RATIONALE

The rating actions on the notes reflect our expectations about the prospects for future income from the engine portfolio, which we have reduced for the following reasons. First, six of 35 engines in the portfolio are currently off lease, and Blade discloses that it may be unable to re-lease many of these engines for the foreseeable future, nor many of the further 12 engines coming off lease in 2017. Second, although engine appraised values, most recently received for June 2016, continue to indicate that the Blade assets are worth more than the Class A and Class B note outstanding balances, over the past year engine sales continued to be at prices significantly lower than appraised values.

In its analysis, Moody's evaluated lease rates and remaining terms as well as the revenues and expenses associated with the underlying leases and aircraft engines, in order to evaluate likely interest and principal payments to the rated notes.

Quarterly reports for the transaction have indicated that Blade may not be able to re-lease an increasing number of engines coming off lease and possibly beyond. The quarterly reports also noted that Blade may be unable to re-lease many of the engines currently off-lease for the foreseeable future. Of the engines that were off lease and subsequently re-leased during 2016, most leases are short term.

Based on the June 2016 appraisal values, the combined loan-to-value ratio for Class A notes and Class B notes is around 92% as of February 2017. However, among the off-lease engines sold in 2016, most received sale prices considerably lower than their most recent appraisal values, with lower sales proceeds as a percentage of appraisal values, compared to 2015.

Current cash collections have not been sufficient to pay the interest and principal on the Class B notes based on the priority of payments, and Class B notes have been receiving its interest by withdrawing from the Junior Cash Account. As a result, Junior Cash Account balance has declined from $3.0 million as of February 2016 to $2.28 million as of February 2017. However, because sales proceeds from dispositions of engines have a separate waterfall from the waterfall that is applied to lease income, the Class B notes have been receiving principal payments when engines are sold. If adverse leasing conditions were to continue for these engines, further disposition of engines will benefit Class B notes because it would receive principal payments that it would otherwise not get.

Primary sources of uncertainty include the global economic environment, aircraft engine lease income generating ability, engine maintenance and other expenses to the trust, and valuation for the aircraft engines backing the transaction.

Factors that would lead to an upgrade or downgrade of the ratings:

Changes to lease rates or aircraft engine values that differ from historical trends; changes to portion of portfolio currently off-lease or coming off lease in near future and their re-leasing or sale prospects.

The principal methodology used in these ratings was "Moody's Approach To Pooled Aircraft-Backed Securitization" published in March 1999. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

In applying the above methodology to Blade Engine Securitization Ltd. Series 2006-1, Moody's assumed that engine values start declining once production for their host aircraft winds down. This is different from assumptions used in aircraft securitization where aircraft values are assumed to start declining from their year of manufacture. For aircraft engines, Moody's typically assumes that the engine values decline to scrap value over the course of approximately 20 years after host aircraft production ends.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.

In rating this transaction, Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jayesh Joseph
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Dev Chatterjee
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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