Fitch Ratings has downgraded the ratings on the series A and B notes issued by Willis Engine Structured Trust III (WEST III), affirmed the series A and B notes issued by Willis Engine Structured Trust IV (WEST IV), and affirmed the series A, B and C notes issued by Willis Engine Structured Trust V (WEST V).
The Rating Outlook for all of the notes is Stable.
RATING ACTIONS
Entity / Debt
Rating
Prior
Willis Engine Structured Trust IV
Series A 97064EAA6
LT
Asf
Affirmed
Asf
Series B 97064EAC2
LT
BBBsf
Affirmed
BBBsf
Willis Engine Structured Trust V
Series A 97064FAA3
LT
Asf
Affirmed
Asf
Series B 97064FAB1
LT
BBBsf
Affirmed
BBBsf
Series C 97064FAC9
LT
BBsf
Affirmed
BBsf
Willis Engine Structured Trust III
Series A 2017-A 97063QAA0
LT
BBBsf
Downgrade
A-sf
Series B 2017-A 97063QAB8
LT
BBsf
Downgrade
BBB-sf
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VIEW ADDITIONAL RATING DETAILS
Transaction Summary
The rating actions reflect current performance, Fitch's cash flow projections, and its expectation for the structures to withstand stresses commensurate with their respective ratings. The rating actions also consider lease terms, lessee credit quality and performance, updated engine values, and Fitch's assumptions and stresses, which inform our modelled cash flows and coverage levels.
KEY RATING DRIVERS
Stable-to-Improving Lessee Credit
The credit profiles of the airline and other engine lessees in the pools have remained stable or improved since the prior review in
Asset Quality and Appraised Pool Value
WEST III, IV and V each include mostly in-demand engines that support narrow body (NB) airframes representing 87%, 71% and 71% of their respective pools. The remaining portion of each pool is split between engines that support widebody (WB) and regional jet (RJ) airframes, with
Off-lease assets for WEST III and V total 26% and 17% respectively, which is similar to the prior review in which off-lease assets totaled 28% and 20%. Off-lease assets in WEST IV increased to 36% from 31% versus the prior review.
The appraisers for the three transactions include
Transaction Performance
Lease collections have fluctuated in 2022 but remained rangebound since the prior review despite slight declines for WEST III and IV. Based on the
LTVs on WEST IV and V outstanding notes improved from the prior review as note amortization was larger than collateral value declines, while the LTV for the West III notes increased.
The debt-service coverage ratios for WEST III, IV and V are currently at 1.24x, 1.13x and 1.9x. The DSCR is above the rapid amortization trigger, which is 1.1x for all of the transactions. The DSCR is above the cash trapping trigger for West III: 1.24x vs 1.15x and West V: 1.90x vs 1.15x. West IV has a trigger level of 1.15x and a current DSCR of 1.13x.
The West III notes have fallen further behind scheduled principal balances vs. the prior review with the A notes
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Downgrades are possible if the collateral value in the portfolio declines more than forecast, if lessee payment performance deteriorates further, thereby reducing cash flows, or if utilization rates decrease.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Key drivers of potential upgrades would be strong collections, debt service coverage maintained above trigger ratios and a decline in LTVs sustained over a period of time, among other factors.
Rating upgrades are limited as Fitch caps the aircraft ABS ratings at 'Asf'. This is due to heavy servicer reliance, historical asset and performance risks and volatility, and its pronounced exposure to exogenous risks. This was evidenced by the effects of the events of
Fitch also considers jurisdictional concentrations per the 'Structured Finance and Covered Bonds Country Risk Rating Criteria,' which could result in lower rating caps. Hence, senior class 'Asf' rated notes are capped, and there is no potential for upgrades for certain tranches at this time.
For classes rated below 'Asf', upgrades are also limited given ongoing pressure on transaction performance and the ongoing geopolitical risk, which combined will retain negative ABS rating pressure, especially for transactions that are underperforming relative to Fitch's COVID recovery expectation.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven 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 seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. 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.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
DATA ADEQUACY
The data used for the development of the rating included information from the following sources:
Issuer and Servicer reports as of interest payment date on
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com
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