Sat, Mar 08, 2003
Weighing The Risks First
The U.S. Bancorp Piper Jaffray Aircraft Finance
Research Team has initiated coverage of the aircraft asset-backed
securities (ABS) sector, publishing the "Aircraft ABS Guide." The
report is a comprehensive guide for investors during a time of
great uncertainty for the sector.
"Over the past 18 months, aircraft ABS investors have endured a
downturn of historic proportions with volatile lease rates,
declining aircraft valuations and uncertain market conditions,"
said Joel Denney, director of Fixed Income Research for U.S.
Bancorp Piper Jaffray. "Aircraft ABS transactions were structured
to handle considerable stress, but no one could have predicted the
events that precipitated the downtrodden environment that exists
today. We believe this new environment makes the base case
assumptions in aircraft ABS prospectuses obsolete, therefore one
needs to reassess the ability of the pool of aircraft to generate
enough cash flow to pay off the debt associated with it."
A New Model For A Different Economy
The
"Aircraft ABS Guide" describes a way to examine transactions in
today's environment, and then tests the transactions using a
standardized framework. In the report, Denney says building a model
that incorporates current lease rates as well as future market
lease rates provides investors with the ability to measure the
level of risk for each prospective aircraft purchase today. The
company says this model can also highlight relative value
opportunities, as each transaction will perform differently under
the same economic stresses. "Our model provides current investors
with a market-based approach to assess current holdings and
understand risk," said Denney.
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