Aircastle (AYR)

fully funded into an aircraft purchase escrow account on May 2, 2008. These loans were released to us from escrow as each of the financed aircraft was transferred into the facility. The loans are secured by, among other things, first priority security interests in, and pledges or assignments of ownership interests in, the aircraft-owning and other subsidiaries which are part of the financing structure, as well as by interests in aircraft leases, cash collections and other rights and properties they may hold. However, the loans are neither obligations of, nor guaranteed by, Aircastle Limited. The loans mature on May 2, 2015.

 

We generally retained the right to receive future cash flows after the payment of claims that are senior to our rights, including, but not limited to, payment of expenses related to the aircraft, fees of administration and fees and expenses of service providers, interest and principal on the loans, amounts owed to interest rate hedge providers and amounts, if any, owing to the liquidity provider for previously unreimbursed advances. We are entitled to receive these excess cash flows until May 2, 2013, subject to confirmed compliance with the Term Financing No. 1 loan documents. After that date, all excess cash flows will be applied to the prepayment of the principal balance of the loans.

 

The loans provide for monthly payments of interest on a floating rate basis at a rate of one-month LIBOR plus 1.75% and scheduled payments of principal, which during the first five years will equal approximately $48.9 million per year. The loans may be prepaid upon notice, subject to certain conditions, and the payment of expenses, if any, and the payment of a prepayment premium on amounts prepaid on or before May 2, 2010. We entered into interest rate hedging arrangements with respect to a substantial portion of the principal balance of the loans under Term Financing No. 1 in order to effectively pay interest at a fixed rate on a substantial portion of the loans. Obligations owed to hedge counterparties under these contracts are secured on a pari passu basis by the same collateral that secures the loans under Term Financing No. 1 and, accordingly, there is no obligation to pledge cash collateral to secure any loss in value of the hedging contracts if interest rates fall.

 

Term Financing No. 1 requires compliance with certain financial covenants in order to continue to receive excess cash flows, including the maintenance of loan to value and debt service coverage ratios. From and after May 2, 2009, if loan to value ratio exceeds 75%, all excess cash flows will be applied to prepay the principal balance of the loans until such time as the loan to value ratio falls below 75%. In addition, from and after May 2, 2009, debt service coverage must be maintained at a minimum of 1.32. If the debt service coverage ratio requirements are not met on two consecutive monthly payment dates, all excess cash flows will thereafter be applied to prepay the principal balance of the loans until such time as the debt service coverage ratio exceeds the minimum level. Compliance with these covenants depends substantially upon the appraised value of the aircraft securing Term Financing No. 1 and the timely receipt of lease payments from their lessees.

 

 

On September 12, 2008, one of our subsidiaries, ACS 2008-2 Limited, or ACS Bermuda 4, entered into a five-year, $206.6 million term debt facility, which we refer to as Term Financing No. 2, to finance a portfolio of nine aircraft. The loans under Term Financing No. 2 were fully funded into an aircraft purchase escrow account on September 23, 2008. These loans were released to us from escrow as each of the financed aircraft was transferred into the facility. In the third quarter, the loans with respect to seven aircraft were released to us upon transfer, and in fourth quarter, the loans with respect to two aircraft were released to us upon transfer. One aircraft was subsequently sold in December 2008.

 

Loans under Term Financing No. 2 are secured by, among other things, first priority security interests in, and pledges or assignments of ownership interests in, the aircraft-owning entities and other subsidiaries which are part of the financing structure, as well as by interests in aircraft leases, cash collections and other rights and properties they may hold. However, the loans are neither obligations of, nor guaranteed by, Aircastle Limited. The loans mature on September 23, 2013.

 

We generally retained the right to receive future cash flows from the aircraft securing Term Financing No. 2 after the payment of claims that are senior to our rights, including, but not limited to,

payment of expenses related to the aircraft, fees of administration and fees and expenses of service providers, interest and principal on the loans, and amounts owed to interest rate hedge providers. However, Term Financing No. 2 requires that approximately 85% of the cash flow remaining after expenses, fees, interest and amounts owing to interest rate hedge providers will be applied to reduce the principal balance of the loans, and in any case distribution of any excess cash flow to us is subject to continuing compliance with the Term Financing No. 2 loan documents.

 

Borrowings under Term Financing No. 2 bear interest on the basis of three-month LIBOR plus 2.25% per annum or, if greater, on the basis of the lenders’ cost of funds rate plus a margin, currently 2.25% per annum. The loans provide for quarterly payments of interest and scheduled payments of principal. The Loans may be prepaid upon notice, subject to certain conditions, and the payment of expenses, if any, and in some cases the payment of a prepayment premium on amounts prepaid on or before September 23, 2010.

 

Term Financing No. 2 requires our relevant subsidiaries to satisfy certain financial covenants, including the maintenance of loan to value and interest coverage ratios. The loan to value ratio begins at 75% of appraised value and reduces over time to 35% of appraised value approximately 54 months after closing. The interest coverage test compares available cash, being the amount by which rentals received in the preceding six month period exceeds any re-leasing costs and servicing fees, to interest on the loans (net of interest rate hedging) during that period. The interest coverage ratio tests, on any quarterly payment date, whether available cash exceeds net interest costs by a factor of three (rising over time to five, in the fifth year after closing), and the covenant will be breached if the test fails on any two consecutive quarterly payment dates. Compliance with these covenants depends substantially upon the appraised value of the aircraft securing Term Financing No. 2, the timely receipt of lease payments from the relevant lessees and on our ability to utilize the cure rights provided to us in the loan documents. Failure to comply with the loan to value test, or to comply with the interest coverage test at a time when we are also in breach of a modified version of the loan to value test, would result in a default under Term Financing No. 2 in the absence of cure payments by us.

 

 

On May 2, 2008 two of our subsidiaries, ACS Aircraft
Finance Ireland 3 Limited, or ACS Ireland 3, and ACS
2008-1
Limited, or ACS Bermuda 3, which we refer to together with their
subsidiaries as the ACS 3 Group, entered into a seven year,
$786.1 million term debt facility, which we refer to as
Term Financing No. 1, to finance a portfolio of 28
aircraft. The loans under Term Financing No. 1 were

fully funded into an aircraft purchase escrow account on
May 2, 2008. These loans were released to us from escrow as
each of the financed aircraft was transferred into the facility.
The loans are secured by, among other things, first priority
security interests in, and pledges or assignments of ownership
interests in, the aircraft-owning and other subsidiaries which
are part of the financing structure, as well as by interests in
aircraft leases, cash collections and other rights and
properties they may hold. However, the loans are neither
obligations of, nor guaranteed by, Aircastle Limited. The loans
mature on May 2, 2015.

 

We generally retained the right to receive future cash flows
after the payment of claims that are senior to our rights,
including, but not limited to, payment of expenses related to
the aircraft, fees of administration and fees and expenses of
service providers, interest and principal on the loans, amounts
owed to interest rate hedge providers and amounts, if any, owing
to the liquidity provider for previously unreimbursed advances.
We are entitled to receive these excess cash flows until
May 2, 2013, subject to confirmed compliance with the Term
Financing No. 1 loan documents. After that date, all excess
cash flows will be applied to the prepayment of the principal
balance of the loans.

 

The loans provide for monthly payments of interest on a floating
rate basis at a rate of one-month LIBOR plus 1.75% and scheduled
payments of principal, which during the first five years will
equal approximately $48.9 million per year. The loans may
be prepaid upon notice, subject to certain conditions, and the
payment of expenses, if any, and the payment of a prepayment
premium on amounts prepaid on or before May 2, 2010. We
entered into interest rate hedging arrangements with respect to
a substantial portion of the principal balance of the loans
under Term Financing No. 1 in order to effectively pay
interest at a fixed rate on a substantial portion of the loans.
Obligations owed to hedge counterparties under these contracts
are secured on a pari passu basis by the same collateral that
secures the loans under Term Financing No. 1 and,
accordingly, there is no obligation to pledge cash collateral to
secure any loss in value of the hedging contracts if interest
rates fall.

 

Term Financing No. 1 requires compliance with certain
financial covenants in order to continue to receive excess cash
flows, including the maintenance of loan to value and debt
service coverage ratios. From and after May 2, 2009, if
loan to value ratio exceeds 75%, all excess cash flows will be
applied to prepay the principal balance of the loans until such
time as the loan to value ratio falls below 75%. In addition,
from and after May 2, 2009, debt service coverage must be
maintained at a minimum of 1.32. If the debt service coverage
ratio requirements are not met on two consecutive monthly
payment dates, all excess cash flows will thereafter be applied
to prepay the principal balance of the loans until such time as
the debt service coverage ratio exceeds the minimum level.
Compliance with these covenants depends substantially upon the
appraised value of the aircraft securing Term Financing
No. 1 and the timely receipt of lease payments from their
lessees.

 

 

On September 12, 2008, one of our subsidiaries, ACS
2008-2
Limited, or ACS Bermuda 4, entered into a five-year,
$206.6 million term debt facility, which we refer to as
Term Financing No. 2, to finance a portfolio of nine
aircraft. The loans under Term Financing No. 2 were fully
funded into an aircraft purchase escrow account on
September 23, 2008. These loans were released to us from
escrow as each of the financed aircraft was transferred into the
facility. In the third quarter, the loans with respect to seven
aircraft were released to us upon transfer, and in fourth
quarter, the loans with respect to two aircraft were released to
us upon transfer. One aircraft was subsequently sold in December
2008.

 

Loans under Term Financing No. 2 are secured by, among
other things, first priority security interests in, and pledges
or assignments of ownership interests in, the aircraft-owning
entities and other subsidiaries which are part of the financing
structure, as well as by interests in aircraft leases, cash
collections and other rights and properties they may hold.
However, the loans are neither obligations of, nor guaranteed
by, Aircastle Limited. The loans mature on September 23,
2013.

 

We generally retained the right to receive future cash flows
from the aircraft securing Term Financing No. 2 after the
payment of claims that are senior to our rights, including, but
not limited to,

payment of expenses related to the aircraft, fees of
administration and fees and expenses of service providers,
interest and principal on the loans, and amounts owed to
interest rate hedge providers. However, Term Financing
No. 2 requires that approximately 85% of the cash flow
remaining after expenses, fees, interest and amounts owing to
interest rate hedge providers will be applied to reduce the
principal balance of the loans, and in any case distribution of
any excess cash flow to us is subject to continuing compliance
with the Term Financing No. 2 loan documents.

 

Borrowings under Term Financing No. 2 bear interest on the
basis of three-month LIBOR plus 2.25% per annum or, if greater,
on the basis of the lenders’ cost of funds rate plus a
margin, currently 2.25% per annum. The loans provide for
quarterly payments of interest and scheduled payments of
principal. The Loans may be prepaid upon notice, subject to
certain conditions, and the payment of expenses, if any, and in
some cases the payment of a prepayment premium on amounts
prepaid on or before September 23, 2010.

 

Term Financing No. 2 requires our relevant subsidiaries to
satisfy certain financial covenants, including the maintenance
of loan to value and interest coverage ratios. The loan to value
ratio begins at 75% of appraised value and reduces over time to
35% of appraised value approximately 54 months after
closing. The interest coverage test compares available cash,
being the amount by which rentals received in the preceding six
month period exceeds any re-leasing costs and servicing fees, to
interest on the loans (net of interest rate hedging) during that
period. The interest coverage ratio tests, on any quarterly
payment date, whether available cash exceeds net interest costs
by a factor of three (rising over time to five, in the fifth
year after closing), and the covenant will be breached if the
test fails on any two consecutive quarterly payment dates.
Compliance with these covenants depends substantially upon the
appraised value of the aircraft securing Term Financing
No. 2, the timely receipt of lease payments from the
relevant lessees and on our ability to utilize the cure rights
provided to us in the loan documents. Failure to comply with the
loan to value test, or to comply with the interest coverage test
at a time when we are also in breach of a modified version of
the loan to value test, would result in a default under Term
Financing No. 2 in the absence of cure payments by us.

 

 

On May 2, 2008 two of our subsidiaries, ACS Ireland 3 and ACS 2008-1 Limited (“ACS Bermuda 3”), which we refer to together with their subsidiaries as the ACS 3 Group, entered into a seven year, $786,135 term debt facility, which we refer to as “Term Financing No. 1,” to finance a portfolio of 28 aircraft. The loans under Term Financing No. 1 were fully funded into an aircraft purchase escrow account on May 2, 2008. These loans were released to us from escrow as each of the financed aircraft was transferred into the facility. The loans are secured by, among other things, first priority security interests in, and pledges or assignments of ownership interests in, the aircraft-owning and other subsidiaries which are part of the financing structure, as well as by interests in aircraft leases, cash collections and other rights and properties they may hold. However, the loans are neither obligations of, nor guaranteed by, Aircastle Limited. The loans mature on May 2, 2015.

 

We generally retained the right to receive future cash flows after the payment of claims that are senior to our rights, including, but not limited to, payment of expenses related to the aircraft, fees of administration and fees and expenses of service providers, interest and principal on the loans, amounts owed to interest rate hedge providers and amounts, if any, owing to the liquidity provider for previously unreimbursed advances. We are entitled to receive these excess cash flows until May 2, 2013, subject to confirmed compliance with the Term Financing No. 1 loan documents. After that date, all excess cash flows will be applied to the prepayment of the principal balance of the loans.

 

The loans provide for monthly payments of interest on a floating rate basis at a rate of one-month LIBOR plus 1.75% and scheduled payments of principal, which during the first five years will equal approximately $48.9 million per year. The loans may be prepaid upon notice, subject to certain conditions, and the payment of expenses, if any, and the payment of a prepayment premium on amounts prepaid on or before May 2, 2010. We entered into interest rate hedging arrangements with respect to a substantial portion of the principal balance of the loans under Term Financing No. 1 in order to effectively pay interest at a fixed rate on a substantial portion of the loans. Obligations owed to hedge counterparties under these contracts are secured on a pari passu basis by the same collateral that secures the loans under Term Financing No. 1 and, accordingly, there is no obligation to pledge cash collateral to secure any loss in value of the hedging contracts if interest rates fall.

 

Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)

 

Term Financing No. 1 requires compliance with certain financial covenants in order to continue to receive excess cash flows, including the maintenance of loan to value and debt service coverage ratios. From and after May 2, 2009, if loan to value ratio exceeds 75%, all excess cash flows will be applied to prepay the principal balance of the loans until such time as the loan to value ratio falls below 75%. In addition, from and after May 2, 2009, debt service coverage must be maintained at a minimum of 1.32. If the debt service coverage ratio requirements are not met on two consecutive monthly payment dates, all excess cash flows will thereafter be applied to prepay the principal balance of the loans until such time as the debt service coverage ratio exceeds the minimum level. Compliance with these covenants depends substantially upon the appraised value of the aircraft securing Term Financing No. 1 and the timely receipt of lease payments from their lessees.

 

 

On September 12, 2008, one of our subsidiaries entered into a five-year, $206,580 million term debt facility, which we refer to as Term Financing No. 2, to finance a portfolio of up to nine aircraft. The loans under Term Financing No. 2 were fully funded into an aircraft purchase escrow account on September 23, 2008. These loans were released to us from escrow as each of the financed aircraft was transferred into the facility. In the third quarter, the loans with respect to seven aircraft were released to us upon transfer, and in the fourth quarter, the loans with respect to two aircraft were released to us upon transfer. One aircraft was subsequently sold in December 2008.

 

Loans under Term Financing No. 2 are secured by, among other things, first priority security interests in, and pledges or assignments of ownership interests in, the aircraft-owning entities and other subsidiaries which are part of the financing structure, as well as by interests in aircraft leases, cash collections and other rights and properties they may hold. However, the loans are neither obligations of, nor guaranteed by, Aircastle Limited. The loans mature on September 23, 2013.

 

We generally retained the right to receive future cash flows from the aircraft securing Term Financing No. 2 after the payment of claims that are senior to our rights, including, but not limited to, payment of expenses related to the aircraft, fees of administration and fees and expenses of service providers, interest and principal on the loans, and amounts owed to interest rate hedge providers. However, Term Financing No. 2 requires that approximately 85% of the cash flow remaining after expenses, fees, interest and amounts owing to interest rate hedge providers will be applied to reduce the principal balance of the loans, and in any case distribution of any excess cash flow to us is subject to continuing compliance with the Term Financing No. 2 loan documents.

 

Borrowings under Term Financing No. 2 will bear interest on the basis of three-month LIBOR plus 2.25% per annum or, if greater, on the basis of the lenders’ cost of funds rate plus a margin, currently 2.25% per annum. The loans provide for quarterly payments of interest and scheduled payments of principal. The Loans may be prepaid upon notice, subject to certain conditions, and the payment of expenses, if any, and in some cases the payment of a prepayment premium on amounts prepaid on or before September 23, 2010.

 

Term Financing No. 2 requires our relevant subsidiaries to satisfy certain financial covenants, including the maintenance of loan to value and interest coverage ratios. The loan to value ratio begins at 75% of appraised value and reduces over time to 35% of appraised value approximately 54 months after closing. The interest coverage test compares available cash, being the amount by which rentals received in the preceding six month period exceeds any re-leasing costs and servicing fees, to interest on the loans (net of interest rate hedging) during that period. The interest coverage ratio tests, on any quarterly payment date, whether available cash exceeds net interest costs by a factor of three (rising over time to five, in the fifth year after closing), and the covenant will be breached if the test fails on

 

Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)

 

any two consecutive quarterly payment dates. Compliance with these covenants depends substantially upon the appraised value of the aircraft securing Term Financing No. 2, the timely receipt of lease payments from the relevant lessees and on our ability to utilize the cure rights provided to us in the loan documents. Failure to comply with the loan to value test, or to comply with the interest coverage test at a time when we are also in breach of a modified version of the loan to value test, would result in a default under Term Financing No. 2 in the absence of cure payments by us.

 

 

On May 2, 2008 two of our subsidiaries, ACS Ireland 3 and
ACS 2008-1
Limited (“ACS Bermuda 3”), which we refer to together
with their subsidiaries as the ACS 3 Group, entered into a seven
year, $786,135 term debt facility, which we refer to as
“Term Financing No. 1,” to finance a portfolio of
28 aircraft. The loans under Term Financing No. 1 were
fully funded into an aircraft purchase escrow account on
May 2, 2008. These loans were released to us from escrow as
each of the financed aircraft was transferred into the facility.
The loans are secured by, among other things, first priority
security interests in, and pledges or assignments of ownership
interests in, the aircraft-owning and other subsidiaries which
are part of the financing structure, as well as by interests in
aircraft leases, cash collections and other rights and
properties they may hold. However, the loans are neither
obligations of, nor guaranteed by, Aircastle Limited. The loans
mature on May 2, 2015.

 

We generally retained the right to receive future cash flows
after the payment of claims that are senior to our rights,
including, but not limited to, payment of expenses related to
the aircraft, fees of administration and fees and expenses of
service providers, interest and principal on the loans, amounts
owed to interest rate hedge providers and amounts, if any, owing
to the liquidity provider for previously unreimbursed advances.
We are entitled to receive these excess cash flows until
May 2, 2013, subject to confirmed compliance with the Term
Financing No. 1 loan documents. After that date, all excess
cash flows will be applied to the prepayment of the principal
balance of the loans.

 

The loans provide for monthly payments of interest on a floating
rate basis at a rate of one-month LIBOR plus 1.75% and scheduled
payments of principal, which during the first five years will
equal approximately $48.9 million per year. The loans may
be prepaid upon notice, subject to certain conditions, and the
payment of expenses, if any, and the payment of a prepayment
premium on amounts prepaid on or before May 2, 2010. We
entered into interest rate hedging arrangements with respect to
a substantial portion of the principal balance of the loans
under Term Financing No. 1 in order to effectively pay
interest at a fixed rate on a substantial portion of the loans.
Obligations owed to hedge counterparties under these contracts
are secured on a pari passu basis by the same collateral that
secures the loans under Term Financing No. 1 and,
accordingly, there is no obligation to pledge cash collateral to
secure any loss in value of the hedging contracts if interest
rates fall.

 

Aircastle
Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars
in thousands, except per share amounts)

 

Term Financing No. 1 requires compliance with certain
financial covenants in order to continue to receive excess cash
flows, including the maintenance of loan to value and debt
service coverage ratios. From and after May 2, 2009, if
loan to value ratio exceeds 75%, all excess cash flows will be
applied to prepay the principal balance of the loans until such
time as the loan to value ratio falls below 75%. In addition,
from and after May 2, 2009, debt service coverage must be
maintained at a minimum of 1.32. If the debt service coverage
ratio requirements are not met on two consecutive monthly
payment dates, all excess cash flows will thereafter be applied
to prepay the principal balance of the loans until such time as
the debt service coverage ratio exceeds the minimum level.
Compliance with these covenants depends substantially upon the
appraised value of the aircraft securing Term Financing
No. 1 and the timely receipt of lease payments from their
lessees.

 

 

On September 12, 2008, one of our subsidiaries entered into
a five-year, $206,580 million term debt facility, which we
refer to as Term Financing No. 2, to finance a portfolio of
up to nine aircraft. The loans under Term Financing No. 2
were fully funded into an aircraft purchase escrow account on
September 23, 2008. These loans were released to us from
escrow as each of the financed aircraft was transferred into the
facility. In the third quarter, the loans with respect to seven
aircraft were released to us upon transfer, and in the fourth
quarter, the loans with respect to two aircraft were released to
us upon transfer. One aircraft was subsequently sold in December
2008.

 

Loans under Term Financing No. 2 are secured by, among
other things, first priority security interests in, and pledges
or assignments of ownership interests in, the aircraft-owning
entities and other subsidiaries which are part of the financing
structure, as well as by interests in aircraft leases, cash
collections and other rights and properties they may hold.
However, the loans are neither obligations of, nor guaranteed
by, Aircastle Limited. The loans mature on September 23,
2013.

 

We generally retained the right to receive future cash flows
from the aircraft securing Term Financing No. 2 after the
payment of claims that are senior to our rights, including, but
not limited to, payment of expenses related to the aircraft,
fees of administration and fees and expenses of service
providers, interest and principal on the loans, and amounts owed
to interest rate hedge providers. However, Term Financing
No. 2 requires that approximately 85% of the cash flow
remaining after expenses, fees, interest and amounts owing to
interest rate hedge providers will be applied to reduce the
principal balance of the loans, and in any case distribution of
any excess cash flow to us is subject to continuing compliance
with the Term Financing No. 2 loan documents.

 

Borrowings under Term Financing No. 2 will bear interest on
the basis of three-month LIBOR plus 2.25% per annum or, if
greater, on the basis of the lenders’ cost of funds rate
plus a margin, currently 2.25% per annum. The loans provide for
quarterly payments of interest and scheduled payments of
principal. The Loans may be prepaid upon notice, subject to
certain conditions, and the payment of expenses, if any, and in
some cases the payment of a prepayment premium on amounts
prepaid on or before September 23, 2010.

 

Term Financing No. 2 requires our relevant subsidiaries to
satisfy certain financial covenants, including the maintenance
of loan to value and interest coverage ratios. The loan to value
ratio begins at 75% of appraised value and reduces over time to
35% of appraised value approximately 54 months after
closing. The interest coverage test compares available cash,
being the amount by which rentals received in the preceding six
month period exceeds any re-leasing costs and servicing fees, to
interest on the loans (net of interest rate hedging) during that
period. The interest coverage ratio tests, on any quarterly
payment date, whether available cash exceeds net interest costs
by a factor of three (rising over time to five, in the fifth
year after closing), and the covenant will be breached if the
test fails on

 

Aircastle
Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars
in thousands, except per share amounts)

 

any two consecutive quarterly payment dates. Compliance with
these covenants depends substantially upon the appraised value
of the aircraft securing Term Financing No. 2, the timely
receipt of lease payments from the relevant lessees and on our
ability to utilize the cure rights provided to us in the loan
documents. Failure to comply with the loan to value test, or to
comply with the interest coverage test at a time when we are
also in breach of a modified version of the loan to value test,
would result in a default under Term Financing No. 2 in the
absence of cure payments by us.

 

the principal balance of the loans, and in any case distribution of any excess cash flow to us is subject to continuing compliance with the Term Financing No. 2 loan documents.

 

Borrowings under Term Financing No. 2 will bear interest on the basis of three-month LIBOR plus 2.25% per annum or, if greater, on the basis of the lenders’ cost of funds rate plus a margin, currently 2.25% per annum. The loans provide for quarterly payments of interest and scheduled payments of principal. As of September 30, 2008, borrowings under Term Financing No. 2 were $206.6 million. The Loans may be prepaid upon notice, subject to certain conditions, and the payment of expenses, if any, and in some cases the payment of a prepayment premium on amounts prepaid on or before September 23, 2010.

 

Term Financing No. 2 requires our relevant subsidiaries to satisfy certain financial covenants, including the maintenance of loan to value and interest coverage ratios. The loan to value ratio begins at 75% of appraised value and reduces over time to 35% of appraised value approximately 54 months after closing. The interest coverage test compares available cash, being the amount by which rentals received in the preceding six month period exceeds any re-leasing costs and servicing fees, to interest on the loans (net of interest rate hedging) during that period. The interest coverage ratio tests, on any quarterly payment date, whether available cash exceeds net interest costs by a factor of three (rising over time to five, in the fifth year after closing), and the covenant will be breached if the test fails on any two consecutive quarterly payment dates. Compliance with these covenants depends substantially upon the appraised value of the aircraft securing Term Financing No. 2, the timely receipt of lease payments from the relevant lessees and on our ability to utilize the cure rights provided to us in the loan documents. Failure to comply with the loan to value test, or to comply with the interest coverage test at a time when we are also in breach of a modified version of the loan to value test, would result in a default under Term Financing No. 2 in the absence of cure payments by us.

 

 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
June 30, 2008

 

We generally retained the right to receive future cash flows from Portfolio No. 3 after the payment of claims that are senior to our rights (“Excess Cash Flow”), including, but not limited to, payment of expenses related to the aircraft, fees of administration and fees and expenses of service providers, interest and principal on the loans, amounts owed to interest rate hedge providers and amounts, if any, owing to the liquidity provider for previously unreimbursed advances. We are entitled to receive Excess Cash Flow from Portfolio No. 3 until May 2, 2013, provided that the ACS 3 Group remains in compliance with its obligations under the Term Financing No. 1 loan documents. After that date, all Excess Cash Flow will be applied to the prepayment of the principal balance of the loans.

 

The loans provide for monthly payments of interest on a floating rate basis at a rate of one-month LIBOR plus 1.75%, and scheduled payments of principal, which during the first five years will equal approximately $48,900 per year. As of June 30, 2008, the ACS 3 Group had borrowings of $782,060. The Loans may be prepaid upon notice, subject to certain conditions, and the payment of expenses, if any, and the payment of a prepayment premium on amounts prepaid on or before May 2, 2010. The ACS 3 Group entered into interest rate hedging arrangements with respect to a substantial portion of the principal balance of the loans under Term Financing No. 1 in order to effectively pay interest at a fixed rate on a substantial portion of the loans. Obligations owed to hedge counter-parties under these contracts are secured pari passu basis by the same collateral that secures the loans under Term Financing No. 1 and, accordingly, the ACS 3 Group has no obligation to pledge cash collateral to secure any loss in value of the hedging contracts if interest rates fall. These hedging contracts, together with the spread referenced above and other costs of administration, result in a fixed rate cost of 7.30% per annum, after the amortization of issuance fees and expenses.

 

Term Financing No. 1 requires the ACS 3 Group to satisfy certain financial covenants in order to continue to receive Excess Cash Flows, including the maintenance of loan to value and debt service coverage ratios. From and after May 2, 2009, if loan to value ratio exceeds 75%, all Excess Cash Flows will be applied to prepay the principal balance of the loans until such time as the loan to value ratio falls below 75%. In addition, from and after May 2, 2009, debt service coverage must be maintained at a minimum of 1.32. If the debt service coverage ratio requirements are not met on two consecutive monthly payment dates, all Excess Cash Flows will thereafter be applied to prepay the principal balance of the loans until such time as the debt service coverage ratio exceeds the minimum level.. The ACS 3 Groups’ compliance with these covenants depends substantially upon the appraised value of Portfolio No. 3 and the timely receipt of lease payments from their lessees.

 

ACS Ireland 3, which had total assets of $113,372 at June 30, 2008, is a VIE which we consolidate. At June 30, 2008, the assets of ACS Ireland 3 include two aircraft transferred to ACS Ireland 3 in connection with Term Financing No. 1. The operating activities of ACS Ireland 3 are limited to the acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling the two aircraft. At June 30, 2008, the outstanding principal amount of the ACS Ireland 3 loans was $71,991.