As filed with the Securities and Exchange Commission on May 31, 2000
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
MORGAN STANLEY AIRCRAFT FINANCE
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
7359
(Primary Standard Industrial Classification Code Number)
13-3375162
(I.R.S. Employer Identification Number)
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1000
Attention: Corporate Trust Administration
(302) 651-1000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1000
Attention: Corporate Trust Administration
(302) 651-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Keith L. Kearney, Esq.
Davis Polk & Wardwell
99 Gresham Street
London EC2V 7NG
England
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
Proposed Maximum Proposed Maximum
Title of Each Class Amount to Be Offering Price Aggregate Amount of
of Securities to be Registered Registered Per Note(1) Offering Price(1) Registration Fee
------------------------------ ---------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
Notes due March 15, 2025.......... $1,310,000,000 100% $1,310,000,000 $345,840
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
As filed with the Securities and Exchange Commission on May 31, 2000
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
MORGAN STANLEY AIRCRAFT FINANCE
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
7359
(Primary Standard Industrial Classification Code Number)
13-3375162
(I.R.S. Employer Identification Number)
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1000
Attention: Corporate Trust Administration
(302) 651-1000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1000
Attention: Corporate Trust Administration
(302) 651-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Keith L. Kearney, Esq.
Davis Polk & Wardwell
99 Gresham Street
London EC2V 7NG
England
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class Amount to Be Offering Price Aggregate Registration
of Securities to be Registered Registered(1) Per Note(2) Offering Price(2) Fee(3)
------------------------------ -------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Notes due March 15, 2023.......... $650,000,000 100% $650,000,000 $171,600
Notes due March 15, 2025.......... $1,310,000,000 100% $1,310,000,000 $345,840
</TABLE>
(1) Initial aggregate principal amount.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
(3) The Registration Fee was previously paid when the Securities were
originally registered.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a prospectus relating to the exchange
offer of up to $580,000,000 aggregate initial principal amount of subclass A-3
notes due March 15, 2025, $200,000,000 aggregate initial principal amount of
subclass A-4 notes due March 15, 2025, $400,000,000 aggregate initial principal
amount of subclass A-5 notes due March 15, 2025, $75,000,000 aggregate initial
principal amount of subclass B-2 notes due March 15, 2025 and $55,000,000
aggregate initial principal amount of subclass C-2 notes due March 15, 2025 of
MSAF together with separate prospectus pages relating to certain market-making
transactions in those notes as well as our other outstanding notes. The complete
prospectus for the exchange offer follows immediately after this Explanatory
Note. Following such prospectus are certain pages of the prospectus relating to
the market-making transactions, including an alternate cover page, an alternate
page including the "Table of Contents", a section entitled "Certain Risk Factors
- Trading Market for the Notes" to be used in lieu of "Certain Risk Factors -
Risks Relating to the Capital Markets - Absence of Public Market" section and an
additional section entitled "Market-Making Activities of Morgan Stanley & Co.
Incorporated".
<PAGE>
PROSPECTUS
$1,310,000,000
Initial Principal Amount
Offer to Exchange Notes due March 15, 2025
for Any and All Outstanding Notes due March 15, 2025
of
Morgan Stanley Aircraft Finance
The Exchange Offer will expire at 5:00 P.M., New York City
time, on , 2000, unless extended.
Morgan Stanley Aircraft Finance is offering to exchange five subclasses of
new notes for corresponding subclasses of issued and outstanding restricted
notes of Morgan Stanley Aircraft Finance that we previously offered and sold to
investors on a basis exempt from registration under the Securities Act of 1933,
as amended, by virtue of Section 4(2) and Rule 144A thereunder. The terms of the
new notes are identical to the restricted notes except that the new notes will
be registered under the Securities Act of 1933, as amended.
----------
The restricted notes were listed on the Luxembourg Stock Exchange on March 15,
2000. The new notes will be listed on the Luxembourg Stock Exchange when they
are issued.
----------
Investing in the new notes involves risks. See "Risk Factors" beginning on
Page 13.
----------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
Summary......................................................................1
Overview.....................................................................9
Risk Factors................................................................13
The Exchange Offer..........................................................25
MSAF's Performance Assumptions..............................................30
The Portfolio...............................................................46
Appraisals..................................................................46
Portfolio Information.......................................................48
MSAF Group Portfolio Analysis...............................................53
Acquisition of Additional Aircraft..........................................56
The Leases..................................................................56
The Commercial Aircraft Industry............................................58
Operating Leases............................................................60
MSAF Group..................................................................63
Management of MSAF Group....................................................64
Selected Consolidated Financial Information.................................72
Unaudited Pro Forma Consolidated Financial
Information................................................................73
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................77
Description of the Notes....................................................92
General.....................................................................92
Payments and Distributions..................................................93
Payment of Principal and Interest...........................................93
Indenture Covenants........................................................107
Operating Covenants........................................................118
Events of Default and Remedies.............................................122
Intercreditor Rights.......................................................124
Modification and Waiver....................................................125
Notices to Noteholders.....................................................125
Governing Law and Jurisdiction.............................................126
Beneficial Interest........................................................126
The Accounts...............................................................127
Reports to Noteholders.....................................................130
Book-Entry Registration, Global Clearance and
Settlement................................................................137
Taxation...................................................................141
ERISA Considerations.......................................................144
Plan of Distribution.......................................................145
Legal Matters..............................................................146
Listing and General Information............................................146
Experts....................................................................146
Appendix 1. MSAF Cash Flow Performance for the Period from
March 15, 2000 to April 15, 2000.......................................A-1-1
Appendix 2. Extract from Cash Analysis of Financial Condition
and Results of Operations for the Twelve Month Period from
December 1, 1998 to November 30, 1999..................................A-2-1
Appendix 3. Extract from Cash Analysis of Financial Condition
and Results of Operations for the Three Month Period from
December 1, 1999 to February 29, 1999..................................A-3-1
Appendix 4. Monthly Lease Rentals
under the Base Case....................................................A-4-1
Appendix 5. Assumed Portfolio Values.....................................A-5-1
Appendix 6. Class A Class Percentages....................................A-6-1
Appendix 7. Class B Class Percentages....................................A-7-1
Appendix 8. Class C Target Principal Balances............................A-8-1
Appendix 9. Class D Target Principal Balances............................A-9-1
Appendix 10. Pool Factors...............................................A-10-1
Appendix 11. Extended Pool Factors......................................A-11-1
Index to Consolidated Financial Statements.................................F-1
Index of Defined Terms.....................................................I-1
Exhibit A: (CD-ROM)..........................................Inside Back Cover
<PAGE>
AVAILABLE INFORMATION
Morgan Stanley Aircraft Finance ("MSAF," and together with its
subsidiaries, "MSAF group") will be subject to the information reporting
requirements of the Securities Exchange Act of 1934, as amended, upon the
effectiveness of this Registration Statement and in accordance therewith will
file reports, proxy statements and other information with the Securities and
Exchange Commission. Any reports and other information filed by MSAF with the
Securities and Exchange Commission may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
will also be available for inspection and copying at the regional offices of the
Securities and Exchange Commission located at 7 World Trade Center, New York,
New York 10048 and at Northwestern Atrium Center, 500 West Madison Street (Suite
1400), Chicago, Illinois 60661 at prescribed rates. The Securities and Exchange
Commission maintains a Web site (http://www.sec.gov) that contains reports and
other information, including the registration statement (of which this
prospectus is a part) filed by MSAF.
MSAF has filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act of 1933, as amended, with respect
to all of MSAF's outstanding notes, including the notes being offered by this
prospectus. This prospectus does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted as permitted by the rules and regulations of
the Securities and Exchange Commission. For further information with respect to
MSAF and the securities offered by this prospectus, reference is made to the
Registration Statement and the exhibits filed or incorporated as a part thereof,
which are on file at the offices of the Securities and Exchange Commission and
may be obtained upon payment of the fee prescribed by the Securities and
Exchange Commission, or may be examined without charge at the offices of the
Securities and Exchange Commission. Statements contained in this prospectus as
to the contents of any documents referred to are not necessarily complete, and,
in each such instance, are qualified in all respects by reference to the
applicable documents filed with the Securities and Exchange Commission.
The new notes will be listed on the Luxembourg Stock Exchange upon
issuance, subject only to notice of issuance. The constitutive documents of MSAF
and the legal notice relating to the issuance of the notes will be deposited
with the Registrar of the District Court in Luxembourg (Greffier en Chef du
Tribunal d'Arrondissement de et a Luxembourg) where such documents will be
available for inspection and where such documents will be obtainable upon
request. Copies of the prospectus, the annual report of independent public
accountants and the reports to noteholders referred to under "Reports to
Noteholders" will be available at the office of the listing agent in Luxembourg:
Banque Internationale a Luxembourg, 69, route d'Esch, L-1470 Luxembourg.
Financial information regarding MSAF will be included in MSAF's quarterly
reports on Form 10-Q, annual reports on Form 10-K and monthly and other interim
reports on Form 8-K and will be available at the office of the listing agent in
Luxembourg after the respective reports are filed with the Securities and
Exchange Commission.
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information regarding MSAF and the notes and the financial statements (including
the notes to the financial statements) and cash reports appearing elsewhere in
this prospectus.
The Exchange Offer
On March 15, 2000 we issued $1,310 million in aggregate principal amount of
restricted notes in five subclasses: subclass A-3, subclass A-4, subclass A-5,
subclass B-2 and subclass C-2. We refer to these notes in this prospectus as
"restricted notes". Because we originally issued the restricted notes under an
exemption from registration under the Securities Act, the restricted notes
contain transfer restrictions. We are now offering to exchange the "new notes"
for the restricted notes. The new notes will not contain these transfer
restrictions and may be transferred as we describe under "--Consequences of
Exchanging the restricted notes in the Exchange Offer". Otherwise, the terms of
the new notes and restricted notes are identical, except for registration rights
and special interest provisions relating to the restricted notes.
In addition to the notes we are offering to exchange, we have outstanding
$650 million in aggregate principal amount of notes in four subclasses: subclass
A-2, subclass B-1, subclass C-1 and subclass D-1. These "old notes" are not the
subject of the exchange offer but are nonetheless described in this prospectus.
We refer to all of the outstanding notes of MSAF in this prospectus as the
"notes".
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2000, unless we extend it. At any time before the expiration date,
you may withdraw any restricted notes that you have tendered in the exchange
offer. If we or the exchange agent do not accept any restricted notes that you
have tendered, we or the exchange agent will return the restricted notes to you
without expense as soon as is practicable after the exchange offer has expired
or has been terminated.
Neither you nor MSAF will recognize any income, gain or loss for U.S.
federal income tax purposes because you exchange your restricted notes.
You should refer to "The Exchange Offer" below for more details about the
procedures for tendering the restricted notes and the other terms of the
exchange offer.
Consequences of Exchanging Restricted notes in the Exchange Offer
Based upon interpretations contained in letters issued to third parties by
the staff of the Securities and Exchange Commission, we believe that any holder
of restricted notes, other than a broker-dealer or any holder which is an
affiliate of MSAF within the meaning of Rule 405 under the Securities Act which
exchanges its restricted notes for new notes in the exchange offer may offer
such new notes for resale, may resell such new notes, or transfer such new notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act if:
o the holder acquires the new notes in the ordinary course of the
holder's business; and
o the holder has no arrangement or understanding with any person to
participate in the distribution of the new notes.
If you wish to accept the exchange offer, you must represent to us in the
letter of transmittal that the two conditions described above have been met.
If you wish to accept the exchange offer, you must also make the following
representations:
o If you are not a broker-dealer, you must represent that you are not
participating in the distribution of the new notes and that you do
not intend to participate in the distribution.
1
<PAGE>
o If you are a broker-dealer who will not receive new notes for your
own account, you must represent that neither you nor any person for
whom you receive the new notes is participating in the distribution
and that neither you nor any such person intends to participate in
the distribution.
o If you are a broker-dealer who will receive new notes for your own
account, you must represent that you acquired the restricted notes
tendered by you in your market-making or other trading activities.
You must also acknowledge that you will deliver a prospectus if you
resell the new notes. By making this acknowledgment and delivering
a prospectus, you will not be deemed to admit that you are an
underwriter within the meaning of the Securities Act.
To comply with the securities laws of certain states or other
jurisdictions, it may be necessary to qualify for sale or register the new notes
prior to offering or selling such new notes. We have agreed to register or
qualify the new notes held by broker-dealers for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the
restricted notes reasonably requests in writing. Unless a holder requests
registration or qualification, we do not intend to take any action to register
or qualify the new notes for resale in any such jurisdictions.
If you do not exchange your restricted notes for new notes in the exchange
offer, your restricted notes will continue to be subject to the restrictions on
transfer contained in the legend on the restricted notes. Please refer to "Risk
Factors -- Consequences of Failure to Exchange" for a description of these
restrictions.
Summary Description of the Notes
The following table summarizes certain of the principal terms of all our
outstanding notes. Information in this table is based on what we refer to as our
"Base Case", which is the scenario in which our current assumptions regarding
MSAF's performance, as discussed under "MSAF's Performance Assumptions", prove
to be correct. You should note that the Base Case does not refer to any
"Assumptions" that we have previously disclosed. You should refer to Appendices
1, 2 and 3 to this prospectus for more detailed information regarding our
historical cash flow performance. You should note that appraised values will
fluctuate and that actual revenues may be significantly lower than assumed
revenues, with corresponding effects on the information set forth below. See
"MSAF's Performance Assumptions". For purposes of calculating ratios in this
table we have used amounts assumed under the Base Case for the 12 months ending
March 15, 2001.
2
<PAGE>
<TABLE>
<CAPTION>
Subclass Subclass Subclass Subclass
A-2 A-3 A-4 A-5
Notes Notes Notes Notes
<S> <C> <C> <C> <C>
Aggregate
Principal
Amount as of
March 15,
2000.............. $224,684,850 $580,000,000 $200,000,000 $400,000,000
Ratings
Standard &
Poor's............ AA AA AA AA
Moody's........... Aa2 Aa2 Aa2 Aa2
DCR............... AA AA AA AA
Interest Rate....... LIBOR +0.35% LIBOR +0.52% LIBOR+0.54% LIBOR+0.58%
Initial Loan to 66.1% 66.1% 66.1% 66.1%
Value(1)............
Initial Loan to
Assumed
First Year's
Net Revenue
(1) (2)........... 6.46 6.46 6.46 6.46
Assumed Interest
Coverage
Ratio(2)(3)....... 2.42 2.42 2.42 2.42
Assumed Debt
Service
Coverage
Ratio(2)(4)....... 1.65 1.65 1.65 1.65
Expected
Weighted
Average Life
(Years)........... 3.1 2.0 3.0 4.8
Expected
Principal
Amortization April 15, March 15, March 15, April 15,
Period(5)......... 2000 2002 2003 2000
September 15, June 15,
2005 2008
Final Maturity Date. March 15, March 15, March 15, March 15,
2023 2025 2025 2025
Subclass Subclass Subclass
B-1 B-2 C-1
Notes Notes Notes
<S> <C> <C> <C>
Aggregate
Principal
Amount as of
March 15,
2000.............. $89,715,098 $75,000,000 $99,876,807
Ratings
Standard &
Poor's............ A A BBB
Moody's........... A2 A2 Baa2
DCR............... A A BBB
Interest Rate....... LIBOR+0.65% LIBOR+1.05% 6.90%
Initial Loan to 73.8% 73.8% 81.1%
Value(1)............
Initial Loan to
Assumed
First Year's
Net Revenue
(1) (2)........... 7.22 7.22 7.93
Assumed Interest
Coverage
Ratio(2)(3)....... 2.05 2.05 1.78
Assumed Debt
Service
Coverage
Ratio(2)(4)....... 1.62 1.62 1.60
Expected
Weighted
Average Life
(Years)........... 6.7 6.8 8.6
Expected
Principal
Amortization April 15, September 15, April 15,
Period(5)......... 2000 2000 2000
March 15, March 15, March 15,
2013 2007 2013
Final Maturity Date. March 15, March 15, March 15,
2023 2025 2023
</TABLE>
----------
(1) "Initial Loan to Value" represents the initial aggregate principal amount
of each subclass of notes, plus the initial aggregate principal amount of
any other subclass of MSAF's notes that ranks equally or senior in priority
of payment ("Initial Loan"), expressed as a percentage of the aggregate
appraised value (as of November 30, 1999) of the aircraft plus the sum of
(i) $43.1 million, the amount of cash that we expect to hold as of the
closing date (which includes amounts relating to cash security deposits of
$7.1 million which may be required to be reimbursed to lessees), plus (ii)
$82.1 million, the amount that we expect to be available to be drawn under
eligible credit facilities on the closing date (which includes amounts
relating to cash security deposits of $32.1 million which may be required
to be reimbursed to lessees).
(2) "First Year's Net Revenue" means our lease rentals less our swap costs,
aircraft operating expenses and SG&A.
(3) "Interest Coverage Ratio" means First Year's Net Revenue expressed as a
ratio of First Year's Interest. "First Year's Interest" means (i) the
interest payable on each subclass of notes and each subclass that ranks
equally with such subclass, plus (ii) the interest and minimum principal
payments payable on each subclass of notes that ranks senior in priority of
payment to the relevant subclass of notes.
(4) "Debt Service Coverage Ratio" means First Year's Net Revenue expressed as a
percentage of First Year's Interest and Minimum and Scheduled Principal.
"First Year's Interest and Minimum and Scheduled Principal" means (i) the
interest and minimum and scheduled principal payments on each subclass of
notes, plus (ii) the interest and minimum and scheduled principal payments
assumed to be payable on each subclass of notes that under the priority of
payments are equal or senior in priority of payment with or to the interest
and minimum and scheduled principal payments on the relevant subclass of
notes.
(5) "Expected Principal Amortization Period" means the period from the date on
which we expect principal amortization to begin to the expected final
payment date for each subclass of notes.
3
<PAGE>
Ratings of the Notes
The ratings of the notes address the likelihood of the timely payment of
interest and the ultimate payment of principal and premium, if any, on the
notes. In addition, the rating agencies have not rated MSAF's ability to pay
step-up interest or principal in full on the subclass A-3, A-4 and B-2 notes on
the expected final payment date or on any other date prior to the final maturity
date. The ratings assigned to the notes do not address the effect of any
imposition of any withholding tax on any payments under the leases, the notes or
otherwise. See "Risk Factors--Tax Risks."
A rating is not a recommendation to buy, sell or hold notes because the
ratings do not address market price or suitability for a particular investor and
may be subject to revision, suspension or withdrawal at any time by the
assigning rating agency. If a rating agency lowers, suspends, or withdraws its
rating of any subclass of the notes no person or entity has any obligation to
support MSAF's obligations under the notes in any way.
The notes we are issuing in this offering will rank equally in right of
payment and interest with the corresponding classes of our outstanding notes.
For more information regarding our total outstanding indebtedness and
capitalization, see "Capitalization".
4
<PAGE>
THE NOTES
We have summarized the terms of the notes below.
Payment Dates........... We must pay interest monthly in arrears on the
fifteenth day of each month. If the fifteenth day of
a month is not a business day, the relevant payment
date will be the next business day. By business day,
we mean a day on which a bank may deal in U.S. dollar
deposits in the London inter-bank market and
commercial banks and foreign exchange markets are
open in New York and London.
Record Date............. The record date is the close of business on the day
that is 15 calendar days prior to the payment date.
Calculation of
Interest ............. For the purpose of calculating the interest rate
payable on the notes, Bankers Trust Company as
reference agent will determine LIBOR for the relevant
monthly period two business days before the payment
date on which the monthly period begins.
We will calculate accrued interest on outstanding
principal balances and other amounts on which we must
pay interest as of the fourth business day before the
monthly period begins.
Accrued and Unpaid
Interest ............. Any accrued interest that, as a result of the
allocation of our available cash collections, we do
not pay on any payment date will bear interest at the
then current interest rate for the applicable
subclass of notes.
Sources of Note
Payments ............. Our only sources of payments for the notes and our
other obligations are:
o the payments made by the lessees under the leases;
o amounts drawn under any credit or liquidity
enhancement facility;
o proceeds from any sales of our assets;
o net payments to us under our swap agreements and
other hedging instruments;
o interest earned on investments of our cash
balances; and
o net cash proceeds received from the sale of
refinancing notes.
We will make payments on the notes only to the extent
of our available cash on each payment date remaining
after paying expenses and satisfying other
requirements which are described under "Description
of the Notes -- Payment of Principal and Interest --
Priority of Payments".
Security for Our
Obligation ........... Although neither the security trustee nor the
noteholders have any mortgage or other security
interest in the aircraft, we have granted to the
security trustee, as security for our various
obligations (including under our notes), a security
interest in:
o the equity in our subsidiaries;
o the interests of all MSAF group members in the
leases;
5
<PAGE>
o our intercompany loans to our subsidiaries;
o our cash balances; and
o investments made with our cash balances.
ILFC Facility........... ILFC has agreed to make loans to us from time to time
in an amount up to $20 million plus the aggregate
amount of cash security deposits held by ILFC for our
benefit at the time.
MSDW Facility........... MSDW has agreed to make loans to us from time to time
in an amount up to $30 million.
Principal Payments...... We have determined the expected principal payments on
the notes based on, among other things, assumptions
regarding principally:
o the timing and amount of payments under our current
leases and leases we may enter into in the future;
o the terms of future leases;
o the amount of operating costs incurred in the
ordinary course of the operating lease business;
o our ability to timely refinance the subclass A-3,
A-4 and B-2 notes.
It is unlikely that actual experience in the future
will correspond to these assumptions, therefore the
timing and amount of our principal payments on each
subclass of notes will likely vary from the expected
principal payments.
Step-Up Interest........ If we do not repay the subclass A-3, A-4 or B-2 notes
on or before their expected final payment dates, we
will pay additional interest of 1.00% per annum on the
subclass A-3 and A-4 notes and 1.50% per annum on the
subclass B-2 notes, until such notes are repaid in
full. Such payments of step-up interest with respect
to the subclass A-3, A-4 or B-2 notes:
o will be subordinated to certain other obligations we
have, including making scheduled principal payments
on all the notes; and
o will not be rated by the rating agencies.
Refinancing of the
Notes ................ We may refinance any subclass of the notes by
issuing refinancing notes. Such refinancing notes
will rank equally, including terms of priority of
payment and security, with the subclass of notes that
were refinanced.
Redemption.............. On any payment date, we may redeem any subclass of
notes out of any amounts other than available
collections (including proceeds from refinancing
notes or from third parties), in whole or in part, at
the applicable redemption price. In the case of such
an optional redemption, the redemption price of the
subclass A-2, A-3, A-4, A-5, B-1 and B-2 notes will
be the outstanding principal balance of the subclass
being redeemed multiplied by the redemption premium
set out in the table below. The redemption price of
the subclass C-1 and subclass C-2 notes will be the
higher of the discounted present value of Scheduled
Principal Payment
6
<PAGE>
Amounts of the subclass C-1 and subclass C-2 notes and
interest from the redemption date to the applicable
expected final payment date, discounted at the
applicable Treasury yield plus 1.00% or the outstanding
principal balance on the redemption date. The
redemption price in respect of a redemption of the
subclass D-1 notes occurring before March 15, 2003 will
be the higher of the discounted present value of
Scheduled Principal Payment Amounts of the subclass D-1
notes and interest through, but not including March 15,
2003, plus the product of the applicable redemption
premium set out in the table below and the assumed
outstanding principal balance for March 15, 2003
discounted at a rate equal to the Treasury yield plus
1.00% or the outstanding principal balance on the
redemption date. The redemption price in respect of a
redemption of the subclass D-1 notes occurring on or
after March 15, 2003 will be the outstanding principal
balance being redeemed multiplied by the redemption
premium set out in the table below.
<TABLE>
<CAPTION>
Redemption Premium
--------------------------------------------------------------------------------------
Subclass Subclass Subclass Subclass Subclass Subclass Subclass
A-2 A-3 A-4 A-5 B-1 B-2 D-1
Redemption Date Notes Notes Notes Notes Notes Notes Notes
--------------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
On or after March 15, 2000.. 101.00% 101.00% 101.50% 101.50% 102.00% 101.75% --
On or after March 15, 2001.. 100.50% 100.50% 101.00% 101.00% 101.50% 101.50% --
On or after March 15, 2002.. 100.00% 100.00% 100.50% 100.75% 101.00% 101.25% --
On or after March 15, 2003.. -- -- 100.00% 100.50% 100.50% 101.00% 105.25%
On or after March 15, 2004.. -- -- -- 100.25% 100.00% 100.75% 104.50%
On or after March 15, 2005.. -- -- -- 100.00% -- 100.50% 103.75%
On or after March 15, 2006.. -- -- -- -- -- 100.25% 103.00%
On or after March 15, 2007.. -- -- -- -- -- 100.00% 102.25%
On or after March 15, 2008.. -- -- -- -- -- -- 101.50%
On or after March 15, 2009.. -- -- -- -- -- -- 100.75%
On or after March 15, 2010.. -- -- -- -- -- -- 100.00%
On or after March 15, 2011.. -- -- -- -- -- -- --
</TABLE>
On each payment date, we must redeem subclasses of
notes to the extent there are available collections
remaining at the levels in the order of priorities
at which we are required to make a principal
payment on that subclass of notes. In the case of a
redemption from available collections, the
redemption price of the subclass A-2, A-3, A-4,
A-5, B-1 and B-2 notes will be the outstanding
principal balance of the subclass being redeemed.
The redemption price of the subclass C-1, C-2 and
D-1 notes will be the same as the optional
redemption price described above.
On any payment date, we may redeem each subclass of
notes, in whole but not in part, if certain adverse
tax events affecting MSAF occur at the redemption
price plus accrued and unpaid interest. In the case
of a redemption for taxation purposes, the
redemption price will be the outstanding principal
balance of the subclass being redeemed.
If we redeem any subclass of notes in part, we will
apply the redemption price proportionally to the
notes of each holder of that subclass.
Operating Covenants...... Our operating covenants require that we maintain
diversification of our portfolio by imposing
restrictions on our asset, lessee and regional
concentrations. We may vary from these
concentration restrictions with the approval of the
rating agencies.
Service Providers........ For a full description of the services provided by
ILFC, as servicer, Bankers Trust Company, as cash
manager, Cabot Aircraft Services Limited, as
7
<PAGE>
administrative agent and Morgan Stanley & Co.
Incorporated, as financial advisor, see "Management
of MSAF group -- Corporate Management".
Withholding Tax.......... We have no obligation to make any additional
payments on the notes for any withholding or
deduction from payments on the notes that must be
made under applicable law. If we are required to
make any withholding or deduction on the notes and
we do not redeem the notes, we will reduce the net
amount of interest paid on the notes by the amount
of such withholding or deduction. Also, none of our
subsidiaries has an obligation under any
intercompany loan to make any additional payment
for any withholding or deduction that they must
make under applicable law from payments on these
intercompany loans.
Ratings of the Notes..... The notes have received the ratings shown on page 3
from Standard & Poor's Ratings Group, a division of
The McGraw-Hill Companies, Inc. ("Standard &
Poor's"), Moody's Investors Service, Inc.
("Moody's") and Duff & Phelps Credit Rating Co.
("DCR") for each subclass of notes.
Listing.................. We intend to list the new notes on the Luxembourg
Stock Exchange in accordance with its rules, and we
expect that the new notes will be eligible for
trading in the PORTAL market. The old notes and the
restricted notes have been listed on the Luxembourg
Stock Exchange and are eligible for trading in the
PORTAL market. See "Listing and General Information".
Denomination............. Each subclass of notes will be available for
purchase in minimum denominations of $100,000 and
integral multiples of $1,000 in excess thereof.
See "Description of the Notes -- General".
8
<PAGE>
Overview
Morgan Stanley Aircraft Finance is a special-purpose Delaware business
trust established in October 1997 to purchase and own a portfolio of aircraft.
One hundred per cent of the equity in MSAF is held indirectly by Morgan Stanley
Dean Witter & Co. ("MSDW"). MSAF is governed by seven trustees, including four
controlling trustees who are officers of an affiliate of MSDW, two independent
trustees and one Delaware trustee. For more information regarding the governance
of MSAF, see "Management of MSAF group". We have taken steps to structure MSAF
to ensure that our assets are not consolidated with MSDW's or any of its
affiliates' assets or otherwise become available to MSDW's or any of its
affiliates' creditors in any bankruptcy or insolvency proceeding involving MSDW.
See "Risk Factors -- Bankruptcy Risks".
We initially acquired 32 aircraft and one engine from International Lease
Finance Corporation ("ILFC") pursuant to an agreement dated November 10, 1997.
On May 19, 1999, an indirect wholly owned subsidiary of MSDW acquired two
aircraft from an affiliate of GE Capital Corporation for $9.05 million. This
purchase price was determined following negotiations between the parties.
On August 6, 1999, certain other indirect wholly owned subsidiaries of MSDW
agreed to acquire 27 aircraft from ILFC at a cost of $1,032 million. This
purchase price was determined following negotiations between the parties. All of
these aircraft have since been delivered by ILFC.
On March 15, 2000, we acquired these new aircraft-owning subsidiaries and
as a result 28 of these 29 aircraft from an indirect wholly owned subsidiary of
MSDW. We acquired the remaining aircraft on May 1, 2000. The total appraised
value of the 29 aircraft as November 30, 1999 was $1,047.8 million. The purchase
price that we paid to the MSDW subsidiary for the 29 aircraft was $958.2
million, $876.3 million of which we paid in cash and $81.9 million of which was
a capital contribution from the MSDW subsidiary.
The Portfolio. Our total portfolio now comprises 61 aircraft and one
engine. The aggregate appraised value of this portfolio was $2,000.9 million as
of November 30, 1999. Based on these appraised values, no one aircraft accounts
for more than 5% of our portfolio. As of April 15, 2000, we had 61 lease
contracts in effect with 42 lessees based in 25 countries and one aircraft was
off-lease. Our one off-lease aircraft was subject to a non-binding letter of
intent for lease. As of April 15, 2000, the weighted average remaining
contracted lease term of the portfolio (weighted by appraised values as of
November 30, 1999 and without giving effect to purchase options or extension
options) was 42 months. The longest lease is scheduled to expire in May 2010.
Therefore, we will be required to re-lease each of the aircraft one or more
times prior to the final maturity date for the notes. See "Risk Factors --
Leasing Risks -- We May Not be Able to Re-lease Aircraft".
Certain of our lessees are in a weak financial condition and face or have
recently faced serious financial difficulties. As of April 15, 2000, four of our
lessees were in arrears. The four aircraft on lease to these lessees represented
5.34% of the portfolio by appraised value at November 30, 1999. The total amount
of rental payments, maintenance reserves and other amounts that were in arrears
with respect to these four lessees was $3.6 million. This amount represents
1.62% of our assumed annual lease rental payments for the next year. We hold
security deposits of $1.9 million against these arrears. The weighted average
number of days past due of such arrears was 83 days. In addition to current
arrears, in January 2000, one lessee of two A320-200 aircraft agreed to
restructure rental and maintenance arrears amounting to $1.3 million. These
arrears are scheduled to be repaid commencing in June 2000. See "Risk Factors --
Leasing Risks -- Risk of Lessees in Weak Financial Condition".
Servicer. ILFC acts as servicer for our portfolio. Among other things, ILFC
markets the portfolio for lease or sale and monitors lessee compliance with
lease payment, maintenance and insurance terms. For a full description of the
servicing agreement with ILFC, see "Management of MSAF group -- The Servicer".
Additional Aircraft and Debt Issuances. We intend to acquire additional
aircraft from various sellers in the future. Such aircraft may be serviced by
parties other than ILFC. We will finance acquisitions of additional aircraft
with external
9
<PAGE>
funds, including issuing subclasses of debt securities in up to four classes
(class A, class B, class C and class D) that will rank equally in right of
payment of principal and interest with the corresponding subclasses of
outstanding notes. Any acquisition of additional aircraft and issuance of
additional notes will be subject to various conditions under the indenture,
including confirmation from the rating agencies that the acquisition and related
issuance of additional notes will not result in the lowering or withdrawal of
their ratings of the notes then outstanding.
10
<PAGE>
The Portfolio
The following charts summarize certain features of our portfolio as of
April 15, 2000. All percentages have been calculated by reference to the
appraised value of the portfolio at November 30, 1999.
Type of Aircraft
[CHART]
Aircraft Size
[CHART]
Year of Manufacture
[CHART]
Lessee Region
[CHART]
Individual Lessees
[CHART]
Region and Country
[CHART]
11
<PAGE>
Overview of Priority of Payments
The following chart summarizes the order of priority of payments on the
notes, the beneficial interest and other obligations of MSAF group. This is
described in more detail in "Description of the Notes -- Payment of Principal
and Interest -- Priority of Payments."
[CHART]
12
<PAGE>
RISK FACTORS
The risks and uncertainties described below are not the only ones facing
MSAF. Additional risks and uncertainties that we are not aware of at present, or
that we believe today are immaterial, may also impair our business operations.
Investors should read and carefully consider, among other things, the following
factors prior to accepting the exchange offer or investing in the notes.
If any of the following risks actually occur, we may not be able to make
the required payments on the notes. In addition, it is possible that the rental
payments under the leases may not be adequate to make the required payments on
the notes.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. In most cases, you can identify forward-looking statements by
terminology such as "may," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms or similar terminology. Our actual results could differ materially
from those anticipated in these forward-looking statements. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined below.
All information presented below is as of April 15, 2000. For significant
developments since that date, you should read "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent
Developments."
Consequences of Failure to Exchange
Holders of restricted notes who do not exchange their restricted notes for
new notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of their restricted notes as set forth in the legends
thereon. In general, the restricted notes may not be offered or sold, unless
they are registered under the Securities Act or are offered or sold pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. MSAF does not intend to register the
restricted notes under the Securities Act.
MSAF believes that, based upon interpretations contained in letters issued
to third parties by the staff of the Securities and Exchange Commission, new
notes issued pursuant to the exchange offer in exchange for restricted notes may
be offered for resale, resold or otherwise transferred by each holder thereof
(other than a broker-dealer, as set forth below, or any such holder which is an
"affiliate" of MSAF within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such new notes are acquired in the ordinary
course of the holder's business and the holder has no arrangement or
understanding with any person to participate in the distribution of such new
notes. Eligible holders who wish to accept the exchange offer must represent to
MSAF in a letter of transmittal that these conditions have been met and must
represent, if the holder is not a broker-dealer, or is a broker-dealer but will
not receive new notes for its own account in exchange for restricted notes, that
neither the holder nor the person receiving the new notes, if other than the
holder, is engaged in or intends to participate in the distribution of new
notes. If any holder has any arrangement or understanding with respect to the
distribution of the new notes to be acquired pursuant to the exchange offer, the
holder (1) will not be able to rely on the applicable interpretations of the
staff of the Commission and (2) in the absence of an exemption from the
Securities Act, must either comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction or
sell the restricted notes in a transaction exempt from the registration
requirements. Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must represent that the restricted notes tendered
in exchange therefor were acquired as a result of market-making activities or
other trading activities and must acknowledge that it will deliver a prospectus
in connection with any resale of such new notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with the resales of new notes
received in exchange for restricted notes where such restricted notes were
acquired by the broker-dealer as a result of market-making activities or other
trading activities. MSAF has agreed that, starting on the expiration date of the
exchange offer, it will make this prospectus available to any broker-dealer for
use
13
<PAGE>
in connection with any such resale. See "Plan of Distribution". However, to
comply with the securities laws of certain jurisdictions the new notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. MSAF has agreed, pursuant to the Registration
Agreement and subject to certain specified limitations therein, to register or
qualify the new notes for offer or sale under the securities or blue sky laws of
jurisdictions that any holder of the notes reasonably requests in writing.
Unless so required, MSAF does not intend to register or qualify the sale of the
new notes in any such jurisdictions.
In addition, the tender of restricted notes will reduce the principal
amount of the restricted notes outstanding, which may have an adverse effect
upon, and increase the volatility of, the market price of the restricted notes
due to a reduction in liquidity.
No Security Interest in Aircraft
Neither the trustee, the security trustee acting on behalf of the holders
of the notes and each other secured creditor nor any noteholder has any security
interest, mortgage, charge or other similar interest in the aircraft. If there
is an event of default, they will not be able to sell the aircraft to repay the
notes or exercise similar remedies which they would have if they had a security
interest in the aircraft.
No Executive Management -- Reliance on Third Parties to Manage Our Business
We have no executive management resources of our own. We therefore rely on
several service providers for the leasing and re-leasing of the portfolio and
all other executive and administrative responsibilities. If these service
providers do not perform their contractual obligations to us, our operations may
suffer and we may not be able to repay the notes. We can give no assurance that
we will continue our arrangements with these service providers or that the
service providers will continue their relationship with us until the notes are
paid in full. If a service provider resigns or we terminate its appointment, we
may be unable to find suitable replacement service providers that we can engage
on suitable terms. Additionally, our appointment of replacement service
providers may cause a lowering or withdrawal of the ratings on the notes. You
should refer to "Management of MSAF group -- The Servicer"; and "Management of
MSAF group -- Corporate Management" for detailed information on the
responsibilities delegated to service providers.
Conflicts of Interest of ILFC
ILFC acts as servicer for our portfolio and as such performs certain
services including marketing our current portfolio for lease or sale and
monitoring lessee compliance with lease terms. ILFC, however, manages a large
aircraft portfolio for itself and others and for that reason, it may face
conflicts of interest in managing and marketing our portfolio for re-lease or
sale. The aircraft it manages for others may compete with our portfolio when
they are being marketed for re-lease or sale. ILFC also arranges aircraft
financings and lease transactions and advises many airlines (including some
lessees and potential lessees). If ILFC cannot resolve a conflict of interest,
the conflict could have an adverse effect on our ability to manage, re-lease or
sell the portfolio. In that case, we may be unable to make the required payments
on the notes.
For a description of ILFC's aircraft management and advisory business, you
should refer to "Management of MSAF group -- The Servicer".
Limitation on ILFC's Liability
Our servicing agreement with ILFC contains limitations on its liability for
losses caused by its services. There is a risk that we may be unable to recover
from ILFC the amount of any losses they cause in performing the services.
Additionally, ILFC will not be liable to you for any losses caused by its
services.
We describe the liability and other provisions of the servicing agreement
under "Management of MSAF group -- The Servicer".
14
<PAGE>
Cyclicality of Supply of and Demand for Aircraft and Depression of Aircraft
Values
The market for commercial jet aircraft is very cyclical and can produce
sharp increases and decreases in aircraft values and lease rates. Decreases in
aircraft values or lease rates may cause a decrease in our cash flows. Depending
on market conditions, we may be unable to sell or re-lease aircraft on terms
that allow us to make payments on the notes.
Aircraft values and lease rates depend on various factors that are outside
our control. Such factors include, but are not limited to:
o manufacturer production levels and prices for new aircraft;
o general economic conditions affecting lessee operations;
o used aircraft supply;
o passenger demand;
o retirement and obsolescence of aircraft models;
o manufacturers merging or leaving the aircraft industry;
o interest rates and credit availability;
o fuel and other operating costs;
o re-introduction into service of aircraft previously in
storage;
o governmental regulations; and
o lack of capacity in the air traffic control system.
In addition to values for aircraft generally, the value of specific
aircraft may increase or decrease sharply depending on factors that are not
within our control. Such factors include, but are not limited to:
o manufacturer production levels and prices for new aircraft;
o manufacturers merging or leaving the aircraft industry;
o maintenance and operating history of the aircraft;
o number of operators using a type of aircraft;
o legal or regulatory requirements that prevent an aircraft
from being re-leased or sold in the condition that it is in;
and
o the discovery of manufacturing defects in an aircraft model.
The value of specific aircraft and the cost of after-market support may
also depend on the condition of the manufacturer. Current competition between
The Boeing Company and Airbus Industrie G.I.E. is also a threat to aircraft
values. Boeing and Airbus have increased production to an amount substantially
above the long-term requirement implied by industry forecasts. If production is
maintained at this level the increased supply of new aircraft may depress used
aircraft values and lease rates (especially in regions like Asia where there has
been an oversupply of aircraft). This development could cause a decrease in our
cash flows and adversely affect our ability to make payments on the notes.
15
<PAGE>
Actual Market Value May Be Less Than Appraised Value
Appraised values for aircraft do not necessarily reflect the market value
we could obtain for aircraft at a specific time. Appraised values are based on
the assumption that there is an "open, unrestricted stable market environment
with a reasonable balance of supply and demand". As we describe above, the
aircraft market is not always stable and there may be supply and demand
imbalances at any one time, especially for specific aircraft types. At the high
point in a cycle, the current market value of some aircraft may be at or above
their appraised value while the current market value of others may be
significantly less than their appraised values. At a low point in the industry
cycle, the current market value of most aircraft types is likely to be less (and
in many cases, much less) than appraised base values. For these reasons, you
should not rely only on appraised values as an indication of the price that we
could obtain if we sold an aircraft.
Technological Risks
The availability of newer, more technologically advanced aircraft or the
introduction of increasingly stringent noise or emissions regulations may make
it more difficult for us to re-lease or sell aircraft. This risk is particularly
significant for us given our need to repay principal and interest on the notes
over a relatively long period. This will require that many of the aircraft are
leased or sold close to the end of their useful economic life. We expect that
the extent to which we are able to manage these technological risks through
modifications to aircraft and sale of aircraft will be limited.
Risks Relating to Acquisition of Additional Aircraft
We may acquire additional aircraft in the future. The cash flows derived
from such additional aircraft, together with the cash flows generated by the
aircraft in our portfolio, are expected to be the primary source of payment of
interest, principal and premium, if any, on the notes. ILFC is not obligated to
act as servicer with respect to any additional aircraft we may acquire. We may
need to procure additional servicing arrangements with respect to any additional
aircraft we acquire, and we cannot assure that any additional servicing
arrangements will be with ILFC or on similar terms to the servicing agreement
with ILFC.
Operational Restrictions May Harm Our Ability to Compete
The indenture and our governing corporate documents impose restrictions on
how we operate our business. These restrictions limit our ability to compete
effectively in the aircraft leasing market. For example, we cannot grant
privileged rental rates to airlines in return for equity investments in such
airlines. There are also restrictions on persons to whom we may lease aircraft
to and limits on leasing to lessees in specific geographical regions. Most
competing aircraft lessors do not operate under similar restrictions.
Lessee Purchase Options May be Exercised at Prices Below Note Target Price for
Such Aircraft
As of April 15, 2000, 9 lessees had outstanding options to purchase a total
of 11 aircraft, representing 27.40% of the portfolio by appraised value at
November 30, 1999. If these options were exercised on their earliest exercise
date, in only one case would the purchase option strike price be below the note
target price that we have assumed for the applicable aircraft on the exercise
date. This difference would not be significant. We have assumed in our Base Case
that none of the purchase options are exercised. However, there is a risk that
lessees could exercise these options and, in particular, at a time when the
exercise prices are below the note target price for the aircraft being
purchased. Any exercise of such options will affect the amount and timing of
principal payments on the notes.
Risks Relating to Aircraft Liens
Liens may attach to the aircraft in the course of their operation. These
liens may impair our ability to repossess, re-lease or sell the aircraft. Liens
which secure the payment of airport taxes, customs duties, air navigation
charges (including charges imposed by agencies regulating access to air space,
such as Eurocontrol), landing charges, crew wages, repairer's charges or salvage
attach to the aircraft in the normal course of operation. The amounts which the
liens secure may be substantial and may exceed the value of the aircraft against
which the lien is asserted. In some
16
<PAGE>
jurisdictions, a holder of aircraft liens may have the right to detain, sell or
cause the forfeiture of the aircraft. The lessees may not comply with their
obligations under the leases to discharge liens arising during the terms of the
leases.
Failure to Maintain Registration of Aircraft
All of the aircraft which are or will be operated must be registered with
an appropriate aviation authority. If an aircraft is operated without a valid
registration, the lessee operator or, in some cases, the owner or lessor, may be
subject to penalties which may result in a lien being placed on the aircraft.
Loss of registration could have other adverse effects, including grounding of
the aircraft and loss of insurance, which may have an adverse effect on our
ability to make payments on the notes.
Increased Regulation of Aircraft
The aircraft industry is heavily regulated and aviation authorities may
adopt additional regulations in jurisdictions where our aircraft are registered
or operated. Any additional regulations (especially relating to aircraft noise
and emissions) may cause us to incur significant costs, depress the value of the
aircraft and impair our ability to re-lease the aircraft.
Leasing Risks
We May Not be Able to Re-lease Aircraft
We may not be able to re-lease aircraft upon expiration of the leases
without incurring significant downtime or without adverse effect on the rental
rates that we are able to obtain, especially during any period of downturn in
demand for aircraft on operating lease. If we cannot re-lease aircraft we may
not have enough cash to make payments on the notes. Even if we can re-lease
aircraft we may be unable to receive favorable rental rates, especially if there
is reduced demand for aircraft on operating lease. Our ability to re-lease
aircraft and obtain acceptable lease payments and terms may suffer because of:
o economic conditions affecting the airline industry;
o the supply of competing aircraft and demand for particular
types;
o lessor competition; and
o restrictions on our re-leasing flexibility under the
indenture.
The number and types of aircraft that, as of April 15, 2000, we had to
place with lessees because of lease expirations through December 31, 2004 are
presented in the table below, which shows the years in which the leases are
contracted to expire, assuming that (1) non-binding letters of intent then
existing result in a lease agreement in accordance with their terms, (2) no
lease terminates prematurely and (3) there are no sales of aircraft or purchases
of additional aircraft. See "-- Risks Relating to Acquisition of Additional
Aircraft" above and "-- Lease Termination and Aircraft Repossession" below. We
will need to re-lease more aircraft if any aircraft become available through
premature terminations of leases.
17
<PAGE>
MSAF Group Lease Placement Requirement at April 15, 2000
<TABLE>
<CAPTION>
Year ending December 31,
------------------------------------------------
Aircraft Type 2000 2001 2002 2003 2004
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
A300............ -- -- -- -- 1
A310............ -- -- -- 2 --
A320............ -- 1 1 3 --
A321............ -- -- 1 1 --
A330............ -- 1 -- -- --
A340............ -- -- -- 1 --
B737............ 1 7 1 6 3
B747............ -- -- 1 1 --
B757............ -- 2 1 -- --
B767............ -- -- 1 2 1
F-50............ -- -- -- 2 --
F-70............ -- -- -- 1 2
MD-82........... -- -- -- -- 1
MD-83........... -- 1 -- 1 --
Engine.......... -- -- 1 -- --
Totals........ 1 12 7 20 8
</TABLE>
As illustrated by the table above, we will be required to re-lease 48 of
the aircraft, representing 75.14% of the portfolio by appraised value at
November 30, 1999, before December 31, 2004.
Lessees May Not Perform Required Maintenance
The standards of maintenance observed by our lessees and the condition of
the aircraft at the time of sale or lease may affect future values and rental
rates from our aircraft. Under the leases, the lessee has the main
responsibility to maintain the aircraft and to comply with all applicable
governmental requirements. Some lessees may experience periodic difficulties in
meeting their maintenance obligations resulting from adverse environmental
conditions or financial and labor difficulties. If a lessee fails to perform
required or recommended maintenance on an aircraft, the aircraft may be grounded
and we may incur substantial costs to restore the aircraft to an acceptable
maintenance condition before sale or re-lease. If our lessees do not perform
their obligation to maintain the aircraft, we may have to fund maintenance work
on the aircraft. Because our maintenance costs are expenses that rank senior to
payments on the notes, we may be unable to make payments on the notes if our
maintenance costs were to become sufficiently large. In other cases, we may have
an obligation to reimburse the lessee or pay some or all of the cost of aircraft
maintenance. Our cash resources may not be sufficient both to fund maintenance
requirements and make payments on the notes, especially as the aircraft age.
Aircraft Insurance May Not be Adequate
Our lessees have an obligation under the leases to maintain property and
liability insurance covering their operation of the aircraft. We can give no
assurance that this insurance will be adequate to cover any losses or
liabilities that we may incur in our business. For example, the loss or
liability from an aviation accident or other catastrophic event may exceed the
coverage limits in the policy. Other losses may not be covered by the insurance.
There is also a risk that our lessees will not perform their insurance
obligations to us, which may mean that insurance will not be available to us. In
either case, we may be unable to make payments on the notes if insurance
proceeds do not cover losses or liabilities we may incur.
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<PAGE>
We May be Unable to Obtain Required Licenses and Approvals
If we cannot obtain required government licenses and approvals, we may be
unable to re-lease or sell aircraft. In that case, our cash flows may be
insufficient to make payments on the notes. Several leases require specific
licenses, consents or approvals. These include consents from governmental or
regulatory authorities to certain lease payments and to the import, re-export or
de-registration of the aircraft. There is a significant risk that subsequent
legal and administrative changes will increase such requirements or that a
consent, once given, will be withdrawn. We may not receive consents needed in
connection with future re-leasing or sale of an aircraft.
Risk of Lessees in Weak Financial Condition
There is a significant risk that the lessees may default on their
obligations under the leases. If lessees do not make rent and maintenance
payments or are significantly in arrears, we will be unable to make payments on
the notes. The ability of each lessee to perform its obligations under its lease
will depend primarily on its financial condition. A lessee's financial condition
may be affected by various factors beyond their control, including competition,
fare levels, passenger demand, operating costs, the cost and availability of
finance, economic conditions in the countries where the lessees operate and
environmental and other governmental regulation of the air transportation
business. As a general matter, weakly capitalized airlines are more likely than
well capitalized airlines to seek operating leases and at any point in time,
investors should expect varying numbers of lessees to be experiencing payment
difficulties. Many of our lessees are in a weak financial position. You should
expect this to be the case with future lessees. As a result, a large proportion
of lessees may consistently be significantly in arrears in their rental payments
or maintenance payments.
In certain cases, we may respond to the needs of lessees in financial
difficulty including, in certain instances, restructuring the applicable leases.
Such restructurings may involve reduced rental payments for a specified period
(which may be several months). In addition, certain restructurings may involve
the voluntary termination of a lease prior to its expiration and the arrangement
of subleases from the lessee to another aircraft operator.
As of April 15, 2000, four of our lessees were in arrears. The four
aircraft on lease to these lessees represented 5.34% of the portfolio by
appraised value at November 30, 1999. The total amount of rental payments,
maintenance reserves and other amounts that were in arrears with respect to
these four lessees was $3.6 million. This amount represents 1.62% of our assumed
annual lease rental payments for the next year. We hold security deposits of
$1.9 million against these arrears. The weighted average number of days past due
of such arrears was 83 days. In addition to current arrears, in January 2000,
one lessee of two A320-200 aircraft agreed to restructure rental and maintenance
arrears amounting to $1.3 million. These arrears are scheduled to be repaid
commencing in June 2000.
In addition, in August 1999 we agreed to restructure the arrears of a
Brazilian lessee, Passaredo. The restructured amount of $3.7 million was
capitalized as a note payable and added to the lessee's conditional sale
agreement loan balance, with an extension of the term of the loan. The aircraft
on lease to this lessee is an A310-300 and represented 1.38% of the portfolio by
appraised value at November 30, 1999. In conjunction with this restructuring,
the obligations under this lease were transferred to a new Brazilian entity,
B.R.A. Transportes Aereos, which replaced Passaredo as lessee.
On February 2, 2000, Canadian Airlines announced a debt restructuring and
moratorium plan. The plan resulted in the suspension of payments of about $135
million to lenders and aircraft lessors, including MSAF group. In March 2000, we
reached an agreement with the lessee to restructure the lease by slightly
reducing the lease rate effective from February 2000 and extending the term by
four years to May 2010. The lessee's security deposit of $0.3 million was used
to fund the February rental. In March 2000, the lessee resumed rental payments
and also made part payment toward refunding the security deposit balance. At the
same time, the lease was assigned to a subsidiary of Air Canada, Air Canada
Capital Limited. This aircraft, an A320-200, represented 1.49% of the portfolio
by appraised value at November 30, 1999.
In January 2000, we reached an agreement with TransAer to defer $0.7
million of rental arrears and $0.4 million of maintenance reserves arrears.
Repayment of the rental arrears plus interest is scheduled to be made
over a five week period beginning on June 16, 2000. Repayment of the maintenance
reserves arrears plus interest is scheduled to be made
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in three monthly installments beginning on June 1, 2000. We hold security
deposits of $1.0 million against the deferred arrears. The two aircraft on lease
to the lessee, both A320-200s, represented 3.14% of the portfolio by appraised
value at November 30, 1999.
The current level of defaults and lessee arrears should not be seen as
representative of future defaults and arrears, particularly if economic
conditions deteriorate. Defaults and amounts in arrears may increase as the
market for aircraft on operating lease experiences further cyclical downturns,
particularly in emerging markets.
Emerging Market Risks
"Emerging markets" are countries that have poorly developed economies that
are vulnerable to economic and political problems, such as significant
fluctuations in GDP, interest rates and currency exchange rates and civil
disturbances, governmental instability, nationalization and expropriation of
private assets and the imposition of taxes or other charges by governments. The
resulting instability may affect the ability of lessees that operate in these
emerging markets to meet their lease obligations and they may be more likely to
default than lessees that operate in developed economies. At April 15, 2000, 12
lessees, representing 30.48% of the portfolio by appraised value at November 30,
1999, operated in "emerging markets" according to the Morgan Stanley Capital
International designations that we follow under our indenture. In addition, four
lessees representing 10.94% of the portfolio by appraised value at November 30,
1999 operated in markets which may be considered to be emerging markets but are
categorized as "Other" by the Morgan Stanley Capital International
classification: Air Pacific (Fiji), Air Mauritius, Air Macau and Lithuanian. In
total we lease 41.42% of our portfolio to 16 lessees operating in emerging
markets.
As of April 15, 2000, three of the four lessees in arrears, representing
4.35% of the portfolio by appraised value at November 30, 1999, were based in
emerging markets. The amount outstanding with respect to rental payments,
maintenance reserves and other miscellaneous amounts due from these three
lessees was $3.6 million. We hold security deposits of $1.4 million against
these arrears. The weighted average number of days past due for such arrears was
83 days. The prior arrears of B.R.A., a lessee based in Brazil, were
restructured and capitalized as a note payable. See "-- Recent Developments --
Latin America".
Five of our former lessees whose leases terminated early due to defaults
were based in what we consider to be emerging markets. In each case, ILFC was
able to repossess the aircraft without recourse to legal action. These five
lessees were based in Brazil, Mexico, Turkey, Guyana and Russia.
Risk of Regional Economic Downturns Affecting Lessees' Financial Condition
There is a significant risk that the economic conditions in the regions
where our lessees operate will affect their ability to meet their lease
obligations. The commercial aviation industry is very sensitive to general
economic conditions. Since air travel is largely discretionary, the industry
tends to suffer severe financial difficulties during slow economic periods.
Below is a discussion of the regional concentrations of our lessees and the
economic characteristics of the various regions that may impact the lessees'
financial condition. The regions discussed below are based on designations
published by Morgan Stanley Capital International.
European Concentration
At April 15, 2000, 17 lessees representing 34.06% of the portfolio by
appraised value at November 30, 1999 are operators based in Europe, with 13
lessees representing 27.41% based in "developed" Europe and four lessees
representing 6.65% based in "emerging" Europe and the Middle East.
Eleven of the 17 European lessees, representing 23.75% of the portfolio by
appraised value at November 30, 1999, are primarily charter airlines, which are
vulnerable to any downturn in the tourism industry. The remaining five operate
predominantly scheduled services.
European scheduled carriers currently are experiencing a slower economic
period and greater competition than in previous years and are suffering from
over expansion. A recession or other worsening of economic conditions in any
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European country may adversely affect the European lessees' ability to meet
their financial and other obligations. Competitive pressures from continuing
deregulation of the airline industry by the European Union may also adversely
affect European lessees' operations and their ability to meet their obligations
under the leases.
Two lessees operate one aircraft each, together representing 3.26% of the
portfolio by appraised value at November 30, 1999, in Turkey, which was hit by a
severe earthquake in August 1999. Both these carriers operate charter flights
which are heavily dependent on foreign tourists traveling to Turkey. Damage
caused by the earthquake and any decrease in tourist traffic may adversely
affect the ability of these carriers to operate and meet their obligations under
the leases.
In addition to the lessees detailed above, you should note that four of our
lessees, representing 5.75% of the portfolio by appraised value at November 30,
1999, are based in Europe (Iceland, Lithuania and Malta), but in countries that
are classified as "Other" by Morgan Stanley Capital International.
Latin American Concentration
At April 15, 2000, four lessees, representing 7.39% of the portfolio by
appraised value at November 30, 1999 were based in Latin America. The financial
prospects for lessees in Latin America will depend on the level of political
stability and economic activity and policies in the region. Developments in
other emerging markets may also affect the economies of Latin American countries
and the entire region.
Brazil has experienced significant downturns in its economy and financial
markets, with large decreases in financial asset prices and, since it devalued
its currency on January 13, 1999, dramatic decreases in the value of its
currency. As of April 15, 2000, two lessees representing 2.37% of the portfolio
by appraised value at November 30, 1999 operate in Brazil.
Two of the four lessees in arrears are based in Latin America, both in
Brazil. In addition, since March 1998, we have leased a total of five aircraft
to five lessees in Latin America. Two of these aircraft have been repossessed,
one in Brazil and one in Mexico, and two of these lessees have restructured
their arrears, both in Brazil.
In March 1999, we reached an agreement with VASP to defer $0.5 million of
arrears owed at that time. Repayment of the arrears plus interest was scheduled
to begin in August 1999 and end in January 2000. On February 10, 2000, VASP made
a payment of $1.3 million in full settlement of its deferred and current arrears
up to January 31, 2000. As of April 15, 2000, the amount of arrears owed by VASP
was $0.4 million, against which we hold a security deposit of $0.7 million. This
aircraft is a B737-300 and represented 0.99% of the portfolio by appraised value
at November 30, 1999.
In August 1999, we agreed to restructure the arrears of the second
Brazilian lessee, Passaredo. The total rental payments, maintenance reserves and
default interest owed amounted to $3.7 million. The restructured amounts were
capitalized as a note payable and added to the lessee's conditional sale
agreement loan balance, with an extension of the term of the loan. At April 15,
2000, $1.0 million of current arrears under the new agreement, which represents
approximately 96 days of rental, were due and unpaid. No rental has been
received since January 2000. This aircraft is an A310-300 and represented 1.38%
of the portfolio by appraised value at November 30, 1999. In conjunction with
this restructuring, the obligations under this lease were transferred to a new
Brazilian entity, B.R.A. Transportes Aereos, which replaced Passaredo as lessee.
A former Brazilian lessee, VARIG, negotiated an early termination of its
lease of a B747-300 aircraft in July 1999. The lease was scheduled to expire in
April 2003. The total amount of rental payments and maintenance reserves due
under this lease to July 1999, the date of the termination agreement, was $4.8
million against which we drew down a security deposit of $1.1 million. Under the
terms of the termination agreement, VARIG is scheduled to repay $10.8 million
over eight years to offset arrears of $4.8 million and approximately $6.0
million for maintenance and downtime costs. Provided no default has occurred by
October 2005 under this note payable, the total remaining payments will be
reduced by approximately $1.1 million on a pro-rata basis between October 2005
and October 2007, the scheduled final payment date under the note. The first
payment of $0.4 million under this agreement was due and paid in October 1999.
Maintenance work including repairs to the engines has been completed and the
aircraft has been re-leased for three years
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to Air Atlanta Icelandic, commencing on March 17, 2000. This aircraft
represented 2.45% of the portfolio by appraised value at November 30, 1999.
Recently, the re-leasing market for the B747-300 aircraft has been severely
affected by overcapacity in the widebody market in general and for this aircraft
type in particular. The new lease rate for this aircraft is approximately 20% of
the previous rental, reflecting the significant fall in demand for this aircraft
type and the current oversupply. Future lease rentals for this type of aircraft
will, in part, depend on the state of the Asian economies, where demand for
these aircraft and other widebodies has been strongest in the past.
A former Mexican lessee, TAESA, defaulted on its obligations under its
lease of a B737-400 aircraft, and the aircraft was repossessed in December 1999.
The lease was scheduled to expire in May 2001. The total amount of rental
payments and maintenance reserves due under the lease at the date of
repossession was $0.6 million. This amount was partially offset by a security
deposit of $0.5 million. On February 21, 2000, a court in Mexico declared TAESA
bankrupt. It is uncertain whether we will be able to recover the $0.1 million
outstanding from TAESA. The aircraft is currently the subject to a non-binding
letter of intent with a Dubai-based carrier. This aircraft represented 1.09% of
the portfolio by appraised value at November 30, 1999.
Continued weakness in the value of the Brazilian real, as well as general
deterioration in the Brazilian economy, will mean that lessees may be unable to
generate sufficient revenues in Brazilian currency to pay the U.S. dollar-
denominated rental payments under the lease. More importantly, financial and
economic problems in Brazil could spread throughout Latin America and other
"emerging" economies including Mexico where two of our lessees, representing
5.02% of the portfolio by appraised value at November 30, 1999, operate.
Asia and Pacific Concentration
At April 15, 2000, seven lessees, representing 26.41% of the portfolio by
appraised value at November 30, 1999, were based in the Asia and Pacific
regions, with three lessees, representing 9.97%, based in "developed" Pacific
markets and four lessees, representing 16.44%, based in "emerging" Asian
markets. None of the lessees in the Asia and Pacific regions are currently in
arrears.
Trading conditions in Asia's civil aviation industry have been adversely
affected by the severe economic and financial difficulties experienced in the
region. The economies of the region have experienced acute difficulties
resulting in many business failures, significant depreciation of local
currencies against the U.S. dollar, downgrading of sovereign and corporate
credit ratings and internationally organized financial stability measures. A
further downturn in the region's economies may greatly undermine business
confidence, reduce demand for air travel and adversely affect the Asian lessees'
operations and their ability to meet their obligations.
In addition to the lessees detailed above, you should note that two of our
lessees, representing 5.28% of the portfolio by appraised value at November 30,
1999, are based in the Asia and Pacific region (Fiji and Macau), but in
countries that are classified as "Other" by Morgan Stanley Capital
International.
North American Concentration
At April 15, 2000, seven lessees, representing 15.44% of the portfolio by
appraised value at November 30, 1999 were based in North America. In the recent
past, several North American passenger airlines have filed Chapter 11 bankruptcy
proceedings and several major U.S. airlines have ceased operations altogether,
including a former lessee of MSAF group. Airline profitability in the region has
begun to deteriorate because of the increase in the cost of aviation fuel and
increased competition from low-cost, low-fare air carriers. In conjunction with
an inability to reduce labor and other costs to sustainable levels, these
factors put pressure on North American airline profit margins and, in some
cases, financial viability.
On February 2, 2000, Canadian Airlines announced a debt restructuring and
moratorium plan. The plan resulted in the suspension of payments of about $135
million to lenders and aircraft lessors, including MSAF group. In March 2000, we
reached an agreement with the lessee to restructure the lease by slightly
reducing the lease rate effective from February 2000 and extending the term by
four years to May 2010. The lessee's security deposit of $0.3 million was used
to fund the February rental. In March 2000, the lessee resumed rental payments
and also made part payment toward
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refunding the security deposit balance. At the same time, the lease was assigned
to a subsidiary of Air Canada, Air Canada Capital Limited. This aircraft, an
A320-200, represented 1.49% of the portfolio by appraised value at November 30,
1999.
Lease Termination and Aircraft Repossession
If a lessee defaults, we have the right to terminate the lease and
repossess the aircraft under the terms of each lease. However, it may be
difficult, expensive and time-consuming to enforce our rights if the lessee
contests such termination or is bankrupt or under court protection. ILFC may
incur significant costs on our behalf in trying to repossess an aircraft and in
performing maintenance work necessary to make the aircraft available for
re-lease or sale. Further, our efforts to repossess an aircraft may be limited
by the laws of the local jurisdiction which may delay or prevent us from
repossessing an aircraft following a lessee's default.
Risks Relating to Payments on the Notes
Actual Experience May Not Match Our Assumptions
We have determined the expected final payment dates for the notes based on
our assumptions about our future cash flows and interest and operating costs and
possible future economic conditions. The purpose of these assumptions is to
illustrate the payment provisions of the notes. Many of these assumptions relate
to future political, economic and market conditions (for example, lease rates)
that are outside our control and are difficult or impossible to predict. Other
assumptions relate to future events (for example, maintenance payments) that
depend on the actions of lessees or others with whom we conduct business. For
this reason, it is highly unlikely that our experience in the future will be
consistent with these assumptions. As a result, we are highly likely to be
unable to make payments on the notes at the times and in the amounts that the
assumptions indicate.
Subordination Provisions
Expenses and certain other payments are senior in priority of payment to
the notes and are paid out before any payments are made on the notes. Under
certain circumstances, the rights of the noteholders, as holders of each
subclass of notes, to receive payments of principal in respect of such subclass
of notes and to exercise remedies upon default will be subordinated to the
rights of the noteholders with respect to the most senior subclass of notes then
outstanding. If an event of default with respect to any subclass of notes occurs
under the indenture, the security trustee has the exclusive right to exercise
and enforce any and all remedies with respect to the collateral held by MSAF
group. Therefore, if an event of default occurs, the holders of each subclass of
notes will not be permitted to enforce certain rights until all amounts owing
under any more senior notes outstanding and certain other amounts have been paid
in full.
Capital Markets Risks
Absence of Public Market
The new notes are being offered to the holders of the restricted notes. The
restricted notes were issued to a limited number of institutional investors. The
new notes are new securities for which there is currently no market. MSAF does
not intend to apply for listing of the new notes on any securities exchange
(other than the Luxembourg Stock Exchange) or to seek approval for quotation
through any automated quotation system. There can be no assurance that an active
public market for the new notes will develop. If a market for the new notes were
to develop, future trading prices of such securities will depend upon many
factors, including general economic conditions and the financial condition,
performance and prospects of MSAF.
Trading Market for the Notes
Morgan Stanley & Co. Incorporated currently makes a market in the notes.
However, it is not obligated to do so, and any such market making may be
discontinued at any time without notice, in its sole discretion. Therefore, no
assurance can be given as to the liquidity of, or the trading market for, the
notes.
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We May be Unable to Refinance the Subclass A-3, A-4 or B-2 Notes
We intend to refinance the subclass A-3, A-4 and B-2 notes on their
expected final payment dates. Our ability to do so will depend on many factors
outside our control, including general conditions in the capital markets and
market perceptions of the commercial aviation industry, the aircraft leasing
business generally and our own performance. If we are unable to refinance the
subclass A-3, A-4 or B-2 notes on their expected final payment dates, they will
remain outstanding until they are refinanced or otherwise paid off in accordance
with their terms. Depending on the factors referred to above and how quickly we
are subsequently able to refinance the notes, these subclasses of notes may
remain outstanding for a significant period.
Bankruptcy Risks
We have taken steps to structure MSAF to ensure that our assets are not
consolidated with MSDW's or any of its affiliates' assets or otherwise become
available to MSDW's or any of its affiliates' creditors in any bankruptcy or
insolvency proceeding involving MSDW.
If MSDW or any of its affiliates becomes bankrupt or insolvent, there is a
legal risk that a court or other authority could decide that these steps were
not effective to insulate our assets from MSDW's assets. As a result, the
aircraft and our other assets could become available to repay both MSDW's
creditors and our creditors, including you. We could also lose all of our rights
in the aircraft and our other assets. In either case, it may be impossible to
repay amounts outstanding under the notes.
Tax Risks
Neither the trustee nor MSAF will make any additional payments to
noteholders in respect of any withholding or deduction required to be made by
applicable law with respect to payments made on the notes. In the event that
MSAF is or will be required to make a withholding or deduction, it will use
reasonable efforts to avoid the application of such withholding taxes and may in
certain circumstances redeem the notes in the event such withholding taxes
cannot be avoided. In the event any withholding taxes are imposed with respect
to the notes and MSAF does not redeem the notes, the net amount of interest
received by noteholders will be reduced by the amount of the withholding or
deduction.
MSAF believes that it will not become subject to any material taxes in any
of the jurisdictions in which any of the lessees are organized or operate under
the present tax laws of such jurisdictions. However, there can be no assurance
that other leases to which MSAF group may become a party as a result of the
re-leasing of the aircraft or acquisition of additional aircraft will not result
in the imposition of withholding or other taxes.
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THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Restricted Notes
Upon the terms and the conditions set forth in this prospectus and in the
accompanying letter of transmittal which together constitute the exchange offer,
MSAF will accept for exchange restricted notes which are properly tendered on or
before the expiration date and not withdrawn as permitted below. The term
"expiration date" means 5:00 p.m., New York City time, on , 2000. If MSAF,
however, in its sole discretion, extends the period for which the exchange offer
is open, the expiration date means the latest time and date to which the
exchange offer is extended.
On or about the date set forth on the cover page of this prospectus we will
first send this prospectus, together with the letter of transmittal, to all
holders of restricted notes known to MSAF. MSAF's obligations to accept
restricted notes for exchange is subject to certain conditions as listed under
"Conditions to the Exchange Offer" below.
MSAF expressly reserves the right to extend the time during which the
exchange offer is open, and delay acceptance of any restricted notes, by giving
oral or written notice of any extension to the exchange agent and the holders.
During any extension, all restricted notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by MSAF. MSAF has
agreed under the registration rights agreement, to keep the exchange offer open
for at least 20 business days after the date notice of the exchange offer is
mailed to the holders of the restricted notes or longer if required by
applicable law.
MSAF expressly reserves the right to amend or terminate the exchange offer,
and to refuse any restricted notes not accepted for exchange, upon the
occurrence of any of the conditions of the exchange offer specified below under
"Conditions to the Exchange Offer." MSAF will give oral or written notice of any
extension, amendment, non-acceptance or termination to the holders of the
restricted notes as promptly as practicable. We will also issue such notice in
the case of any extension by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled expiration date.
Holders of restricted notes do not have any appraisal or dissenters' rights
under the indenture in connection with the exchange offer. MSAF intends to
conduct the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission.
Procedures for Tendering Restricted Notes
The tender to MSAF of restricted notes by a holder as described below and
the acceptance by MSAF will constitute a binding agreement between the tendering
holder and MSAF upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal.
Except as set forth below, a holder including any participant in the DTC
system whose name appears on a security position listing as a holder of such
restricted notes who wishes to tender restricted notes for exchange under the
exchange offer must transmit to the exchange agent on or before the expiration
date either:
o a properly completed and executed letter of transmittal or a
facsimile of the letter, including all other documents required
by the letter of transmittal, to the exchange agent at the
address listed below under "-- Exchange Agent"; or
o a computer-generated message, transmitted through the DTC's ATOP
system and received by the exchange agent and forming part of a
book-entry confirmation, in which the holder agrees to be bound
by the terms of the letter of transmittal.
To ensure timely delivery of the restricted notes:
o the exchange agent must receive a confirmation of a book-entry
transfer of the restricted notes into its account at DTC before
the expiration date; or
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o the holder of restricted notes must comply with the guaranteed
delivery procedures described below.
The method of delivery of restricted notes, letters of transmittal and all
other required documents is at your election and risk. If the delivery is by
mail, we recommend that you use registered mail, with return receipt requested.
In all cases, you should allow sufficient time to assure timely delivery. No
letters of transmittal should be sent to MSAF.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the restricted notes surrendered for exchange are tendered by
a holder of the restricted notes who has not completed the box entitled "Special
Issuance Instructions" on the letter of transmittal or for the account of a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States. If
signatures on a letter of transmittal or a notice of withdrawal are required to
be guaranteed, the guarantees must be by a firm which is a member of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc. or by a commercial bank or trust company having an
office or correspondent in the United States.
MSAF will determine in its sole discretion all questions as to the
validity, form, eligibility and acceptance of restricted notes tendered for
exchange. MSAF's decision in this respect will be final and binding. MSAF
reserves the absolute right to reject any tenders of any restricted notes not
properly tendered or to reject any restricted notes acceptance of which might,
in the judgment of MSAF or its counsel, be unlawful. MSAF also reserves the
absolute right in its sole discretion to waive any defects or irregularities or
conditions of the exchange offer as to any restricted notes either before or
after the expiration date. MSAF's interpretation of the terms and conditions of
the exchange offer or any restricted notes either before or after the expiration
date shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tenders of restricted notes for exchange
must be cured within a reasonable period of time as MSAF shall determine.
Neither MSAF, the exchange agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
restricted notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If a person or persons other than the holders of restricted notes, sign the
letter of transmittal, the letter of transmittal must be accompanied by
appropriate powers of attorney, signed exactly as the name or names of the
holders that appear on the security position listing maintained by DTC.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, sign the letter of transmittal or powers of attorney, such person
should so indicate when signing and, unless waived by MSAF, offer proper
evidence satisfactory to MSAF of its authority to so act must be submitted.
By tendering, each holder of restricted notes will represent to MSAF that:
o the person receiving the new notes, whether or not the person is
a holder, acquires the new notes under the exchange offer in the
ordinary course of business,
o neither the holder of restricted notes, nor any other person
receiving the new notes has an arrangement or understanding with
any person to participate in the distribution of the new notes,
o if the holder is not a broker-dealer, or is a broker-dealer but
will not receive new notes for its own account in exchange for
restricted notes, neither the holder nor any such other person is
engaged in or intends to participate in the distribution of the
new notes, and
o neither the holder nor any other person receiving the new notes
is an "affiliate" of MSAF within the meaning of Rule 405 under
the Securities Act.
By tendering, each holder of restricted notes that is a broker-dealer,
whether or not it is also an affiliate of MSAF, and will receive new notes for
its own account pursuant to the exchange offer will represent that the
restricted notes to
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be exchanged were acquired by it as a result of market-making activities or
other trading activities and will acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
the new notes. However, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Acceptance of Restricted Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
MSAF will accept, promptly after the expiration date, all restricted notes
properly tendered and will issue the new notes promptly after acceptance of the
restricted notes. For purposes of the exchange offer, MSAF shall be deemed to
have accepted properly tendered restricted notes for exchange when, as and if
MSAF has given oral or written notice thereof to the exchange agent.
In all cases, issuance of new notes for restricted notes that are accepted
for exchange under the exchange offer will be made only after timely receipt by
the exchange agent of all the documents listed under "Procedures for Tendering
restricted notes". If any tendered restricted notes are not accepted for any
reason set forth in the terms and conditions of the exchange offer, such
unaccepted or non-exchanged restricted notes will be credited to an account
maintained with DTC as promptly as practicable after the expiration or
termination of the exchange offer.
Interest on the New Notes
Holders of restricted notes that are accepted for exchange will not receive
accrued interest on the restricted notes at the time of exchange. However, each
new note will bear interest from the most recent date to which interest has been
paid on the restricted notes or new notes.
Book-Entry Transfer
The exchange agent will make a request to establish an account for the
restricted notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. All deliveries of restricted notes must be made by
book-entry transfer to the account maintained by the exchange agent at DTC. Any
financial institution that is a participant in DTC's systems may make book-entry
delivery of restricted notes by causing DTC to transfer such restricted notes
into the exchange agent's account in accordance with DTC's ATOP procedures for
transfer. Holders of restricted notes who are unable to deliver confirmation of
the book-entry tender of their restricted notes into the exchange agent's
account at DTC or all other documents required by the letter of transmittal to
the exchange agent on or prior to the expiration date, must tender their
restricted notes according to the guaranteed delivery procedures described
below.
Guaranteed Delivery Procedures
If a holder of the restricted notes desires to tender them and time will
not permit the holder's required documents to reach the exchange agent on or
before the expiration date, or the procedure for book-entry transfer cannot be
competed on a timely basis, a tender may be effected if:
o the tender is made through a firm which is a member of a
registered national securities exchange or a member of the
National Association of Security Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the
United States,
o on or before the expiration date, the exchange agent receives
from such firm, commercial bank or trust company either a
properly completed and duly executed letter of transmittal, or
facsimile thereof or a properly transmitted agent's message and
notice of guaranteed delivery, substantially in the form provided
by MSAF listing:
-- the name and address of the holder of restricted notes,
-- the amount of restricted notes tendered,
27
<PAGE>
-- stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange
trading days after the date of execution of the notice of
guaranteed delivery, a book-entry confirmation and all other
documents required by the letter of transmittal will be
deposited by such firm, commercial bank or trust company
with the exchange agent, and
o a book-entry confirmation and all other documents required by the
letter of transmittal, are received by the exchange agent within
five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.
Withdrawal Rights
Tenders of restricted notes may be withdrawn at any time before the
expiration date.
For a withdrawal to be effective, either a written notice of withdrawal
must be received by the exchange agent at one of the addresses set forth below
under "Exchange Agent" or the appropriate procedure of DTC's ATOP system must be
complied with. Any notice of withdrawal must specify the name of the person that
tendered the restricted notes to be withdrawn and identify the restricted notes
to be withdrawn. Any notice of withdrawal must specify the name and number of
the account at DTC to be credited with the withdrawn restricted notes and
otherwise comply with the procedures of DTC. All questions as to the validity,
form and eligibility of such notices will be determined by MSAF, whose
determination shall be final and binding on all parties. Any restricted notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer. Any restricted notes which holders have tendered
for exchange but which are not exchanged for any reason will be credited to an
account maintained with DTC for the restricted notes as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Holders who have properly withdrawn restricted notes may retender restricted
notes by following one of the procedures described under "Procedures for
Tendering Restricted Notes" above at any time on or before the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, MSAF shall not
be required to accept any restricted notes for exchange or to issue new notes in
exchange for any restricted notes. MSAF may terminate or amend the exchange
offer, if at any time before the acceptance of such restricted notes for
exchange or the exchange of the new notes for such restricted notes, such
acceptance of issuance would violate applicable law or any interpretation of the
staff of the Commission.
The foregoing condition is for the sole benefit of MSAF and may be asserted
by MSAF regardless of the circumstances giving rise to such condition or may be
waived by MSAF in whole or in part at any time and from time to time in its sole
discretion. The failure by MSAF at any time to exercise the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, MSAF will not accept for exchange any restricted notes
tendered, and no new notes will be issued in exchange for any such restricted
notes, if at such time any stop order shall be threatened or in effect with
respect to either the registration statement of which this prospectus
constitutes a part or the qualification of the indenture under the Trust
Indenture Act of 1939, as amended.
Exchange Agent
Bankers Trust Company has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be delivered to the
exchange agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent, addressed as follows:
28
<PAGE>
Delivery to: Bankers Trust Company, as Exchange Agent
<TABLE>
<S> <C> <C>
By Facsimile: By Overnight Mail or Courier: By Hand Delivery:
BT Services Tennessee Inc. BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust & Agency Group Corporate Trust & Agency Group
P.O. Box 292737 Reorganization Unit Attn: Reorganization Department
Nashville, Tennessee 648 Grassmere Park Road Receipt & Delivery Window
37229-2737 Nashville, Tennessee 37211 123 Washington Street, 1(st) Floor
New York, New York 10006
Facsimile Transmission Number: Confirm by Telephone Information:
(615) 835-3701 (615) 835-3572 (800) 735-7777
</TABLE>
Delivery of the letter of transmittal to an address other than the address
set forth above or transmission via facsimile other than to a number set forth
above will not be a valid delivery.
Fees and Expenses
The principal solicitation is being made by mail. Additional solicitation
may be made by telegraph, telephone or in person by the exchange agent, on
behalf of MSAF. No additional compensation will be paid to the exchange agent
who engages in soliciting tenders. MSAF will not pay brokers, dealers, or others
soliciting acceptances of the exchange offer. MSAF however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
for its reasonable out-of-pocket expenses in connection with the exchange offer.
The cash expenses to be incurred in connection with the exchange offer will
be paid by MSAF and are estimated in the aggregate to be $620,000.
Transfer Taxes
Holders who tender their restricted notes for exchange will not be
obligated to pay any transfer taxes. If, however, a transfer tax is imposed for
any reason other than the transfer of restricted notes to MSAF or its order
pursuant to the exchange offer, the amount of any such transfer taxes will be
payable by the tendering holder. If a tendering holder does not submit
satisfactory evidence of payment of or exemption from such taxes, the amount of
such transfer taxes will be billed directly to such tendering holder.
Consequences of Failure to Exchange
Holders of restricted notes who do not exchange their restricted notes for
new notes under the exchange offer will continue to be subject to the transfer
restrictions of the restricted notes. In general, the restricted notes may not
be offered or sold, unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. MSAF does not intend to register the
restricted notes under the Securities Act.
To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify for sale or register the new notes prior to offering or
selling such new notes. We have agreed to register or qualify the new notes held
by broker-dealers for offer or sale under the securities or blue sky laws of
such jurisdictions as any such holder reasonably requests in writing. Unless a
holder makes such a request, we do not intend to take any action to register or
qualify the new notes for resale in any such jurisdictions. In addition, the
tender of restricted notes pursuant to the exchange offer will reduce the
principal amount of restricted notes outstanding. This may have an adverse
effect upon, and increase the volatility of, the market price of the restricted
notes due to a reduction in liquidity.
29
<PAGE>
MSAF'S PERFORMANCE ASSUMPTIONS
Introduction
As an illustration of certain payment characteristics of the notes, we
describe below our assumptions about MSAF's performance in future years. We
refer to the scenario in which all of these assumptions prove to be correct as
our "Base Case". The assumptions that relate specifically to line items that
will be contained in future monthly cash reports to noteholders are separately
identified and numbered for your ease of reference. In the tables that follow we
set out possible future revenue scenarios that we have developed by fixing
certain of the assumptions and varying other assumptions and certain other
factors that affect our revenues, costs and expenses.
You should note that the assumptions are not projections, estimates,
forecasts or forward-looking statements. The assumptions do not represent a
complete list of factors which may affect our revenues, costs and expenses but
rather indicate those factors which are likely to significantly affect our
performance in future years. You should also note that the different possible
future revenue scenarios contained in the tables only illustrate some of the
payment sensitivities of the notes to market and economic stresses. More severe
stresses may lead to payments of principal on the notes being delayed or
decreased, or in certain cases, an event of default. It is highly likely that
actual experience will vary from the Base Case and the possible future revenue
scenarios that we have illustrated. The principal factors that could cause our
actual revenues to differ materially from these scenarios are the stresses
described below and the risks that we describe under "Risk Factors" above.
We do not expect to update or revise the assumptions or tables to reflect
changes occurring after February 15, 2000. The Base Case and the stress tables
are all as of March 15, 2000.
Summary of the Base Case
The table below shows our Base Case by reference to the line items to be
contained in the "Summary Performance to Date" section of our future monthly
cash reports to noteholders. In this table Base Case items are shown as a
percentage of lease rentals on the basis of the whole portfolio.
<TABLE>
<CAPTION>
Base Case Related Assumption
--------- ------------------
(see below)
<S> <C> <C>
Lease rentals................... 100.0 1
Net stress-related costs........ (4.5) 2
-----
Net lease rentals............... 95.5
Interest earned................. 1.0 3
Net maintenance................. 0.0 4
-----
Total cash collections.......... 96.5
Aircraft operating expenses..... (0.8) 5
SG&A............................ (4.2) 6
-----
Total cash expenses............. (5.0)
-----
Net cash collections............ 91.5
====
</TABLE>
Net cash collections represent the amount available to pay principal and
interest on the notes. Under the Base Case, in the year ending March 15, 2001,
we have assumed that interest payments (including swap payments) will be 55.6%
of lease rentals, leaving 35.9% of lease rentals available to repay principal.
You should refer to Appendix 4 to this prospectus for the month-by-month
roll-out of our assumed lease rentals, from March 15, 2000 through the final
maturity date of the notes, under the Base Case.
30
<PAGE>
Primary Revenue Assumptions
We make the following assumptions about each of our main revenue line
items.
Lease Rentals
"Lease rentals" represents all rental payments received under the leases
and the net proceeds of any aircraft sales.
We assume that: (1)
o we re-lease aircraft coming off lease at a monthly rental rate
that is a function of the age of the aircraft and the contracted
monthly rental rate as of February 15, 2000, with lease rates
being assumed to decline by 2% per annum in years 1-5 of an
aircraft's expected useful life, 1% per annum in years 6-15, 3%
per annum in years 16-20 and 5% in years 21-25; and
o we sell each aircraft only at the end of its expected useful life
for a scrap value price that is equal to 12% of its assumed value
when new.
Net Stress-Related Costs
"Net stress-related costs" represents the net total of lost revenue due to
the combination of the following five inter-related items:
-- lost rental revenue due to aircraft downtime following the
termination or expiration of a lease; and
-- bad debts realized and/or provided for; and
-- aircraft repossession costs
offset by
-- security deposits drawn after an event of default; and
-- other leasing income, which includes lease termination
payments and default interest.
o We assume that net stress-related costs are 4.5% per annum of
lease rentals. (2)
Interest Earned
"Interest earned" represents interest earned by funds on deposit in the
collection account and any other cash balances, including the liquidity reserve
amount, including rental payments received, security deposits and accrued
maintenance expenses.
o We assume that the interest rate at which the cash balances
described above earn interest is one month LIBOR minus 20 basis
points. (3)
Net Maintenance
"Net maintenance" represents maintenance payments received from lessees
under the terms of the applicable leases, less maintenance costs that we make or
expect to make under the leases and any modification payments that we make.
o We assume that net maintenance is zero. (4)
31
<PAGE>
Other Revenue-Related Assumptions
In addition to the revenue assumptions above, we make the following
revenue-related assumptions.
o We assume that future lease terms are five years.
o We assume that we grant no purchase options to lessees and that
no existing purchase options are exercised.
o We assume that we grant no new lease termination or extension
options to lessees and that existing termination or extension
options are exercised only when to do so would result in a rental
rate at the time that is lower than the rental rate that we would
otherwise assume under assumption .
o We assume that each aircraft has an expected useful life of 25
years.
o We assume that aircraft values decline over time in accordance
with the depreciation curve described under "Description of the
Notes -- Payment of Principal and Interest -- Principal
Amortization".
o We assume that we acquire no additional aircraft.
Expense-Related Assumptions
We make the following assumptions about each of our main expense line
items.
Aircraft Operating Expenses
"Aircraft operating expenses" represents certain operating costs incurred
in the ordinary course of the operating lease business, including insurance
expenses and leasing transaction expenses.
o We assume that aircraft operating expenses are 0.8% per annum of
lease rentals. (5)
SG&A
"SG&A" represents the sum of the following expense items:
-- fees paid to ILFC as servicer of the aircraft;
-- fees paid to the administrative agent and other service
providers, including the financial advisor;
-- legal fees, underwriting fees, printing and other expenses
of the issuance and sale of any refinancing notes and the
new notes issued in the exchange offer for the restricted
notes, as described under "The Exchange Offer"; and
-- other selling, general and administrative expenses.
We assume that: (6)
o we pay fees to ILFC as servicer as described under "Management of
MSAF group -- The Servicer";
o we pay fees to the administrative agent and other service
providers as described under "Management of MSAF group --
Corporate Management";
o we pay customary legal fees, underwriting fees, printing and
other expenses of the issuance and sale of any refinancing notes
and any notes issued in this exchange offer; and
32
<PAGE>
o other selling, general and administrative expenses are 0.3% per
annum of lease rentals.
Financing-Related Assumptions
We make the following financing-related assumptions:
o We assume that one month LIBOR remains constant at 5.97% per
annum.
o We assume that MSAF makes and receives swap payments in
accordance with the contracted terms of the swaps that we had in
place on March 15, 2000.
o We assume that we make payments in accordance with the order of
priorities set forth under "Description of Notes -- Payment of
Principal and Interest -- Priority of Payments".
o We assume that we issue and sell refinancing notes on the
expected final payment dates of each of the subclass A-3, A-4 and
B-2 notes, and on each subsequent expected final payment dates of
any such refinancing notes, on the same terms with respect to
priority, redemption and coupon as the notes being refinanced and
with maturities and amortization schedules paid with the
application of the Minimum, Scheduled and Supplemental Principal
Payment Amounts.
Principal Repayments Under the Base Case
The table below shows, for each payment date presented, the percentage of
the initial outstanding principal balance of the subclass A-2, A-3, A-4, A-5,
B-1, B-2, C-1, C-2 and D-1 notes and the aggregate class A notes (including
refinancing notes), the aggregate class B notes (including refinancing notes)
and the aggregate class C notes expected to be outstanding on such payment date
based on the Base Case under the assumptions. It is highly unlikely that the
assumptions will correspond to actual experience. Therefore, principal payments
on the notes may occur earlier or later than as shown in the table. We may fail
to pay principal of any subclass of notes prior to the final maturity date of
such subclass because we do not have the funds to make the payment according to
the order of priorities described under "Description of Notes -- Payment of
Principal and Interest -- Priority of Payments." Such a failure will not, by
itself, be an event of default.
33
<PAGE>
Percentage of Initial Principal Balance of the
Notes Based on the Base Case
<TABLE>
<CAPTION>
Payment Date
Occurring in March A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------ --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000................. 66.08% 100.00% 100.00% 100.00% 89.72% 100.00% 99.88% 100.00% 100.00%
2001................. 59.45% 100.00% 100.00% 85.94% 82.90% 99.95% 98.85% 100.00% 99.96%
2002................. 47.61% 0.00% 100.00% 78.67% 75.90% 99.70% 96.75% 100.00% 99.49%
2003................. 34.31% 0.00% 70.90% 68.75% 99.10% 93.57% 99.98% 98.27%
2004................. 19.97% 64.06% 61.52% 98.03% 89.28% 99.91% 96.11%
2005................. 5.93% 56.41% 54.21% 96.38% 83.88% 99.73% 92.88%
2006................. 0.00% 42.83% 46.82% 94.07% 77.36% 99.35% 88.46%
2007................. 23.43% 40.00% 0.00% 69.72% 98.63% 82.76%
2008................. 4.21% 40.00% 60.95% 97.39% 75.68%
2009................. 0.00% 32.72% 51.04% 95.39% 67.13%
2010................. 23.65% 40.00% 92.32% 57.05%
2011................. 14.81% 27.81% 87.82% 45.36%
2012................. 6.74% 14.48% 81.45% 32.00%
2013................. 0.00% 0.00% 72.68% 16.90%
2014................. 60.90% 0.00%
2015................. 45.41%
2016................. 25.41%
2017................. 0.00%
2018.................
Remaining Weighted
Average Life (Years) 3.1 2.0 3.0 4.8 6.7 6.8 8.6 14.1 10.1
</TABLE>
<TABLE>
<CAPTION>
Payment Date Aggregate Aggregate Aggregate
Occurring in March Class A Notes Class B Notes Class C Notes
------------------ ------------- ------------- -------------
<S> <C> <C> <C>
2000............................ 100.00% 100.00% 100.00%
2001............................ 94.39% 95.84% 99.33%
2002............................ 89.38% 91.47% 97.98%
2003............................ 83.95% 86.86% 95.92%
2004............................ 78.53% 81.98% 93.12%
2005............................ 72.96% 76.79% 89.57%
2006............................ 67.28% 71.26% 85.23%
2007............................ 61.59% 65.34% 80.04%
2008............................ 55.91% 58.52% 73.94%
2009............................ 50.32% 51.93% 66.83%
2010............................ 44.74% 44.95% 58.61%
2011............................ 38.13% 37.84% 49.14%
2012............................ 32.97% 30.71% 38.27%
2013............................ 26.81% 23.54% 25.81%
2014............................ 19.24% 17.46% 21.63%
2015............................ 12.69% 11.89% 16.13%
2016............................ 5.64% 7.12% 9.02%
2017............................ 0.00% 0.00% 0.00%
2018............................
Remaining Weighted
Average Life (Years)...... 8.9 9.1 10.6
</TABLE>
Declining Balances of the Notes under the Base Case
[Chart]
34
<PAGE>
In each of the following tables, "expected maturity" means the period
(expressed in years) from March 15, 2000 through the expected final payment date
of the relevant notes.
Effect of Inability to Refinance Subclass A-3, A-4 and B-2 Notes
The table below compares our Base Case with a situation in which we have
assumed that no refinancing notes are issued and sold and that the subclass A-3,
A-4 and B-2 notes are amortized according to the priority of payments. If no
refinancings occurred, the expected maturities (Exp) and weighted average lives
(Avg) of the notes would be as shown below.
Expected Maturities and Weighted Average Lives of Notes
<TABLE>
<CAPTION>
Expected Maturity/Weighted
Average Life
--------------------------------------------------
Base Case No Refinancings
----------------------- ----------------------
Exp Avg Exp Avg
--- --- --- ---
<S> <C> <C> <C> <C>
Subclass A-2... 5.5 3.1 6.8 3.2
Subclass A-3... 2.0 2.0 17.3 12.4
Subclass A-4... 3.0 3.0 17.3 15.1
Subclass A-5... 8.3 4.8 9.3 5.0
Subclass B-1... 13.0 6.7 13.0 6.7
Subclass B-2... 7.0 6.8 17.3 12.0
Subclass C-1... 13.0 8.6 13.1 8.6
Subclass C-2... 16.6 14.1 16.6 14.1
Subclass D-1... 14.0 10.1 14.1 10.5
</TABLE>
Minimum Lease Rentals Percentage Required to Retire Notes
The table below shows the minimum percentage of lease rentals that will be
necessary to repay all interest and principal on each class of notes by their
respective final maturity dates. If we received actual revenues below the
percentages of lease rentals indicated below and all of the other assumptions
were to prove correct, we would be unable to make the required payments on the
notes, which would constitute an event of default.
35
<PAGE>
Percentage of Lease Rentals Necessary to Repay the
Notes by the Applicable Final Maturity Date Assuming Actual
Experience Corresponds to the Base Case until the Beginning of the Year Stated
<TABLE>
March 15,
2000 Year 3 Year 6 Year 10
---- ------ ------ -------
<S> <C> <C> <C> <C>
Subclass A-2.................. 53.4% 49.1% 39.1% 0.0%
Subclass A-3, A-4 and A-5..... 68.7% 67.5% 65.1% 58.8%
Subclass B-1.................. 75.5% 73.9% 70.8% 63.3%
Subclass B-2.................. 76.2% 74.7% 72.0% 64.9%
Subclass C-1.................. 83.8% 82.7% 79.5% 72.1%
Subclass C-2.................. 84.3% 83.3% 80.4% 73.5%
Subclass D-1.................. 89.2% 88.0% 85.2% 78.0%
</TABLE>
Stresses
In the following tables, we have applied various stresses to our Base Case.
There are two types of stress that we use:
o A reduction in lease rentals: in our Base Case, net
stress-related costs result in a 4.5% reduction in lease rentals.
In the tables, as a stress to our Base Case, we have applied a
further change in lease rentals, by the percentages shown. We
have used this change in addition to the 4.5% Base Case
reduction, and kept the other assumptions constant, as a proxy
for the change in the amount of net cash available to repay
principal that would result in any circumstances where there was
any combination of (1) an increase or reduction in lease rentals,
(2) an increase or reduction in net stress-related costs, (3) an
increase or reduction in aircraft operating expenses, (4) an
increase or reduction in SG&A and (5) an increase or reduction in
interest costs, including swap costs.
o A decline in portfolio value: in our Base Case, we assume that
aircraft values decline over time in accordance with the
depreciation curve that is used to determine the Assumed
Portfolio Value under our indenture. In the tables, as a stress
to our Base Case, we have set the Adjusted Portfolio Value, at a
specified percentage of the Assumed Portfolio Value under our
Base Case. You should refer to "Description of the Notes --
Payment of Principal and Interest -- Principal Amortization" for
a description of the depreciation curve and how the Assumed
Portfolio Value and the Adjusted Portfolio Value are determined.
We have used this reduction in portfolio value to illustrate the
effects of a decline in the value of our aircraft that is greater
than what the Base Case assumes.
In the tables that show the expected maturities and weighted average lives
of notes, we have omitted the subclass A-3, A-4 and B-2 notes because we have
kept constant our assumption that we refinance those subclasses on their
expected final payment dates and, accordingly, our stresses do not result in any
change to the expected maturities or weighted average lives under our Base Case
for those subclasses.
Effect of a Permanent Change in Lease Rentals
In preparing the tables below, we have started with our Base Case and have
varied lease rentals, by the indicated percentages, beginning in years 3 and 6.
If our lease rentals were to vary as shown below and all of the other
assumptions were to prove correct, then the expected maturities and weighted
average lives of the respective subclasses of notes would be as shown below.
36
<PAGE>
Expected Maturities and Weighted Average Lives of Notes
Assuming a Permanent Change in Lease Rentals, Beginning in Year 3
Permanent Change in Lease Rentals
as a Percentage of Lease Rentals
<TABLE>
Base Case Base Case Base Case Base Case
+ 10% + 5% Base Case -- 5% -- 10%
--------------- ---------------- --------------- ---------------- -----------------
Exp Avg Exp Avg Exp Avg Exp Avg Exp Avg
--- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-2. 5.5 3.0 5.5 3.0 5.5 3.1 6.8 3.3 6.8 3.5
Subclass A-5. 8.3 4.8 8.3 4.8 8.3 4.8 9.3 5.1 9.3 5.2
Subclass B-1. 13.0 6.7 13.0 6.7 13.0 6.7 14.0 6.7 14.0 6.8
Subclass C-1. 12.3 8.6 13.0 8.6 13.0 8.6 15.1 10.2 16.6 12.5
Subclass C-2. 12.8 12.1 14.6 13.3 16.6 14.1 18.6 16.2 19.0 17.5
Subclass D-1. 12.2 9.7 14.0 10.1 14.0 10.1 17.0 12.3 (1)
</TABLE>
-------------
(1) Not all principal repaid prior to final maturity date (yield = 5.12%).
Expected Maturities and Weighted Average Lives of Notes
Assuming a Permanent Change in Lease Rentals, Beginning in Year 6
<TABLE>
<CAPTION>
Permanent Change in Lease Rentals
as a Percentage of Lease Rentals
------------------------------------------------------------------------------------------------------
Base Case Base Case Base Case Base Case
+ 10% + 5% Base Case -- 5% -- 10%
-------------------- ----------------- ----------------- ----------------- -----------------
Exp Avg Exp Avg Exp Avg Exp Avg Exp Avg
--- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-2. 5.5 3.1 5.5 3.1 5.5 3.1 6.8 3.1 6.8 3.1
Subclass A-5. 8.3 4.8 8.3 4.8 8.3 4.8 9.3 4.9 9.3 5.0
Subclass B-1. 13.0 6.7 13.0 6.7 13.0 6.7 14.0 6.7 14.0 6.7
Subclass C-1. 13.0 8.6 13.0 8.6 13.0 8.6 15.0 9.6 15.6 10.2
Subclass C-2. 13.9 12.9 15.2 13.7 16.6 14.1 17.8 15.6 19.0 16.5
Subclass D-1. 13.6 10.1 14.0 10.1 14.0 10.1 16.0 11.6 21.0 16.2
</TABLE>
Effect of Permanent Decline in Portfolio Value
If the Adjusted Portfolio Value becomes significantly less than the Assumed
Portfolio Value under the Base Case, the Scheduled Principal Payment Amount
payable to holders of the class A notes may be increased. Payment of this
increased amount may shorten the weighted average lives of the class A notes and
lengthen the weighted average lives of the subclasses of notes that rank behind
the class A notes in priority of payment. The following tables show the expected
maturity and weighted average life of each subclass of notes if the Adjusted
Portfolio Value permanently declined to a given percentage of the Assumed
Portfolio Value, beginning in years 1 and 5.
37
<PAGE>
Expected Maturities and Weighted Average Lives of Notes
Assuming a Permanent Change in Portfolio Value, Beginning in Year 1
<TABLE>
<CAPTION>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value Beginning in Year 1
---------------------------------------------------------------------------------------------------
100%* 90% 80% 70%
----------------------- ------------------------ ---------------------- ----------------------
Exp Avg Exp Avg Exp Avg Exp Avg
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-2... 5.5 3.1 6.7 3.0 5.5 3.0 5.5 3.0
Subclass A-5... 8.3 4.8 8.3 4.8 8.3 4.8 8.3 4.7
Subclass B-1... 13.0 6.7 13.0 6.7 13.0 6.8 13.0 6.8
Subclass C-1... 13.0 8.6 13.0 8.8 13.0 9.9 13.7 10.3
Subclass C-2... 16.6 14.1 16.3 14.0 16.3 14.2 16.3 14.5
Subclass D-1... 14.0 10.1 14.0 10.2 14.0 11.4 14.2 11.7
</TABLE>
----------
*Base Case
Expected Maturities and Weighted Average Lives of Notes
Assuming a Permanent Change in Portfolio Value, Beginning in Year 5
<TABLE>
<CAPTION>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value Beginning in Year 5
-------------------------------------------
100%* 90% 80% 70%
----------------------- --------------------- ---------------------- -----------------------
Exp Avg Exp Avg Exp Avg Exp Avg
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-2... 5.5 3.1 5.5 3.1 5.5 3.1 5.5 3.1
Subclass A-5... 8.3 4.8 8.3 4.8 8.3 4.8 8.3 4.8
Subclass B-1... 13.0 6.7 13.0 6.7 13.0 6.7 13.0 6.8
Subclass C-1... 13.0 8.6 13.0 8.7 13.0 9.8 13.8 10.2
Subclass C-2... 16.6 14.1 16.3 14.1 16.3 14.3 16.3 14.5
Subclass D-1... 14.0 10.1 14.0 10.1 14.0 11.4 14.3 11.7
</TABLE>
-------------------
*Base Case
Effect of Cyclical Variations in Lease Rentals and Portfolio Value --
"Recession Scenarios"
Historically, the aviation industry has experienced cyclical swings in the
supply and demand for aircraft. We would be negatively affected by a decline in
the demand for aircraft. We have assumed that such a decline in demand or
"recession" will result in a decline in aircraft values, as well as an increase
in defaults and downtime and a decline in operating lease rental rates.
We have prepared the following tables to show the effect on expected
maturities and weighted average lives of the subclass B-1, B-2, C-1, C-2 and D-1
notes if recessions of different lengths were to occur in the future. In
preparing the following tables we have assumed that a recession would have the
following effect on MSAF group:
o Aircraft values would fall on the first day of the recession to a
given percentage of the Assumed Portfolio Value under the Base
Case. This decrease would trigger an increase in Scheduled
Principal Payment Amounts on the class A notes being paid if
amounts were available.
o After a period of two years following the first day of the
recession, we have reduced lease rentals by a given percentage as
a proxy for a combination of the reduction in lease rentals and
the increase in net stress-related
38
<PAGE>
costs that we assume would occur as aircraft were re-leased or
lessees defaulted. This would result in less cash flow being
available to make payments of interest and principal on the
notes.
o The recession would last a given period of time. Afterwards, the
Adjusted Portfolio Value would return to the Assumed Portfolio
Value under the Base Case on the first day after the recession.
Two years after the end of the recession, lease rentals would
return to the Base Case.
Actual experience will likely differ from the assumptions we have used in
preparing the following tables. Specifically, we can give no assurance that
periods of weak traffic growth and lower demand for aircraft will be followed by
periods of strong growth and high demand for aircraft nor can we give any
assurance that following a recession aircraft values and lease rentals will
return to Base Case levels. Because actual experience will likely differ from
those assumptions, the actual maturities and weighted average lives of the notes
will likely differ from what is shown in the tables below.
Expected Maturities and Weighted Average Lives of Subclass B-1
Notes Assuming a Recession Lasting Three Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value.................. 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1............ 13.0 6.7 13.0 6.7 14.1 6.8
3............................... 13.0 6.7 13.0 6.7 13.2 6.8
5............................... 13.0 6.7 13.0 6.7 13.2 6.8
10.............................. 13.0 6.7 13.0 6.7 13.2 6.7
</TABLE>
------------
*Base Case
39
<PAGE>
Expected Maturities and Weighted Average Lives of Subclass B-1
Notes Assuming a Recession Lasting Five Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals............................ Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value.................. 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1............ 13.0 6.7 13.2 6.7 14.0 6.8
3............................... 13.0 6.7 13.0 6.8 14.0 6.8
5............................... 13.0 6.7 13.0 6.7 14.0 6.8
10.............................. 13.0 6.7 13.0 6.7 14.0 6.7
</TABLE>
--------------
*Base Case
Expected Maturities and Weighted Average Lives of Subclass B-2
Notes Assuming a Recession Lasting Three Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals............................ Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value.................. 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1............ 7.0 6.8 7.0 6.8 7.0 6.8
3............................... 7.0 6.8 7.0 6.8 7.0 6.8
5............................... 7.0 6.8 7.0 6.8 7.0 6.8
10.............................. 7.0 6.8 7.0 6.8 7.0 6.8
</TABLE>
------------------
*Base Case
Expected Maturities and Weighted Average Lives of Subclass B-2
Notes Assuming a Recession Lasting Five Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals............................... Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value..................... 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1.......... 7.0 6.8 7.0 6.8 7.0 6.8
3....................... 7.0 6.8 7.0 6.8 7.0 6.8
5....................... 7.0 6.8 7.0 6.8 7.0 6.8
10...................... 7.0 6.8 7.0 6.8 7.0 6.8
</TABLE>
----------
*Base Case
Expected Maturities and Weighted Average Lives of Subclass C-1
Notes Assuming a Recession Lasting Three Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals.......................... Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value................ 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1.......... 13.0 8.6 13.1 8.7 15.0 10.5
3............................. 13.0 8.6 13.1 8.8 15.1 10.2
5............................. 13.0 8.6 13.1 8.7 13.9 9.6
10............................ 13.0 8.6 13.0 8.6 13.2 9.1
</TABLE>
-------------
*Base Case
40
<PAGE>
Expected Maturities and Weighted Average Lives of Subclass C-1
Notes Assuming a Recession Lasting Five Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals.......................... Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value................ 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1 ......... 13.0 8.6 14.1 9.7 15.1 10.6
3............................. 13.0 8.6 13.2 9.2 15.0 10.5
5............................. 13.0 8.6 13.1 8.8 15.0 10.4
10............................ 13.0 8.6 13.1 8.6 14.4 9.6
</TABLE>
-----------
*Base Case
Expected Maturities and Weighted Average Lives of Subclass C-2
Notes Assuming a Recession Lasting Three Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals.......................... Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value................ 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1.......... 16.6 14.1 16.6 14.1 17.0 15.4
3............................. 16.6 14.1 16.6 14.1 16.6 14.9
5............................. 16.6 14.1 16.6 14.1 16.6 14.4
10............................ 16.6 14.1 16.6 14.1 16.6 14.3
</TABLE>
-----------
*Base Case
Expected Maturities and Weighted Average Lives of Subclass C-2
Notes Assuming a Recession Lasting Five Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals.......................... Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value................ 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1 ......... 16.6 14.1 16.6 14.4 18.2 16.0
3............................. 16.6 14.1 16.6 14.2 17.9 15.7
5............................. 16.6 14.1 16.6 14.1 17.1 15.6
10............................ 16.6 14.1 16.6 14.1 16.6 14.7
</TABLE>
------------
*Base Case
41
<PAGE>
Expected Maturities and Weighted Average Lives of Subclass D-1
Notes Assuming a Recession Lasting Three Years
<TABLE>
<CAPTION>
Decline in Lease Rentals as a Percentage of
Lease Rentals.......................... Base Case Base Case-5% Base Case - 10%
<S> <C> <C> <C> <C> <C> <C>
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value................ 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1.......... 14.0 10.1 14.4 11.1 16.0 12.0
3............................. 14.0 10.1 14.0 10.6 16.0 11.9
5............................. 14.0 10.1 14.0 10.3 15.6 11.7
10............................ 14.0 10.1 14.0 10.3 14.9 10.9
</TABLE>
------------
*Base Case
Expected Maturities and Weighted Average Lives of Subclass D-1
Notes Assuming a Recession Lasting Five Years
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Decline in Lease Rentals as a Percentage of
Lease Rentals.......................... Base Case Base Case-5% Base Case - 10%
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value................ 100%* 90% 80%
Exp Avg Exp Avg Exp Avg
--- --- --- --- --- ---
Recession begins at start of Year 1.......... 14.0 10.1 15.6 11.9 16.3 12.3
3............................. 14.0 10.1 15.1 11.6 16.0 12.1
5............................. 14.0 10.1 14.3 11.2 16.0 12.0
10............................ 14.0 10.1 14.0 10.5 16.0 11.4
</TABLE>
--------------
*Base Case
Effect of Changes in Lease Rentals on Yields of Fixed Rate Notes
In preparing the tables below, we have started with our Base Case and
varied lease rentals by the indicated percentages, beginning in certain years,
for a period of three years in one case and permanently in the other. If our
lease rentals were to vary as shown below and all of the other assumptions were
to prove correct, then the yield to maturity for the subclass C-1, C-2 and D-1
notes would be as shown below. If lease rentals significantly declined, there
might not be sufficient revenues available to meet interest and principal
payments on the notes. In such cases, interest on the notes would be deferred.
42
<PAGE>
Yield, Date of First Deferral and Number of Months in which Interest is
Deferred on the Subclass C-1 Notes given the Assumptions but with a Three Year
Change in Lease Rentals of the Magnitude Shown
<TABLE>
<CAPTION>
Change in Lease Rentals, as a Percentage of Lease Rentals,
Beginning in Year:
------------------------------------------------------------------------------------------------
3 6 9
--------------------------------- ------------------------------- -----------------------------
Date of Months of Date of Months of Date of Months of
Change in Lease Rentals Yield Deferral Deferrals Yield Deferral Deferrals Yield Deferral Deferrals
----------------------- ----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Base Case + 5%......... 7.00% None 0 7.00% None 0 7.00% None 0
Base Case.............. 7.00% None 0 7.00% None 0 7.00% None 0
Base Case -- 5%........ 7.00% None 0 7.00% None 0 7.00% None 0
Base Case -- 10%....... 7.00% None 0 7.00% None 0 7.00% None 0
</TABLE>
Yield, Date of First Deferral and Number of Months in which
Interest is Deferred on the Subclass C-1 Notes given the Assumptions but with
a Permanent Change in Lease Rentals of the Magnitude Shown
<TABLE>
<CAPTION>
Change in Lease Rentals, as a Percentage of Lease Rentals,
Beginning in Year:
------------------------------------------------------------------------------------------------
3 6 9
--------------------------------- ------------------------------- -----------------------------
Date of Months of Date of Months of Date of Months of
Change in Lease Rentals Yield Deferral Deferrals Yield Deferral Deferrals Yield Deferral Deferrals
----------------------- ----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Base Case + 5%......... 7.00% None 0 7.00% None 0 7.00% None 0
Base Case.............. 7.00% None 0 7.00% None 0 7.00% None 0
Base Case -- 5%........ 7.00% None 0 7.00% None 0 7.00% None 0
Base Case -- 10%....... 7.00% Sep-2007 91 7.00% June-2011 23 7.00% None 0
</TABLE>
Yield, Date of First Deferral and Number of Months in which
Interest is Deferred on the Subclass C-2 Notes given the Assumptions but with
a Three Year Change in Lease Rentals of the Magnitude Shown
<TABLE>
<CAPTION>
Change in Lease Rentals, as a Percentage of Lease Rentals,
Beginning in Year:
------------------------------------------------------------------------------------------------
3 6 9
--------------------------------- ------------------------------- -----------------------------
Date of Months of Date of Months of Date of Months of
Change in Lease Rentals Yield Deferral Deferrals Yield Deferral Deferrals Yield Deferral Deferrals
----------------------- ----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Base Case + 5%......... 9.81% None 0 9.81% None 0 9.81% None 0
Base Case.............. 9.80% None 0 9.80% None 0 9.80% None 0
Base Case -- 5%........ 9.80% None 0 9.80% None 0 9.80% None 0
Base Case -- 10%....... 9.80% None 0 9.80% None 0 9.80% None 0
</TABLE>
43
<PAGE>
Yield, Date of First Deferral and Number of Months in which Interest is
Deferred on the Subclass C-2 Notes given the Assumptions but with a Permanent
Change in Lease Rentals of the Magnitude Shown
<TABLE>
<CAPTION>
Change in Lease Rentals, as a Percentage of Lease Rentals,
Beginning in Year:
------------------------------------------------------------------------------------------------
3 6 9
--------------------------------- ------------------------------- -----------------------------
Date of Months of Date of Months of Date of Months of
Change in Lease Rentals Yield Deferral Deferrals Yield Deferral Deferrals Yield Deferral Deferrals
----------------------- ----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Base Case + 5%......... 9.87% None 0 9.84% None 0 9.82% None 0
Base Case.............. 9.80% None 0 9.80% None 0 9.80% None 0
Base Case -- 5%........ 9.80% None 0 9.80% None 0 9.80% None 0
Base Case -- 10%....... 9.80% Sep-2007 107 9.80% Jun-2011 49 9.80% Jun-2015 14
</TABLE>
Yield, Date of First Deferral and Number of Months in which
Interest is Deferred on the Subclass D-1 Notes, given the Assumptions but with
a Three Year Change in Lease Rentals of the Magnitude Shown
<TABLE>
<CAPTION>
Change in Lease Rentals, as a Percentage of Lease Rentals,
Beginning in Year:
------------------------------------------------------------------------------------------------
3 6 9
--------------------------------- ------------------------------- -----------------------------
Date of Months of Date of Months of Date of Months of
Change in Lease Rentals Yield Deferral Deferrals Yield Deferral Deferrals Yield Deferral Deferrals
----------------------- ----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Base Case + 5%......... 8.86% None 0 8.86% None 0 8.86% None 0
Base Case.............. 8.86% None 0 8.86% None 0 8.86% None 0
Base Case -- 5%........ 8.86% None 0 8.86% None 0 8.86% None 0
Base Case -- 10%....... 8.86% None 0 8.86% None 0 8.86% None 0
</TABLE>
Yield, Date of First Deferral and Number of Months in which Interest is
Deferred on the Subclass D-1 Notes, given the Assumptions but with a Permanent
Change in Lease Rentals of the Magnitude Shown
<TABLE>
<CAPTION>
Change in Lease Rentals, as a Percentage of Lease Rentals,
Beginning in Year:
------------------------------------------------------------------------------------------------
3 6 9
--------------------------------- ------------------------------- -----------------------------
Date of Months of Date of Months of Date of Months of
Change in Lease Rentals Yield Deferral Deferrals Yield Deferral Deferrals Yield Deferral Deferrals
----------------------- ----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Base Case + 5%......... 8.86% None 0 8.86% None 0 8.86% None 0
Base Case.............. 8.86% None 0 8.86% None 0 8.86% None 0
Base Case -- 5%........ 8.86% Feb-2013 38 8.86% None 0 8.86% None 0
Base Case -- 10%....... 5.13% Sep-2007 211 8.86% Mar-2011 103 8.86% Feb-2015 16
</TABLE>
Effect of Principal Allocation According to the Extended Pool Factor Only
for the Subclass A-2, A-5, B-1 and C-2 Notes
If available collections on a payment date are insufficient to pay the
principal amount that is due on a class of notes according to the order of
priorities, then the available collections will be allocated to the subclasses
in that class of notes as we describe under "Description of the Notes -- Payment
of Principal and Interest -- Allocation of Principal among Subclasses of Notes;
Intra-Class Priority of Payments".
44
<PAGE>
We have prepared this table to show the effect of this allocation on the
assumed maturities and the weighted average lives of the subclass A-2, A-5, B-1,
C-1, C-2 and D-1 notes, in comparison with our Base Case, if:
o we issue additional notes to finance the acquisition of
additional aircraft
o our lease rentals are sufficient only to pay down the principal
of these subclasses according to paragraph (1) under "Description
of Notes -- Payment of Principal and Interest -- Allocation of
Principal Among Subclasses of Notes; Intra-Class Priority of
Payments".
<TABLE>
<CAPTION>
Allocation to Extended
Subclasses of Notes Base Case Pool Factor Only
------------------- ------------------ ----------------------------
<S> <C> <C> <C> <C>
Exp Avg Exp Avg
Subclass A-2 Notes. 5.5 3.1 6.8 3.0
Subclass A-5 Notes. 8.3 4.8 9.3 5.8
Subclass B-1 Notes. 13.0 6.7 14.0 7.6
Subclass C-1 Notes. 13.0 8.6 15.0 10.6
Subclass C-2 Notes. 16.6 14.1 18.6 16.1
Subclass D-1 Notes. 14.0 10.1 16.0 12.1
</TABLE>
45
<PAGE>
THE PORTFOLIO
All of our assets consist of 100% of the equity in the aircraft-owning
subsidiaries and certain leasing subsidiaries and certain loans made to the
aircraft-owning subsidiaries. We indirectly own (1) the portfolio, (2) the
rights under the related leases, and (3) cash and cash equivalents on deposit.
Appraisals
As of November 30, 1999, our portfolio had an aggregate appraised value of
$2,000.9 million. Under our indenture, we are required, at least once each year
and in any case no later than October 31 of each year, to deliver to the trustee
appraisals of the base value of each of the aircraft in our portfolio from at
least three independent appraisers that are members of the International Society
of Transport Aircraft Trading or any similar organization. We have obtained
appraisals from five such appraisers. We have calculated the appraised value of
each aircraft by removing the highest and the lowest appraisal and taking the
average of the remaining three.
Our five appraisers, Aircraft Information Services, Inc., BK Associates,
Inc., Airclaims Limited, Morten Beyer and Agnew and Aircraft Value Analysis
Company have provided appraisals of the value of each of our aircraft at normal
utilization rates in an open, unrestricted and stable market, without taking
into account the value of related leases, maintenance reserves or security
deposits as of November 30, 1999, adjusted to account for the reported
maintenance standard of the aircraft. The appraisals were not based on a
physical inspection of the aircraft. The full text of each of the appraisals is
included in CD-ROM format in Exhibit A to this prospectus, for your information
only.
46
<PAGE>
The appraisals for the portfolio as of November 30, 1999 are set out below.
<TABLE>
<CAPTION>
Appraisal of
------------------------------------------------------------------------
Aircraft Aircraft Value
Engine Serial Date of Airclaims Information Morten Beyer Analysis
Aircraft Type Configuration Number Manufacture Limited BK Associates Services and Agnew Company
------------- ------------- ------ ----------- ------- ------------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A300-600R PW 4158 555 Mar-90 43,820,038 46,874,794 50,860,000 48,210,000 39,050,000
A300-600R PW 4158 625 Mar-92 45,598,979 53,107,233 56,000,000 53,220,000 46,850,000
A310-300 JT9D-7R4E1 409 Nov-85 18,668,131 27,022,136 21,300,000 29,499,000 15,200,000
A310-300 JT9D-7R4E1 410 Nov-85 18,736,079 27,403,582 21,820,000 30,501,000 15,550,000
A310-300 JT9D-7R4E1 437 Nov-86 21,316,952 33,262,341 27,820,000 33,419,000 21,800,000
A320-200 CFM 56-5A3 279 Feb-92 28,871,688 31,244,598 28,640,000 31,652,000 29,500,000
A320-200 V2500-A1 393 Feb-93 29,931,935 31,187,247 29,090,000 33,098,000 30,170,000
A320-200 CFM 56-5A3 397 Mar-93 30,162,691 31,894,773 30,400,000 33,319,000 30,075,000
A320-200 V2500-A1 414 May-93 30,336,415 30,957,449 29,130,000 33,363,000 30,450,000
A320-200 V2500-A1 428 May-94 31,669,836 32,628,258 30,790,000 33,834,000 32,100,000
A320-200 CFM 56-5A3 446 Oct-93 30,177,866 31,100,000 30,030,000 35,176,000 30,225,000
A321-100 V2530-A5 557 Dec-95 35,247,421 45,988,568 39,160,000 37,638,000 40,000,000
A321-100 V2530-A5 597 May-96 36,085,390 45,156,750 41,930,000 37,567,000 39,600,000
A330-300 CF6-80E1 54 Apr-94 75,194,550 81,864,707 82,310,000 87,754,000 75,750,000
A340-300 CFM 56-5C3G 94 Mar-95 81,144,912 92,319,102 105,920,000 97,684,000 84,650,000
B737-300 CFM 56-3B1 23255 Jun-85 14,620,625 13,547,506 17,440,000 14,837,000 13,675,000
B737-300 CFM 56-3B1 23256 Jul-85 16,395,719 14,501,668 18,040,000 14,961,000 14,200,000
B737-300 CFM 56-3B2 24299 Nov-88 20,001,225 18,790,300 20,570,000 19,140,000 20,400,000
B737-300 CFM 56-3B2 24449 Apr-90 21,065,000 21,990,000 22,930,000 20,575,000 22,050,000
B737-300 CFM 56-3B2 25161 Feb-92 22,674,379 25,511,536 25,010,000 23,784,000 24,900,000
B737-300 CFM 56-3C1 26295 Dec-93 22,596,442 26,024,250 25,560,000 25,546,000 25,300,000
B737-300 CFM 56-3B1 26309 Dec-94 24,232,196 27,700,000 26,050,000 26,602,000 26,300,000
B737-300 CFM 56-3C1 27635 May-95 25,561,933 28,728,600 28,540,000 27,137,000 26,200,000
B737-300F CFM 56-3B2 23811 Oct-87 19,378,488 19,003,082 21,560,000 19,936,000 20,100,000
B737-300QC CFM 56-3C1 23788 May-87 19,405,573 18,099,500 21,780,000 19,782,000 18,450,000
B737-400 CFM 56-3B2 24234 Oct-88 21,619,354 20,194,364 22,780,000 22,435,000 21,600,000
B737-400 CFM 56-3C1 24707 Jun-91 22,800,670 24,963,604 25,310,000 24,644,000 24,400,000
B737-400 CFM 56-3C1 25104 May-93 25,507,457 26,531,550 27,350,000 27,541,000 25,800,000
B737-400 CFM 56-3C1 25105 Jul-93 24,598,379 26,073,250 27,240,000 27,262,000 26,400,000
B737-400 CFM 56-3C1 25371 Jan-92 24,688,071 24,170,810 26,430,000 25,300,000 25,450,000
B737-400 CFM 56-3C1 26279 Jun-92 24,351,332 24,619,226 26,350,000 26,702,000 26,100,000
B737-400 CFM 56-3C1 26291 Aug-93 25,950,885 26,756,516 27,690,000 28,584,000 28,500,000
B737-400 CFM 56-3C1 26308 Oct-94 25,817,981 28,264,060 28,600,000 29,154,000 26,850,000
B737-500 CFM 56-3B1 25165 Apr-93 20,559,624 17,552,500 19,980,000 20,762,000 18,600,000
B737-500 CFM 56-3C1 26304 Sep-94 20,516,576 20,060,150 22,360,000 23,311,000 20,600,000
B747-300B CF6-80C2 24106 Apr-88 46,632,687 59,943,960 48,480,000 51,991,000 39,870,000
B747-400 RB211-252H2/19 24955 Sep-91 82,013,762 106,527,824 105,760,000 104,476,000 79,900,000
B757-200ER RB211-535-E4 23767 Apr-87 28,008,616 29,791,024 32,830,000 31,259,000 26,800,000
B757-200ER RB211-535-E4 24260 Dec-88 30,423,476 33,021,212 35,580,000 35,424,000 32,000,000
B757-200ER RB211-535-E4-37 24367 Feb-89 28,943,600 31,335,359 36,050,000 33,392,000 30,300,000
B757-200ER PW 2040 24965 Mar-92 34,411,426 39,971,145 42,970,000 41,106,000 36,300,000
B757-200ER PW 2037 25044 May-91 33,135,259 39,209,345 40,720,000 39,271,000 34,025,000
B757-200ER RB211-535-E4-37 26266 Feb-93 35,464,262 41,872,550 44,580,000 42,305,000 39,305,000
B757-200ER PW 2037 26272 Mar-94 33,003,740 42,932,416 44,160,000 42,618,000 38,750,000
B757-200ER PW 2037 28160 Jul-96 37,843,699 49,445,918 49,160,000 50,344,000 44,750,000
B767-200ER CF6-80A 23807 Aug-87 28,838,628 31,079,940 35,160,000 28,539,000 25,650,000
B767-300ER CF6-80C2B6F 24798 Oct-90 49,099,299 53,667,285 56,670,000 57,665,000 48,700,000 (1)
B767-300ER CF6-80C2B6 24875 Jun-91 54,444,607 55,072,637 60,730,000 59,425,000 56,380,000
B767-300ER CF6-80C2B6F 25132 Feb-92 56,498,903 59,356,214 65,170,000 62,469,000 58,600,000
B767-300ER CF6-80C2B6F 26256 Apr-93 59,887,960 61,960,315 67,990,000 67,204,000 62,300,000
B767-300ER CF6-80C2B4 26260 Sep-94 60,046,996 64,745,045 68,760,000 68,534,000 66,400,000
engine CF6-80C2B6F 704279 Jul-95 5,951,393 6,282,000 5,710,000 4,506,000 4,850,000
F-50 PW100-125B 20232 Oct-91 6,141,563 7,340,076 6,080,000 5,355,000 6,550,000
F-50 PW100-125B 20233 Oct-91 6,141,563 7,304,406 6,010,000 5,366,000 6,330,000
F-70 TAY MK620-15 11564 Dec-95 11,880,010 14,100,000 13,410,000 14,331,000 13,450,000
F-70 TAY MK620-15 11565 Feb-96 11,087,025 15,200,000 14,910,000 14,430,000 13,650,000
F-70 TAY MK620-15 11569 Mar-96 11,359,096 15,200,000 14,910,000 14,478,000 14,650,000
MD-82 JT8D-217C 49825 Mar-89 15,323,107 17,318,790 20,750,000 19,528,000 16,500,000
MD-83 JT8D-219 49657 Apr-88 16,505,672 20,090,575 20,780,000 20,543,000 18,200,000
MD-83 JT8D-219 49822 Dec-88 16,903,329 18,823,975 20,080,000 21,431,000 18,400,000
MD-83 JT8D-219 49824 Mar-89 17,375,556 21,362,625 21,660,000 22,143,000 18,100,000
MD-83 JT8D-219 53050 May-90 17,016,260 21,120,000 21,360,000 21,078,000 17,000,000
Appraised
Value as of
November 30,
Aircraft Type 1999
------------- -------------
<S> <C>
A300-600R 46,301,611
A300-600R 51,059,078
A310-300 22,330,089
A310-300 22,653,220
A310-300 27,627,447
A320-200 29,872,095
A320-200 30,429,727
A320-200 30,819,155
A320-200 30,581,288
A320-200 32,132,698
A320-200 30,500,955
A321-100 38,932,667
A321-100 39,699,000
A330-300 79,974,902
A340-300 91,551,034
B737-300 14,377,542
B737-300 15,286,129
B737-300 19,847,075
B737-300 21,701,667
B737-300 24,564,667
B737-300 25,468,667
B737-300 26,317,333
B737-300 27,292,333
B737-300F 19,804,829
B737-300QC 19,212,524
B737-400 21,884,785
B737-400 24,669,201
B737-400 26,560,517
B737-400 26,571,083
B737-400 25,146,024
B737-400 25,689,742
B737-400 27,648,839
B737-400 27,904,687
B737-500 19,713,208
B737-500 21,158,859
B747-300B 49,034,562
B747-400 97,416,587
B757-200ER 29,686,213
B757-200ER 33,481,737
B757-200ER 31,675,786
B757-200ER 39,125,715
B757-200ER 37,501,782
B757-200ER 41,160,850
B757-200ER 41,433,472
B757-200ER 47,785,306
B767-200ER 29,485,856
B767-300ER 53,145,528
B767-300ER 56,959,212
B767-300ER 60,141,738
B767-300ER 63,821,438
B767-300ER 66,559,682
engine 5,503,798
F-50 6,257,188
F-50 6,160,521
F-70 13,653,333
F-70 14,330,000
F-70 14,679,333
MD-82 17,782,263
MD-83 19,611,192
MD-83 19,101,325
MD-83 20,374,208
MD-83 19,738,087
--------------
Total $2,000,891,389
==============
</TABLE>
47
<PAGE>
----------
(1) This aircraft is not currently capable of extended range missions but ILFC
has agreed to pay for the cost of an extended range modification to the
aircraft upon MSAF's request at any time following the termination or
expiration of the lease for the aircraft. The appraisals of the aircraft
assume that the extended range modification has been carried out.
The aggregate values calculated by each of the five appraisers for the
portfolio are as follows:
<TABLE>
<CAPTION>
Aggregate
Appraised Value
Appraiser as of November 30, 1999
--------- -----------------------
<S> <C>
($MM)
Airclaims Limited.......................... 1,833.7
Aircraft Information Services, Inc......... 2,107.2
Aircraft Value Analysis Company............ 1,884.6
BK Associates, Inc......................... 2,059.2
Morten Beyer and Agnew..................... 2,103.1
</TABLE>
The following table sets forth certain selected statistics relating to the
appraisals of the portfolio at November 30, 1999.
<TABLE>
<CAPTION>
Statistical Summary ($MM)
------------------- -----
<S> <C>
Average aggregate of 3 appraisals with highest and lowest removed........2,000.9
Average aggregate of all 5 appraisals....................................1,997.5
Median aggregate of all 5 appraisals.....................................2,014.7
Difference between highest and lowest aggregate appraisal................ 273.5
Difference between highest and lowest aggregate appraisal
as a percentage of the average aggregate of 3 appraisals
with the highest and lowest removed.................................... 13.7%
</TABLE>
Portfolio Information
All of the aircraft hold or are capable of holding a noise certificate
issued under Chapter 3 of Volume 1, Part II of Annex 16 of the Chicago
Convention or have been shown to comply with the Stage 3 noise levels set out in
Section 36.5 of Appendix C of Part 36 of the United States Federal Aviation
Regulations.
The following table sets forth the exposure as of April 15, 2000 of our
portfolio by type of aircraft calculated by reference to the number of aircraft
and their appraised value as of November 30, 1999.
<TABLE>
<CAPTION>
% of Portfolio
by Appraised
Number of Engine Value as of
Manufacturer Type of Aircraft Aircraft Body Type Stage November 30, 1999
------------ ---------------- -------- --------- ----- -----------------
<S> <C> <C> <C> <C> <C>
Airbus (30.21%)............... A300-600R 2 Widebody 3 4.86%
A310-300 3 Widebody 3 3.63%
A320-200 6 Narrowbody 3 9.21%
A321-100 2 Narrowbody 3 3.93%
A330-300 1 Widebody 3 4.00%
A340-300 1 Widebody 3 4.58%
Boeing (66.76%)............... B737-300 9 Narrowbody 3 9.69%
B737-300F 1 Freighter 3 0.99%
B737-400 8 Narrowbody 3 10.29%
B737-500 2 Narrowbody 3 2.05%
B747-300B 1 Widebody 3 2.45%
B747-400 1 Widebody 3 4.87%
48
<PAGE>
% of Portfolio
by Appraised
Number of Engine Value as of
Manufacturer Type of Aircraft Aircraft Body Type Stage November 30, 1999
------------ ---------------- -------- --------- ----- -----------------
<S> <C> <C> <C> <C> <C>
B757-200ER 8 Narrowbody 3 15.08%
B767-200ER 1 Widebody 3 1.47%
B767-300ER 5 Widebody 3 15.04%
MD-82 1 Narrowbody 3 0.89%
MD-83 4 Narrowbody 3 3.94%
Fokker N.V.(2.75%)............ F-50 2 Turboprop 3 0.62%
F-70 3 Narrowbody 3 2.13%
General Electric (0.28%)...... Engine engine n/a 3 0.28%
------ ------
Total....................... 61+engine 100.00%
======= ======
</TABLE>
The following table sets forth the exposure as of April 15, 2000 of our
portfolio to the lessees calculated by reference to the appraised value of the
aircraft as of November 30, 1999.
<TABLE>
<CAPTION>
% of Portfolio by
Appraised Value
as of November 30,
Lessee Number of Aircraft 1999
------ ------------------ ------------------
<S> <C> <C>
Asiana Airlines, Inc............................................ 4 8.44%
Trans World Airlines Inc. (TWA)................................. 4 5.28%
Cathay Pacific Airways Limited.................................. 1 4.87%
China Airlines, Limited......................................... 2 4.86%
Air 2000 Limited................................................ 2 4.67%
Air Mauritius LTD............................................... 1 4.58%
Aer Lingus, PLC................................................. 1 4.00%
Britannia Airways Ltd........................................... 2 3.53%
Air Pacific Limited............................................. 1 3.33%
Translift Airways Ltd. (TransAer)............................... 2 3.14%
JMC Airlines.................................................... 2 3.10%
Aerovias De Mexico, S.A. De C.V. (Aeromexico)................... 2 3.06%
New Zealand International Airlines Limited (Air New Zealand).... 1 2.85%
Alaska Airlines Inc............................................. 2 2.66%
Flugfelagid Atlanta H.F. (Air Atlanta Icelandic)................ 1 2.45%
Region Air Alpha (BVI) Ltd...................................... 2 2.25%
Malev Hungarian Airlines, PLC................................... 3 2.13%
Braathens ASA................................................... 2 2.05%
Air Alfa Airlines, S.A.......................................... 1 1.98%
Compania Mexicana de Aviacion, S.A. De C.V. (Mexicana).......... 1 1.96%
Companhia de Transportes Aereos Air Macau, Sarl (Air Macau)..... 1 1.95%
Far Eastern Air Transport Corporation (F.E.A.T.)................ 1 1.87%
National Airlines............................................... 1 1.67%
Canada 3000 Airlines............................................ 1 1.54%
Monarch Airlines Limited........................................ 1 1.52%
Air Canada Capital Limited...................................... 1 1.49%
Southwest Airlines Co........................................... 2 1.48%
B.R.A. Transportes Aereos Ltda. (B.R.A.)........................ 1 1.38%
Transavia Airlines.............................................. 1 1.36%
Continental Airlines Inc........................................ 1 1.32%
Pegasus Hava Tasimaciligi, A.S.................................. 1 1.28%
China Hainan Airlines........................................... 1 1.27%
Olympic Airways................................................. 1 1.26%
49
<PAGE>
% of Portfolio by
Appraised Value
as of November 30,
Lessee Number of Aircraft 1999
------ ------------------ ------------------
<S> <C> <C>
Air Malta....................................................... 1 1.23%
Air Espana S.A. (Air Europa).................................... 1 1.23%
Lithuanian Airlines............................................. 1 1.08%
Viacao Aerea Sao Paulo, S.A. Brazilian Airlines (VASP).......... 1 0.99%
Flugleidir H.F. (Icelandair).................................... 1 0.99%
Societe D'Exploitation Aeropostale S.A. (L'Aeropostale)......... 1 0.96%
Air Liberte, S.A................................................ 1 0.95%
KLM Cityhopper B.V.............................................. 2 0.62%
Koninklyke Luchtvaart Maatschappij N.V. (KLM)................... engine 0.28%
Off-lease....................................................... 1 1.09% (1)
-------- -------
Total......................................................... 61+engine 100.00%
========= =======
</TABLE>
----------
(1) This aircraft was the subject of a non-binding letter of intent
for lease with a carrier based in the Middle East.
50
<PAGE>
The following table sets forth the exposure as of April 15, 2000 of our
portfolio to countries in which the lessees are based, calculated by reference
to the appraised value of the aircraft as of November 30, 1999.
<TABLE>
<CAPTION>
% of Portfolio by
Number of Appraised Value as
Country Aircraft of November 30, 1999
------- -------- --------------------
<S> <C> <C>
United Kingdom........... 7 12.82%
United States of America. 10 12.41%
South Korea.............. 4 8.44%
Ireland.................. 3 7.14%
Taiwan................... 3 6.73%
Mexico................... 3 5.02%
Hong Kong................ 1 4.87%
Mauritius................ 1 4.58%
Iceland.................. 2 3.44%
Fiji..................... 1 3.33%
Turkey................... 2 3.26%
Canada................... 2 3.03%
New Zealand.............. 1 2.85%
Brazil................... 2 2.37%
The Netherlands.......... 3+engine 2.26%
Singapore................ 2 2.25%
Hungary.................. 3 2.13%
Norway................... 2 2.05%
Macau.................... 1 1.95%
France................... 2 1.91%
China.................... 1 1.27%
Greece................... 1 1.26%
Malta.................... 1 1.23%
Spain.................... 1 1.23%
Lithuania................ 1 1.08%
Off-lease................ 1 1.09% (1)
------ ------
Total.................. 61+engine 100.00%
====== ======
</TABLE>
(1) This aircraft was the subject of a non-binding letter of intent
for lease with a carrier based in the Middle East.
The following table sets forth the exposure as of April 15, 2000 of our
portfolio by regions in which the lessees are domiciled calculated by reference
to number of aircraft and their appraised value as of November 30, 1999.
<TABLE>
<CAPTION>
% of Portfolio by
Appraised Value as of
Region(1) Number of Aircraft November 30, 1999
--------- ------------------ -----------------
<S> <C> <C> <C>
Developed
Europe............... 18+engine 27.41%
North America........ 12 15.44%
Pacific.............. 4 9.97%
Emerging
Asia................. 8 16.44%
Latin America........ 5 7.39%
Europe and Middle East 6 6.65%
51
<PAGE>
% of Portfolio by
Appraised Value as of
Region(1) Number of Aircraft November 30, 1999
--------- ------------------ -----------------
<S> <C> <C> <C>
Other
Other................ 7 15.61%
Off-lease............ 1 1.09% (2)
--------- ------
Total................ 61+engine 100.00%
========= ======
</TABLE>
----------
(1) Regions are defined according to designations published by Morgan Stanley
Capital International.
(2) This aircraft was the subject of a non-binding letter of intent
for lease with a carrier based in the Middle East.
The following table sets forth the exposure as of April 15, 2000 of our
portfolio by year of aircraft manufacture calculated by reference to the
appraised value of the aircraft as of November 30, 1999. The weighted average
age of the fleet as of April 15, 2000 was approximately 8.1 years.
<TABLE>
<CAPTION>
% of Portfolio by
Number of Appraised Value as
Year of Manufacture Aircraft of November 30, 1999
------------------- -------- --------------------
<S> <C> <C>
1985...................... 4 3.73%
1986...................... 1 1.38%
1987...................... 4 4.90%
1988...................... 6 8.13%
1989...................... 3 3.49%
1990...................... 4 7.04%
1991...................... 6 11.44%
1992...................... 7 12.78%
1993...................... 11 17.66%
1994...................... 7 14.78%
1995...................... 4+engine 8.85%
1996...................... 4 5.82%
--------- ------
Total................. 61+engine 100.00%
========= ======
</TABLE>
52
<PAGE>
The following table sets forth the exposure as of April 15, 2000 of our
portfolio by seat category calculated by reference to the appraised value of our
aircraft as of November 30, 1999.
<TABLE>
<CAPTION>
% of Portfolio by
Number of Appraised Value as
Seat Category Aircraft of November 30, 1999
---- -------- -------- --------------------
<S> <C> <C> <C>
<50................. F-50 2 0.62%
51-120.............. B737-500, F-70 5 4.18%
121-170............. A320-200, B737-300, B737-400, MD-82, MD-83 28 34.02%
171-240............. A300-600R, A310-300, A321-100, B757-200ER,
B767-200ER, B767-300ER 21 44.01%
241-350............. A330-300, A340-300 2 8.58%
351+................ B747-300B, B747-400 2 7.32%
Other............... B737-300F (freighter), Engine 1+engine 1.27%
--------- ------
Total......................................................... 61+engine 100.00%
========= ======
</TABLE>
MSAF Group Portfolio Analysis
The following table sets forth additional information on our portfolio as
of April 15, 2000 (except for appraised values, which are as of November 30,
1999).
<TABLE>
<CAPTION>
Engine Serial
Region(1) Country of Lessee Lessee Type Configuration Number
--------- ----------------- ------ ---- ------------- ------
<S> <C> <C> <C> <C> <C>
Europe..... France Air Liberte MD-83 JT8D-219 49822
(Developed) France L'Aeropostale B737-300QC CFM56-3C1 23788
Ireland Aer Lingus A330-300 CF6-80E1 54
Ireland TransAer A320-200 V2500-A1 414
Ireland TransAer A320-200 V2500-A1 428
The Netherlands KLM Engine CF6-80C2B6F 704279
The Netherlands KLM Cityhopper F-50 PW100-125B 20233
The Netherlands KLM Cityhopper F-50 PW100-125B 20232
The Netherlands Transavia B737-300 CFM56-3C1 27635
Norway Braathens B737-500 CFM56-3B1 25165
Norway Braathens B737-500 CFM56-3C1 26304
Spain Air Europa B737-400 CFM56-3C1 24707
United Kingdom Air 2000 B757-200ER RB211-535-E4 23767
United Kingdom Air 2000 B767-300ER CF6-80C2B6F 26256
United Kingdom Britannia B757-200ER RB211-535-E4-37 26266
United Kingdom Britannia B767-200ER CF6-80A 23807
United Kingdom JMC Airlines A320-200 V2500-A1 393
United Kingdom JMC Airlines B757-200ER RB211-535-E4-37 24367
United Kingdom Monarch A320-200 CFM56-5A3 446
North
America.... Canada Canada 3000 A320-200 CFM56-5A3 397
(Developed) Canada Air Canada A320-200 CFM56-5A3 279
United States of America Alaska Airlines B737-400 CFM56-3C1 25104
United States of America Alaska Airlines B737-400 CFM56-3C1 25105
United States of America Continental B737-300 CFM56-3B1 26309
United States of America National Airlines B757-200ER RB211-535-E4 24260
United States of America Southwest B737-300 CFM56-3B1 23255
United States of America Southwest B737-300 CFM56-3B1 23256
United States of America TWA B757-200ER PW2037 28160
United States of America TWA MD-83 JT8D-219 49824
53
<PAGE>
Engine Serial
Region(1) Country of Lessee Lessee Type Configuration Number
--------- ----------------- ------ ---- ------------- ------
<S> <C> <C> <C> <C> <C>
United States of America TWA MD-82 JT8D-217C 49825
United States of America TWA MD-83 JT8D-219 49657
Pacific.... Hong Kong Cathay Pacific B747-400 RB211-252H2/19 24955
(Developed) New Zealand Air New Zealand B767-300ER CF6-80C2B6 24875
Singapore Region Air A310-300 JT9D-7R4E1 409
Singapore Region Air A310-300 JT9D-7R4E1 410
Europe and Greece Olympic B737-400 CFM56-3C1 25371
Middle East Hungary Malev F-70 TAYMK620-15 11564
(Emerging) Hungary Malev F-70 TAYMK620-15 11565
Hungary Malev F-70 TAYMK620-15 11569
Turkey Air Alfa A321-100 V2530-A5 597
Turkey Pegasus B737-400 CFM56-3C1 26279
Asia....... China China Hainan B737-300 CFM56-3C1 26295
(Emerging) South Korea Asiana B767-300ER CF6-80C2B6F 24798
South Korea Asiana B767-300ER CF6-80C2B6F 25132
South Korea Asiana B737-400 CFM56-3C1 26291
South Korea Asiana B737-400 CFM56-3C1 26308
Taiwan China Airlines A300-600R PW4158 555
Taiwan China Airlines A300-600R PW4158 625
Taiwan F.E.A.T. B757-200ER PW2037 25044
Latin
America.... Brazil B.R.A. A310-300 JT9D-7R4E1 437
(Emerging) Brazil VASP B737-300 CFM56-3B2 24299
Mexico Aeromexico B757-200ER PW2037 26272
Mexico Aeromexico MD-83 JT8D-219 53050
Mexico Mexicana B757-200ER PW2040 24965
Other...... Fiji Air Pacific B767-300ER CF6-80C2B4 26260
Iceland Icelandair B737-300F CFM56-3B2 23811
Iceland Air Atlanta B747-300B CF6-80C2 24106
Lithuania Lithuanian B737-300 CFM56-3B2 24449
Macau Air Macau A321-100 V2530-A5 557
Malta Air Malta B737-300 CFM56-3B2 25161
Mauritius Air Mauritius A340-300 CFM56-5C3G 94
Off-lease -- -- B737-400 CFM56-3B2 24234
% of
Portfolio by
Appraised
Appraised Value as of
Value as of November
Date of November 30, 30,
Region(1) Manufacture 1999 1999
--------- ----------- ---- -------------
<S> <C> <C> <C>
($MM)
Europe..... Dec-88 19.1 0.95%
(Developed) May-87 19.2 0.96%
Apr-94 80.0 4.00%
May-93 30.6 1.53%
May-94 32.1 1.61%
Jul-95 5.5 0.28%
Oct-91 6.2 0.31%
Oct-91 6.3 0.31%
May-95 27.3 1.36%
Apr-93 19.7 0.99%
Sep-94 21.2 1.06%
Jun-91 24.7 1.23%
Apr-87 29.7 1.48%
Apr-93 63.8 3.19%
Feb-93 41.2 2.06%
Aug-87 29.5 1.47%
Feb-93 30.4 1.52%
Feb-89 31.7 1.58%
Oct-93 30.5 1.52%
North
America.... Mar-93 30.8 1.54%
(Developed) Feb-92 29.9 1.49%
May-93 26.6 1.33%
Jul-93 26.6 1.33%
Dec-94 26.3 1.32%
Dec-88 33.5 1.67%
Jun-85 14.4 0.72%
Jul-85 15.3 0.76%
Jul-96 47.8 2.39%
Mar-89 20.4 1.02%
Mar-89 17.8 0.89%
Apr-88 19.6 0.98%
Pacific.... Sep-91 97.4 4.87%
(Developed) Jun-91 57.0 2.85%
Nov-85 22.3 1.12%
Nov-85 22.7 1.13%
Europe and Jan-92 25.1 1.26%
Middle East Dec-95 13.7 0.68%
(Emerging) Feb-96 14.3 0.72%
Mar-96 14.7 0.73%
May-96 39.7 1.98%
Jun-92 25.7 1.28%
Asia....... Dec-93 25.5 1.27%
(Emerging) Oct-90 53.1 2.66%
Feb-92 60.1 3.01%
Aug-93 27.6 1.38%
Oct-94 27.9 1.39%
Mar-90 46.3 2.31%
Mar-92 51.1 2.55%
May-91 37.5 1.87%
Latin
America.... Nov-86 27.6 1.38%
(Emerging) Nov-88 19.8 0.99%
Mar-94 41.4 2.07%
May-90 19.7 0.99%
Mar-92 39.1 1.96%
Other...... Sep-94 66.6 3.33%
Oct-87 19.8 0.99%
Apr-88 49.0 2.45%
Apr-90 21.7 1.08%
Dec-95 38.9 1.95%
Feb-92 24.6 1.23%
Mar-95 91.6 4.58%
Off-lease Oct-88 21.9 1.09% (2)
-------
Total 2,000.9
=======
</TABLE>
----------
(1) Regions are defined according to designations published by Morgan Stanley
Capital International.
(2) This aircraft was the subject of a non-binding letter of intent
for lease with a carrier based in the Middle East.
Description of the Aircraft
The following table sets forth certain available information
with respect to the body type, number of seats, engine manufacturer,
production years, current fleet, number of aircraft on order and number of
operators of each aircraft type in our portfolio as of April 15, 2000.
54
<PAGE>
<TABLE>
<CAPTION>
Engine Current On Number of
Type & Variant Body Seats Manufacturer(1) Production Years Fleet Order Operators(2)
-------------- ---- ----- --------------- ---------------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Airbus A300-600R.. Wide 220 2XGE 1987- 77 0 13
2XPW 1988- 85 31 9
Airbus A310-300... Wide 180 2XGE 1985- 82 0 21
2XPW 1985- 66 5 21
Airbus A320-200... Narrow 150 2XCFM 1988- 470 209 48
2XIAE 1988- 306 188 50
2XTBA 0 100 0
Airbus A321-100... Narrow 185 2XCFM 1993- 42 5 4
2XIAE 1993- 41 13 9
Airbus A330-300... Wide 295 2XGE 1993- 16 10 4
2XPW 1994- 37 36 9
2XRR 1992- 27 14 6
2XTBA 0 4 1
Airbus A340-300... Wide 295 4XCFM 1992- 144 53 25
Boeing 737-300.... Narrow 130 2XCFM 1984- 1067 0 96
Boeing 737-300F... Freight 0 2XCFM (all conversions) 3 0 3
Boeing 737-300QC.. Narrow 130 2XCFM (all conversions) 29 0 6
Boeing 737-400.... Narrow 150 2XCFM 1988- 477 1 70
Boeing 737-500.... Narrow 110 2XCFM 1989- 384 0 39
Boeing 747-300.... Wide 400 4XGE 1982-1990 16 0 6
4XPW 1982-1988 40 0 12
4XRR 1984-1988 22 0 4
Boeing 747-400.... Wide 412 4XGE 1988- 211 49 26
4XPW 1988- 183 21 12
4XRR 1988- 113 4 6
TBA 0 1 0
Boeing 757-200.... Narrow 200 2XPW 1984- 380 41 17
2XRR 1982- 501 12 42
2XTBA 0 16 0
Boeing 767-200ER.. Wide 180 2XGE 1985- 58 10 13
2XPW 1984- 49 0 12
Boeing 767-300ER.. Wide 220 2XGE 1986- 258 41 42
2XPW 1987- 152 11 23
2XRR 1989- 31 0 2
2XTBA 0 9 0
Fokker 50......... Turbo-
prop 50 2XPW 1987- 188 0 30
Fokker 70......... Narrow 70 2XRR 1994- 43 0 9
MDC MD-82......... Narrow 140 2XPW 1981-1997 584 0 28
MDC MD-83......... Narrow 140 2XPW 1984-1999 278 0 27
</TABLE>
----------
Source: Airclaims Limited.
(1) The above table identifies engine manufacturers by the following
abbreviations:
GE = General Electric
PW = Pratt & Whitney
CFM = CFM International
IAE = International Aero Engines
RR = Rolls Royce
TBA = To be announced
(2) The number of operators does not include lessors.
55
<PAGE>
Acquisition of Additional Aircraft
We may acquire additional commercial passenger or freighter aircraft from
various sellers. Cash flows derived from any additional aircraft and the related
leases will be available to satisfy MSAF's payment obligations, including
payments of interest, principal and premium, if any, on the notes and any
additional notes. There is no limit on the aggregate value of additional
aircraft that may be acquired or on the period in which such additional aircraft
must be acquired. Any acquisition of additional aircraft and related issuance of
additional notes will be subject to certain conditions under the indenture.
The Leases
As of April 15, 2000, we had 61 leases in effect, covering our whole
portfolio except one aircraft which was off-lease. Under one of the lease
contracts, the lessee did not take delivery of the aircraft in until May 16,
2000. Our one off-lease aircraft was subject to a non-binding letter of intent
for lease. Although the lease documentation is fairly standardized in many
respects, significant variations do exist as a result of negotiation with each
lessee. The following is a summary of the principal characteristics of the
leases as of April 15, 2000 (with appraised values as of November 30, 1999).
Contracted lease expiries............ The weighted average remaining
contracted lease term of the portfolio
(weighted by appraised values as of
November 30, 1999 and without giving
effect to purchase options, early
terminations or extensions) was 42
months. We were required to re-lease
48 of the aircraft, representing 75.14%
of the portfolio by appraised value,
before December 31, 2004. The longest
lease was scheduled to expire in May
2010.
Extension options.................... Twenty-nine of the leases included
outstanding options for the lessee to
extend the term of the lease. Assuming
that all these options were exercised
to extend the leases to the latest
possible dates, the weighted average
remaining lease term of the portfolio
would be 58 months and the weighted
average extended rent payable over the
extended period would be 101.62% of the
current contracted rental payments.
Early termination options............ Three of the leases allow the lessee to
terminate its lease before the
scheduled expiration date, provided
certain conditions are met. Assuming
that all these options were exercised
for the earliest possible termination,
the weighted average remaining lease
term of the portfolio would be 41
months.
Purchase options..................... Ten lessees had outstanding options to
purchase a total of 12 aircraft,
representing 28.36% of the portfolio by
appraised value. The latest date on
which a purchase option could be
exercised is June 8, 2008, for a
purchase on March 8, 2009. If these
options were exercised on their
earliest exercise date, in only one
case would the purchase option strike
price be below the note target price
for the applicable aircraft. This
difference would not be significant.
Conditional sale agreement........... One A310-300 aircraft was subject to a
conditional sale agreement under which,
if all payments are made, we must
transfer title to the aircraft on July
15, 2007. As of April 15, 2000, the
present value of all amounts payable
(discounted to March 15, 2000 at a rate
of 7.50%) was approximately $5.1
million less than the note target price
of the aircraft.
Security deposits.................... Under 56 of the lease contracts and one
letter of intent, the lessee has
provided security for its obligations.
Our total security deposits are $39.0
million in cash and $1.8 million in
letters of credit. Together these
security deposits are equivalent to 2.2
months of contracted lease rental
payments. For a discussion
56
<PAGE>
of cash security deposits that ILFC
holds on our behalf, you should refer
to "Liquidity -- ILFC Facility".
Guarantees........................... In various of the leases, where
appropriate, we have received
guarantees or comfort letters from a
lessee's parent company or shareholders
relating to the lessee's payment and
performance obligations under the
lease. In the case of one lessee we
have received a bank guarantee of its
lease obligations in the amount of $38
million.
Third party liability insurance...... The minimum third party liability
limits under the leases range from $250
million to $900 million. We also have
in place our own contingent liability
coverage to cover any liability in
excess of the lessee's coverage or
where a lessee's coverage lapses for
any reason.
Aircraft property insurance.......... The total insured value for all risks
aircraft hull and hull war risks
insurance for the portfolio is $2,566.8
million. In all cases, the sum of the
stipulated lease value and our own
additional coverage in place is at
least equal to the appraised value of
the aircraft and on average is
approximately 128% of the appraised
value of the aircraft. Permitted
deductibles, which generally apply only
in the case of a partial loss, range
from $100,000 to $1,000,000.
Subleases and wet leases............. Under certain of the leases, the lessee
may sublease the aircraft without our
consent, provided certain conditions
are met. Under most of our leases, the
lessee may wet lease the aircraft
without our consent, provided that the
lessee does not part with operational
control of the aircraft. Where there is
a sublease or a wet lease, the lessee
remains fully liable to us for all its
payment and performance obligations
under the lease and we have no
contractual relationship with the
sublessee or the wet lessee. The
following lessees sublease their
aircraft: Britannia (to Ansett
Australia Limited) and Icelandair (to
Falcon Air AB, based in Sweden). To our
knowledge, four lessees wet lease their
aircraft: Transaer (to Libyan
Airlines), Pegasus (to Eurofly, based
in Italy), Air Atlanta Icelandic (to
Iberia, based in Spain) and Region Air
(to Pacific Airlines, based in Vietnam,
and P.T. AWAIR International, based in
Indonesia). Our consent was not
required for these wet leases.
57
<PAGE>
THE COMMERCIAL AIRCRAFT INDUSTRY
The demand for air travel can be measured in Revenue Passenger Miles or
"RPMs". RPMs are calculated by multiplying the number of fare-paying passengers
carried by the distance flown in miles. In 1999, the total number of RPMs flown
was 1,927 billion representing approximately 54 million journeys. The data
presented in this section for 1999 is based on "preliminary" data published by
The Airline Monitor. The air travel markets in the United States and Europe are
the largest in the world. A breakdown of the world market is shown in the chart
below.
[CHART]
The global air travel market grew 6.4% in 1999 and had a compound annual
growth rate from 1990 to 1999 of approximately 5.9%. There is a high degree of
consistency among analysts and competitors about the likely growth of this
industry. Airline Monitor expects growth to continue and is projecting an
underlying growth rate between 2000 and 2005 of 4.5% whereas for the same period
Boeing expects 4.7% and Airbus 4.85%. However, this rate of increase is not
uniform and varies both over time and regionally primarily as a result of
economic factors and the maturity of the relevant market.
For example, the highest rates of annual increase in RPMs in 1998 were on
domestic routes within Europe (14.5%). The greatest declines have been on
international and domestic routes from Asia (2.2% due to the economic crisis).
The following graphs show historical and projected RPMs on a regional basis
as stated in the Airline Monitor.
[CHART]
The world's airlines are now enjoying their sixth consecutive year of
profitability.
[CHART]
In addition to the underlying cyclical economic factors, the operating
environment within the air travel industry has been changing dramatically during
the 1990s. The trend of US-style deregulation and privatization of airlines is
now virtually complete in Europe and is increasingly evident in other countries
and regions all over the world. Deregulation of travel between countries and
regions is also increasing, with open skies agreements now concluded between the
US and 35 countries and recently between the EU and the Mercosur countries in
South America.
The load factor is a measure of how many passengers an aircraft
is carrying as a proportion of the maximum number that it could carry. Load
factors in 1999 were 3.7% higher than in 1990 as the airlines operate much
more efficiently.
World Airline Load Factors
[CHART]
The demand for aircraft has also been strong since 1996 with low
availability of used aircraft and deliveries of new aircraft in subsequent years
reaching historically high levels. Some of this demand is artificially increased
as many of the first and second generation commercial jets are being retired
either because of age or obsolescence. This program of retirals is still in the
fairly early stages with only 918 aircraft retired of 3,480 produced that are
now more than 25 years old. Between 2000 and 2005, the Airline Monitor expects
5,212 new aircraft to be delivered, of which 3,470 will be required for growth
and 1,742 will be required for replacement.
58
<PAGE>
Aircraft Deliveries and Retirals
[CHART]
The primary factor in determining the operating lease rate that can be
obtained for an aircraft is the availability of competing aircraft at that time.
During the last ten years, availability has declined from historically high
levels with the overall surplus in 1999 representing only 4.1% of the world
fleet. In recent years however, there has been a relatively higher availability
of widebody aircraft (as a percentage of the world widebody fleet) than
narrowbody aircraft because of the crisis in Asia. An increase in the number of
new aircraft being delivered combined with the slower overall growth in air
travel has led to a recent increase in the number of aircraft available and, as
a result, to a reduction in the operating lease rates that can be obtained for
competing aircraft.
Aircraft Available for Sale or Lease
[CHART]
59
<PAGE>
OPERATING LEASES
Introduction
Operating leasing has grown steadily over the last decade:
o to facilitate the matching of excess aircraft supply and demand in
different geographical regions;
o to provide short-to-medium term capacity (i.e. for less than the
useful life of an aircraft); and
o to bridge the financing gap for under-capitalized airlines,
typically where financing is not otherwise available.
The following discussion highlights the principal features of an operating
lease. All of our leases generally conform to this description.
Lease Payments and Security
Operating leases require the lessees to pay periodic rentals during the
lease term. Lessees must make payments to the lessor without set-off or
counterclaim, and leases generally include an obligation of the lessee to
gross-up payments under the lease where payments are subject to certain
withholding and other taxes. Leases also contain an indemnification of the
lessor for certain taxation liabilities (including, in some leases, value added
tax and stamp duties, but generally excluding net income tax or its equivalent
imposed on the lessor) and taxation of indemnity payments. Lessees are also
obliged to pay default interest on any overdue amounts. In some cases, the
lessee may exercise certain remedies if the lessor breaches its covenant of
quiet enjoyment.
Lessees generally indemnify the lessor for operating expenses accrued or
payable during the term of the lease, which normally include maintenance,
operating, overhaul, airport and navigation charges, certain taxes, licenses,
consents and approvals, aircraft registration and hull all risks and public
liability insurance premiums. Lessees are obliged to remove liens on the
aircraft other than certain liens permitted under the leases.
Operation of the Aircraft
Operating leases require the lessees to operate the aircraft in compliance
with all laws and regulations applicable to the aircraft. The aircraft generally
must remain in the possession of the lessees, and any subleases of the aircraft
generally must be approved by the lessor. Under many leases, the lessees may
enter into charter or "wet lease" arrangements in respect of the aircraft (i.e.,
a lease with crew and services provided by the lessee) without the lessor's
consent, provided that the lessee does not part with operational control of the
aircraft. Under certain leases, the lessee is permitted to enter into subleases
to specified operators without the lessor's consent, provided that certain
conditions are met.
Leases generally permit lessees to subject the engines, and other equipment
or components in certain cases, to removal or replacement and, in certain cases,
to pooling arrangements (temporary borrowing of equipment), in some cases with
permitted entities (which may include certain manufacturers, suppliers, other
airlines or aircraft operators) without the lessor's consent but subject to
conditions set out in the lease. Lessees may generally deliver possession of the
aircraft, engines and other equipment or components to the manufacturer for
testing or similar purposes, or to a third party for service, maintenance,
repair or other work required or permitted under the lease. The lessor's ability
to repossess the aircraft or engines, equipment or components from a sublessee,
transferee, manufacturer, or other person may be restricted by liens or similar
rights of detention and by applicable bankruptcy and insolvency laws.
60
<PAGE>
Maintenance and Maintenance Reserves
Operating leases generally contain detailed provisions specifying
maintenance standards and the required condition of the aircraft upon
redelivery. In some leases, depending upon the specific maintenance condition of
the aircraft or specified items (airframe, engines, certain components,
auxiliary power unit or landing gear) at redelivery, the lessee may be required
to make certain adjustment payments to the lessor. During the term of a lease,
the lessee is required to ensure that the aircraft is maintained in accordance
with an agreed maintenance program designed to ensure that the aircraft meets
applicable airworthiness and other regulatory requirements in the jurisdiction
in which the aircraft is registered. The agreed maintenance program is generally
performed by the lessee.
In some leases, the lessee is required to provide monthly maintenance
reserves, which are used to reimburse the lessee for significant maintenance
charges, including major airframe and engine overhauls. In leases where there is
no provision for the payment of maintenance reserves, the lessor must rely on
the credit of the lessee or, if available, any credit support, and the ability
of the lessee to return the aircraft in the condition required by the lease upon
termination, to make any required payments based on the aircraft's return
condition upon termination of the related lease and to perform scheduled
maintenance throughout the lease term.
Lessees are generally required under the leases to comply with "ADs", or
airworthiness directives, of the applicable aviation authorities specified in
the leases and with manufacturer's service bulletins, and lessees primarily bear
the cost of compliance. However, the lessor may be required by the lease to
contribute to the cost of certain ADs or manufacturer's service bulletins or to
the cost above a specified threshold.
Indemnification and Insurance of Aircraft
Liability Insurance
In addition to operational indemnities under the lease, operating leases
require lessees to carry insurance for any liabilities arising out of the
operation of the aircraft, including liabilities for death or injury to persons
and damage to property that ordinarily would attach to the operator of the
aircraft. Liability insurance coverage typically includes third party legal
liability, passenger legal liability, baggage legal liability, cargo legal
liability, mail and aviation general third party (including products) legal
liability. Liability insurance coverage is generally subject to customary
industry exclusions.
In some jurisdictions liabilities for risks that lessees insure against may
also attach to the owner of the aircraft whether or not the owner is in any way
responsible for the related loss. In addition, claimants may assert claims
against the aircraft owner on the basis of alleged responsibility for a loss.
Operating leases generally require that lessees indemnify owners against third
party claims, including the costs of defending against such claims. Indemnified
losses include both aircraft operating costs as well as losses to persons and
property resulting from the operation of the aircraft. The latter types of
losses are generally covered by the lessee's liability insurance.
Aircraft Property Insurance
Operating leases also require that lessees carry various types of aircraft
property insurance that are customary in the air transportation industry. The
aircraft property insurance typically includes all risks aircraft hull and hull
war risks insurance (in each case at a stipulated lease value, subject to
adjustment in certain circumstances) and aircraft spares insurance (on a
replacement cost basis). The lessor is permitted, in most cases, to increase the
insured value above the stipulated lease value consistent with industry practice
with the lessee responsible for any increase in the premium. In addition to the
stipulated lease value coverage obtained by the lessee, the lessor may purchase
"total loss only" coverage for certain aircraft. Aircraft property insurance is
also subject to customary industry deductions.
Operating leases generally include provisions defining an event of loss or
a casualty occurrence so that where a total loss of the airframe occurs, with or
without loss of the engines installed on the airframe, the agreed value is
payable by the lessee. This payment is generally funded with insurance proceeds.
However, the industry practice is to treat only a loss of greater than 75% of
the value of the aircraft, including the engines, as a total loss. In the case
of a total loss of
61
<PAGE>
75% or less of the value of the aircraft, the lessee is generally responsible
for the payment of the difference between the insurance proceeds and the
stipulated lease value. Where insurance proceeds do cover a total loss, most
operating leases require that the lessor pay the balance of any insurance
proceeds received under hull all risks or war risks policies to the lessee,
after deducting any amounts payable by the lessee under the lease.
Insurance certificates generally contain a breach of warranty endorsement.
This endorsement ensures that additional insureds continue to be protected even
if the lessee violates one or more of the terms, conditions or warranties of the
insurance policies, provided that the additional insured has not caused,
contributed to or knowingly condoned such breach.
Operating leases may also require that lessees maintain, as part of their
hull war and allied perils insurance, coverage for confiscation or requisition
of the aircraft. This includes confiscation or requisition by the relevant state
of registration. However, in certain countries (including France and China) such
insurance may not be obtainable.
Contingent Liability Coverage
Lessors of aircraft under operating leases may obtain additional contingent
liability coverage. This operates both to cover any liability in excess of the
coverage provided by a lessee's policy and where a lessee's policy lapses for
any reason, including an early termination of a lease and repossession of an
aircraft. The amount of the contingent liability policies may not be the same as
required under the relevant lease and is generally subject to certain
limitations imposed by the air transportation insurance industry.
62
<PAGE>
MSAF GROUP
MSAF is a special-purpose statutory business trust formed on October 30,
1997 under the laws of Delaware for an unlimited duration for certain limited
purposes. These limited purposes include (1) owning all of the equity interest
in various aircraft-owning subsidiaries and (2) acquiring, financing,
re-financing, owning, leasing, re-leasing, selling, maintaining and modifying
the aircraft and any additional aircraft that MSAF acquires in the future. MSAF
group may also enter into certain hedging contracts as described under "Interest
Rate Risk Management" and establish and provide loans or guarantees to, or in
respect of, its subsidiaries and any entities that may be established or
acquired in the future in connection with acquisitions of additional aircraft.
As of April 15, 2000, MSAF had ten direct subsidiaries: MSA I, MSA II, MSA
III, MSA IV, MSA V, MSA VI, MSA VII, Aircraft SPC-5, Inc. (the "aircraft-owning
subsidiaries"), Greenfly (Ireland) Limited and Redfly (UK) Limited (the "leasing
subsidiaries").
MSAF is governed by seven trustees, including four controlling trustees who
are officers of an affiliate of MSDW, two independent trustees and one Delaware
trustee. 100% of the beneficial interest in MSAF is held by MSDW Aircraft
Holdings, an indirect wholly owned subsidiary of MSDW. MSDW Aircraft Holdings
may transfer all or a portion of its beneficial interest in MSAF to a third
party in the future. For more information regarding the ownership and governance
of MSAF, see "Management of MSAF group".
Our registered office is located at 1100 North Market Street, Rodney Square
North, Wilmington, Delaware 19890-0001 care of Wilmington Trust Company,
attention: Corporate Trust Administration and our telephone number is
1-302-651-1000.
63
<PAGE>
MANAGEMENT OF MSAF GROUP
Except to the limited extent described in this prospectus, particularly
upon an event of default under the indenture, neither the trustee nor any
noteholder has any right to participate in the management or affairs of MSAF
group. In particular, they cannot supervise the functions relating to the leases
and the re-lease of the aircraft in MSAF's portfolio, which have generally been
delegated to ILFC under the amended and restated servicing agreement. See "Risk
Factors -- No Executive Management -- Reliance on Third Parties to Manage Our
Business," "Description of the Notes -- Indenture Covenants" and "Description of
the Notes -- Events of Default and Remedies".
Trustees
There are seven trustees of MSAF: a Delaware trustee, two independent
trustees and four controlling trustees. The controlling trustees manage MSAF.
The controlling or independent trustees or directors, as applicable, of each
aircraft-owning subsidiary are the same persons as the controlling trustees and
the independent trustees of MSAF, unless any provisions of local law mandating a
particular citizenship for trustees or directors require otherwise. The initial
controlling trustees and independent trustees were appointed by a subsidiary of
MSDW. Any succeeding or additional controlling trustees and independent trustees
will be appointed by a majority of the then standing controlling trustees.
Transactions or proceedings involving certain insolvency proceedings of MSAF may
only be approved by a unanimous vote of all controlling trustees and all
independent trustees.
The controlling trustees and the independent trustees of MSAF are as
follows:
Name Age Title
---- --- -----
Karl Essig.................... 48 Controlling trustee
Alexander C. Frank............ 42 Controlling trustee
A. Maurice Mason.............. 36 Controlling trustee
C. Scott Peterson............. 40 Controlling trustee
Juan C. O'Callahan............ 66 Independent trustee
Alexander C. Bancroft......... 62 Independent trustee
Karl Essig is a Managing Director and the co-head of the global Securitized
Products Group at MSDW. Mr. Essig joined MSDW in 1980 and has worked in the
London, New York and Tokyo offices on corporate finance, capital markets,
derivatives and securitization transactions. In 1986 he founded Morgan Stanley's
Asset-Backed Finance Group which he headed for five years. In 1992, Mr. Essig
established the International Securitization Group, focusing on transactions in
Europe and Asia, and during 1999 was appointed co-head of the worldwide
business. Mr. Essig is a graduate of Stanford University and the Yale School of
Management.
Alexander C. Frank is a Managing Director in the Corporate Treasury
Department, and the Treasurer of MSDW. Mr. Frank joined MSDW in 1985 and has
worked in the New York and London offices, in the firm's Corporate Treasury and
Corporate Tax Departments. In 1990 he established Morgan Stanley Treasury's
European Capital and Financing activity in London. In 1993 Mr. Frank assumed
responsibility for the firm's Global Capital and Finance function and became the
Treasurer for North and South American activities. In 1998, Mr. Frank was
appointed Treasurer of MSDW. Mr. Frank is a graduate of Dartmouth College and
the University of Michigan School of Business Administration.
A. Maurice Mason is a Managing Director in the Aircraft Group at Morgan
Stanley & Co. International Limited. He joined MSDW's Investment Banking
Division in 1994 where he was responsible for MSDW's corporate finance
activities in the European transportation sector. Prior to joining MSDW, he
spent over six years in the capital markets group at GPA Group plc. Mr. Mason
received a BA, BAI degree from Trinity College, Dublin.
C. Scott Peterson is a Managing Director in the Aircraft Group at Morgan
Stanley & Co. International Limited. Mr. Peterson joined MSDW in 1988 in the
Fixed Income Division. In 1989 he established the Equipment Finance Group to
focus on transactions backed by aircraft and other capital equipment and led
both the Equipment Finance and Liability Management Groups until his transfer to
London in 1996. Mr. Peterson is a graduate of Oregon State University and The
Wharton School.
64
<PAGE>
Juan C. O'Callahan is principal of JOCR, an aviation consultancy based in
Connecticut. He joined The Boeing Company in 1961 after a career as a fighter
pilot with the United States Marine Corps and has since worked at Pacific Air
Lines, World Airways and GPA Group plc (having founded TAI, a forecasting and
valuation consultancy that was acquired by GPA in 1982). He has served on the
boards of America West Inc., Avitas Inc., Pembroke Capital Limited and WorldCorp
Inc. Mr. O'Callahan is a graduate of the University of Pittsburgh, where he
obtained a BSc in Aeronautical Engineering.
Alexander C. Bancroft is a partner of the law firm of Shearman & Sterling.
He specializes in the legal aspects of the financing of aircraft and other
transportation equipment. He joined Shearman & Sterling in 1964 after military
service and became a partner in 1973. Mr. Bancroft is a graduate of Harvard
College and Harvard Law School.
The independent trustees are entitled to participate in all meetings of the
controlling trustees but are only entitled to vote on any action (1) to cause
MSAF or any subsidiary of MSAF to institute any proceeding seeking liquidation
or insolvency or similar proceeding, (2) to consent to any liquidation,
insolvency or similar proceeding instituted against MSAF or any subsidiary of
MSAF, (3) to take certain other actions related to insolvency matters, and (4)
to sell, transfer, or otherwise dispose of, directly or indirectly, any aircraft
where the proceeds received from such sale or transfer are less than certain
targets set forth in the indenture. The unanimous consent of all the controlling
trustees and the independent trustees shall be required to take any action
specified in clauses (1), (2) or (3) above. See "Description of the Notes --
Indenture Covenants -- Bankruptcy and Insolvency".
As is common with many other special purpose companies, MSAF will not have
any employees or executive officers. Accordingly, the controlling trustees will
rely upon the servicer, the administrative agent, the cash manager, the
financial advisor and the other service providers for all asset servicing,
executive and administrative functions pursuant to the respective service
provider agreements.
All trustees will be compensated for travel and other expenses incurred in
the performance of their duties. MSAF will pay each independent trustee $50,000
per annum for their services. The controlling trustees will not receive
remuneration from MSAF for their services.
The controlling trustees have not received any additional cash or non-cash
compensation as salary or bonus for their services as controlling trustees. In
the future, however, controlling trustees may receive an interest in the
beneficial interest of MSAF. None of the trustees of MSAF currently has an
employment contract with MSAF.
Beneficial Ownership of MSAF
All of the beneficial interest in MSAF is currently owned by MSDW Aircraft
Holdings, an indirect wholly-owned subsidiary of MSDW, but MSDW Aircraft
Holdings may transfer all or a portion of the beneficial interest to related or
unrelated third parties in the future.
The Servicer
ILFC and its affiliates cannot be held responsible for any liabilities of
MSAF or its affiliates, including any payments due to you on the notes.
ILFC is engaged in the leasing and management of commercial jet aircraft
under operating leases for its own portfolio as well as for third party lessors.
As of December 31, 1999, adjusted to give effect to MSAF group's acquisition of
all of its portfolio, the portfolio of aircraft managed by ILFC comprised 446
aircraft, of which ILFC and its affiliates owned 357, valued at greater than $18
billion and operated by approximately 130 airlines in more than 55 countries
throughout the world. ILFC has committed to purchase a total of 331 aircraft
from manufacturers, deliverable through 2007. In addition, ILFC is engaged in
the remarketing of commercial jets for its own account, for airlines and for
third party lessors.
ILFC is headquartered in Los Angeles, California, from where its staff of
approximately 95 employees handles all of the leasing, management and
remarketing relationships. ILFC's management services include collecting rental
65
<PAGE>
payments, arranging and monitoring aircraft maintenance performed by others,
technical inspection of aircraft, arranging and monitoring insurance, arranging
for aircraft valuations, registration and deregistration of aircraft, monitoring
compliance with lease agreements and enforcement of lease provisions against
lessees and facilitating delivery and redelivery of aircraft. ILFC may also
arrange the sale of its customers' aircraft to third parties. See "Risk Factors
-- Conflicts of Interest of ILFC".
The table below shows the different aircraft comprising the portfolio
managed by ILFC as of December 31, 1999 by manufacturer and by whether the
aircraft are owned and managed by affiliates of ILFC or managed for third
parties (including MSAF group), and giving effect to MSAF group's acquisition of
all its portfolio.
<TABLE>
<CAPTION>
Other
MSAF ILFC Managed
Aircraft Type and Class Group Fleet(1) Third Parties Total
----------------------- ----- -------- ------------- -----
<S> <C> <C> <C> <C>
Airbus
A300................... 2 6 -- 8
A310................... 3 7 10
A319................... -- 11 1 12
A320................... 6 44 1 51
A321................... 2 29 -- 31
A330-200/300........... 1 23 -- 24
A340................... 1 11 -- 12
Boeing
B737-300/400/500....... 20 82 19 121
B737-600/700/800....... -- 17 -- 17
B747-300............... 1 2 -- 3
B747-400............... 1 11 -- 12
B757-200............... 8 53 2 63
B767-200............... 1 3 -- 4
B767-300............... 5 40 1 46
B777-200............... -- 9 -- 9
MD11................... -- 6 -- 6
MD82................... 1 -- -- 1
MD83................... 4 1 4 9
DC10-30................ -- 2 -- 2
Fokker N.V.
F50.................... 2 -- -- 2
F70.................... 3 -- -- 3
Total.................. 61 357 28 446
Body Type
Widebody............... 15 118 1 134
Narrowbody............. 44 239 27 310
Turboprop.............. 2 -- -- 2
Stage Compliance
Stage 3................ 61 357 28 446
</TABLE>
----------
(1) Certain aircraft included in the ILFC fleet are owned by joint ventures or
pursuant to sale leaseback or other arrangements in which unaffiliated
parties have interests.
ILFC provides services with respect to all of the aircraft in our portfolio
(except where a substitute servicer may perform the services as described below)
under an amended and restated servicing agreement which, among other things,
provides that ILFC will act in accordance with applicable law and with
directions given by MSAF group from time to time in accordance with the
servicing agreement. In addition ILFC agrees to perform its services in
accordance with the ILFC Services Standard and the ILFC Conflicts Standard, as
described below.
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<PAGE>
Pursuant to the servicing agreement, ILFC will not be liable to MSAF group
for any losses arising (1) as a result of an aircraft or engine sold, leased or
purchased on less favorable terms than might have been achieved at any time,
provided such transactions were entered into on the basis of a commercial
decision of ILFC or (2) in respect of ILFC's obligation to apply the ILFC
Conflicts Standard in respect of its performance of the services, except, in
either situation, in the case of wilful misconduct or fraud on the part of ILFC.
See "Risk Factors -- Limitation on ILFC's Liability".
Aircraft Services
ILFC has agreed to:
o engage and maintain the necessary staff and supporting resources
required to perform its services;
o grant MSAF group and its agent, access to its information, programs,
records and personnel to enable MSAF group to monitor its compliance
with the servicing agreement and for general MSAF group business; and
o separate its own funds from the funds of any person within MSAF group.
ILFC provides a wide range of services to MSAF group, including:
o lease marketing, such as remarketing, lease drafting, negotiation and
execution;
o aircraft asset management, such as rent collection, aircraft
maintenance, insurance, contract compliance and enforcement against
current lessees, and accepting delivery and redelivery of aircraft;
o current aircraft sales;
o arranging valuations and monitoring and advising MSAF group on
regulatory developments;
o assisting MSAF group to stay in compliance with certain covenants
under the indenture;
o providing MSAF group with data and information relating to our
aircraft and the commercial aviation industry;
o assistance with any public or private offering and sale of refinancing
notes or additional notes of MSAF;
o legal and other professional services relating to the lease, sale or
financing of our aircraft, amendment modification or enforcement of
our aircraft lease; and
o periodic reporting of operational, financial and other information on
our aircraft and leases.
Operating Guidelines
ILFC does not have any fiduciary or other implied duties to you or MSAF
group, and its obligations are limited to the express terms of the servicing
agreement. In accordance with the express terms of the servicing agreement, ILFC
will act in accordance with applicable law and with MSAF group's directions.
ILFC may exercise such authority as is necessary to give it a practicable
and working autonomy in performing the services and must also comply with the
following two principal contractual standards in performing its services.
(1) ILFC must perform its services with reasonable care and diligence as
if it were the owner of the aircraft consistent with the customary
commercial practice of a prudent international aircraft lessor in the
management servicing and marketing of commercial jet aircraft and
related assets. This is referred to as the "ILFC Services Standard".
67
<PAGE>
(2) If a conflict of interest arises regarding ILFC's management,
servicing or marketing of: (a) any two aircraft in our portfolio or
(b) any aircraft in our portfolio and any other assets owned, managed,
serviced or marketed by ILFC, ILFC is required to notify MSAF and
perform the services in good faith. If the two aircraft and other
assets owned, managed, serviced or marketed by ILFC are substantially
similar in terms of objectively identifiable characteristics that are
relevant for the particular services to be performed, ILFC will not
discriminate among the aircraft or between any of the aircraft in our
portfolio and any other aircraft then owned, managed, serviced or
marketed by ILFC on an unreasonable basis. This is referred to as the
"ILFC Conflicts Standard".
All transactions to be entered into by ILFC on behalf of MSAF group (other
than with other persons within MSAF group) must be at arm's length and on fair
market value terms unless otherwise agreed or directed by MSAF group. Certain
transactions or matters require the specific approval of MSAF group, including:
o sales of (or commitments or agreements to sell) aircraft (other than
as required by a lease);
o the entering into of any new leases (including renewals or extensions,
unless any such lease had originally been approved) if the lease does
not comply with any applicable operating covenants set forth under
"Description of the Notes -- Operating Covenants";
o terminating any lease or leases to any single lessee with respect to
aircraft then having a value in excess of $100 million;
o unless provided for in the applicable budget, entering into any
contract for the modification or maintenance of aircraft where the
costs to be incurred (A) exceed the greater of (i) the estimated
aggregate cost of a heavy maintenance or structural check for similar
aircraft and (ii) available maintenance reserves or other collateral
under the related lease or (B) are outside the ordinary course of MSAF
group's business;
o entering into any capital commitment or confirming any order or
commitment to acquire or acquiring aircraft or engines on behalf of
MSAF group, except, with respect to a replacement engine or a spare
part for an aircraft, (A) if provided for in the applicable budget or
(B) at such times and on such terms and conditions as ILFC deems
reasonably necessary or appropriate and in no greater quantity than
that which is required to enable the aircraft to be leased;
o issuing any guarantee on behalf of, or otherwise pledging the credit
for borrowed money of, any person within MSAF group;
o unless otherwise permitted, entering into any agreement for services
to be provided in respect of aircraft by third parties at MSAF group's
cost outside the ordinary course of ILFC's business, except to the
extent provided for in the applicable budget; and
o incurring or causing to be incurred on behalf of any person within
MSAF group any liability (actual or contingent), unless contemplated
in the applicable budget, pursuant to a transaction of a type for
which MSAF group's specific approval is otherwise required, or
incurred in the ordinary course of MSAF group's business.
Budgets
MSAF group will adopt an annual and a three-year budget each year for all
aircraft. ILFC has agreed to use its best efforts to achieve the annual budget
for each year.
Management Fees and Servicer Expenses
ILFC receives the following fees:
o a monthly retainer fee equal to approximately $250,000,
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<PAGE>
o a monthly fee equal to 1% of the aggregate rent due for any month (or
portion of a month) and
o a monthly fee equal to approximately 1.25% of the aggregate rent
actually paid for the month.
In addition, ILFC receives certain incentive fees based on MSAF group
results and aircraft sales. For the fiscal year ended November 30, 1998 ILFC
received $0.5 million in result-based incentive fees. For the fiscal year ended
November 30, 1999, no result-based incentive fees were paid to ILFC. There were
no sales-based incentive fees for either period.
ILFC also will be reimbursed for certain expenses incurred in connection
with its performance of the services.
Term and Termination
For the 32 aircraft and one engine that we acquired in 1997 and 1998, the
servicing agreement will expire on May 26, 2023. For the 29 aircraft that we
acquired in 2000, the servicing agreement will expire on May 1, 2025.
ILFC may terminate the servicing agreement if:
o MSAF does not pay any amount payable by MSAF within five days of a
delinquency notice;
o MSAF or any of its subsidiaries shall materially breach any of their
obligations under the servicing agreement other than payment
obligations;
o all of the public debt of the MSAF group is repaid or defeased in full
in accordance with the terms of any indenture;
o all of the aircraft in our portfolio are sold;
o an involuntary proceeding under applicable bankruptcy, insolvency,
receivership or similar law against MSAF, any of its subsidiaries or a
substantial part of the property or assets of any person within MSAF
group, continues undismissed for 120 days or any such person shall go
into liquidation, suffer a receiver or mortgagee to take possession of
all or substantially all of its assets or have an examiner appointed
over it, or a petition or proceeding is presented for any of the
foregoing and not discharged within 120 days; or
o a voluntary proceeding is commenced under bankruptcy, insolvency,
receivership or similar law by MSAF or any of its subsidiaries or MSAF
or any of its subsidiaries, consents to the institution of, or fails
within 120 days to contest the filing of, any petition described
above, or files an answer admitting the material allegations of any
such petition, or makes a general assignment for the benefit of its
creditors.
MSAF may terminate the servicing agreement if:
o ILFC materially breaches any of its obligations under the servicing
agreement;
o ILFC fails, within a reasonable period of time, to re-lease an
aircraft upon the termination of any lease or to sell an aircraft upon
commercially reasonable written direction from MSAF;
o all of the public debt of the MSAF group is repaid or defeased in full
in accordance with the terms of any indenture;
o all of the aircraft in MSAF group's portfolio are sold;
o a rating decline occurs as a result of a change of control of ILFC;
o an involuntary proceeding under applicable bankruptcy, insolvency,
receivership or similar law against ILFC or any of its subsidiaries
continues undismissed for 120 days or ILFC goes into liquidation,
suffers a receiver
69
<PAGE>
or mortgagee to take possession of all or substantially all of its
assets or has an examiner appointed over it or if a petition or
proceeding is presented for any of the foregoing and not discharged
within 120 days; or
o a voluntary proceeding is commenced by ILFC under bankruptcy,
insolvency, receivership or similar law or ILFC consents to the
institution of, or fails within 120 days to contest the filing of, any
petition described above, or files an answer admitting the material
allegations of any such petition, or ILFC makes a general assignment
for the benefit of its creditors.
Except where ILFC terminates the servicing agreement because MSAF does not
pay ILFC, the servicing agreement may not be terminated unless a replacement
servicer has been appointed and accepts such appointment. In the event that a
replacement servicer has not been appointed within 90 days after any termination
of the servicing agreement or resignation by ILFC, ILFC may petition any court
of competent jurisdiction for the appointment of a replacement servicer.
Assignment of Servicing Agreement
ILFC and MSAF may not assign their rights and obligations under the
servicing agreement without each other's prior consent.
Priority of Payment of Servicing Fees and Reimbursable Expenditures
ILFC's fees and expenses rank senior in priority of payment to all payments
on the notes.
Corporate Management
Administrative Agent
Cabot Aircraft Services Limited acts as the administrative agent of MSAF
group. Cabot is an indirect wholly owned subsidiary of MSDW.
Cabot is responsible for providing administrative, accounting, bank account
management and calculation and other services to MSAF. Cabot's duties include:
o monitoring the performance of ILFC (including ILFC's compliance with
the servicing agreement) and reporting on such performance to MSAF;
o preparing annual budgets and presenting them to MSAF group for
approval;
o preparing and coordinating reports to investors and to the Securities
and Exchange Commission, including preparing press releases and
managing investor relations with the assistance of outside counsel and
auditors, if appropriate;
o providing the trustee with information required by the trustee to
provide its reports to the noteholders; and
o providing additional services upon the request of MSAF group upon
terms to be agreed at the time of any such request.
Cabot may delegate to a third party one or more of the above administrative
services it is responsible for providing to MSAF group.
Cabot receives a monthly fee equal to 0.5% of the rental payments made by
the lessees under the leases for such month from MSAF group in respect of its
services to MSAF group subject to an annual minimum of $500,000. Cabot is
entitled to indemnification by MSAF group for, and will be held harmless
against, any loss or liability incurred by Cabot arising out of or in connection
with its provision of administrative services to MSAF group (other than through
70
<PAGE>
its own deceit, fraud, gross negligence or wilful misconduct or that of its
officers, directors, agents and employees). MSAF group may remove Cabot at any
time on 120 days' written notice. Cabot may resign on 120 days' written notice
in certain circumstances.
Cash Manager
Bankers Trust Company acts as the cash manager. Subject to certain
limitations and at the direction of MSAF group, Bankers Trust is authorized to
invest the funds held by MSAF group in the accounts in certain prescribed
investments (the "permitted account investments") on permitted terms.
Bankers Trust devotes the same amount of time and attention to and is
required to exercise the same level of skill, care and diligence in the
performance of its services as a prudent businessperson would in administering
such services on its own behalf. Bankers Trust's annual fees are not expected to
exceed $50,000 per annum. Bankers Trust is entitled to indemnification by MSAF
group for, and will be held harmless against, any loss or liability incurred by
Bankers Trust (other than through its own gross negligence (or simple negligence
in the handling of funds), deceit, fraud or wilful misconduct or that of its
officers, directors, agents and employees).
MSAF may remove Bankers Trust at any time on 90 days' written notice as
long as MSAF group has engaged another person or entity to perform the services
that were being provided by Bankers Trust. Bankers Trust may resign on 90 days'
written notice as long as MSAF group has engaged another person or entity to
perform the services that were being provided by Bankers Trust.
Financial Advisor
Morgan Stanley & Co. Incorporated acts as the financial advisor. Morgan
Stanley & Co. Incorporated is a wholly owned subsidiary of MSDW.
The financial advisor is responsible for assisting MSAF group in developing
and implementing its interest rate risk management policies and developing
models for the purposes of analyzing the financial impact of aircraft lease,
sale and capital investment decisions. The financial advisor receives a fee of
$50,000 per annum, payable monthly in arrears in equal installments, from MSAF
group in respect of its services to MSAF group. MSAF or the financial advisor
may terminate the financial advisory agreement on 30 days' written notice.
Delaware Trustee
Wilmington Trust Company acts as agent for service of process in Delaware
and signs certain filings with the Delaware Secretary of State on behalf of MSAF
group, other than Aircraft SPC-5, Inc. and the leasing subsidiaries. Wilmington
Trust maintains MSAF group's principal place of business in Delaware.
71
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information presented in the following
table for the fiscal years ended November 30, 1999 and 1998 and for the period
from October 30, 1997 (date of formation) to November 30, 1997 has been derived
from, and should be read in conjunction with, the audited consolidated financial
statements of MSAF group (including the notes thereto) which, together with the
report of Deloitte & Touche, independent accountants, are included elsewhere
herein. The selected consolidated financial information for the three months
ended February 29, 2000 and February 28, 1999 has been derived from, and should
be read in conjunction with, the unaudited financial statements of MSAF group
(including the notes thereto) which, in the opinion of management, reflect all
adjustments, consisting of only normal, recurring adjustments, necessary for a
fair presentation of such information and which have been prepared in accordance
with the same accounting principles followed in the presentation of MSAF group's
audited financial statements. The statement of operations information for the
three months ended February 29, 2000 is not necessarily indicative of the
results that may be expected for the full fiscal year.
<TABLE>
<CAPTION>
Period from
October 30, 1997 Fiscal Year Fiscal Year Three Months Three Months
(date of formation) ended ended ended ended
to November 30, November 30, November 30, February 28, February 29,
1997 1998 1999 1999 2000
------------------- ------------- ------------- ------------- ------------
(Dollars in
thousands) (unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Lease income, net .............. $ 4,747 $ 120,005 $ 114,651 $ 27,088 $ 25,716
Investment income on
collection account ........... -- 2,156 1,845 431 539
----------- ----------- ----------- ----------- -----------
Total revenues ................. 4,747 122,161 116,496 27,519 26,255
----------- ----------- ----------- ----------- -----------
Expenses:
Interest expense ............... -- 50,533 63,584 16,349 15,245
Depreciation expense ........... 43 38,876 47,060 11,765 11,765
Operating expenses:
Service provider and
other fees ................. -- 9,534 8,568 2,047 1,682
Maintenance and other
aircraft related costs .......... -- 2,969 5,216 1,072 7,429
----------- ----------- ----------- ----------- -----------
Total expenses ................. 43 101,912 124,428 31,233 36,121
----------- ----------- ----------- ----------- -----------
Net income/(loss) ............... $ 4,704 $ 20,249 $ (7,932) $ (3,714) $ (9,866)
=========== =========== =========== =========== ===========
Statement of Cash Flows Data:
Net cash provided by operating
activities ..................... $ -- $ 83,941 $ 43,607 $ 10,721 $ 10,345
Net cash used for investing
activities ..................... (66,370) (887,315) -- -- --
Net cash provided by/(used
for) financing activities ...... 66,370 838,224 (43,338) (10,149) (6,073)
November 30, November 30, November 30, February 28, February 29,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents ....... $ -- $ 34,850 $ 35,119 $ 35,422 $ 39,391
Total Assets .................... 71,074 1,010,492 957,474 996,387 948,938
Total Liabilities ............... 66,369 1,057,241 1,012,155 1,046,850 1,013,485
Total Beneficial Interestholder's
Equity/(Deficit) ............... 4,705 (46,749) (54,681) (50,463) (64,547)
</TABLE>
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<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial information of MSAF group
consists of an unaudited pro forma consolidated balance sheet as of February 29,
2000 and unaudited pro forma consolidated statements of operations for the
fiscal year ended November 30, 1999 and the three months ended February 29,
2000.
The unaudited pro forma consolidated balance sheet was prepared by
adjusting the consolidated balance sheet of MSAF group as of February 29, 2000.
The unaudited pro forma consolidated balance sheet gives effect to (1) the
acquisition of 29 aircraft from a subsidiary of MSDW (27 of such aircraft were
acquired by MSDW from International Lease Finance Corporation, and the
remaining 2 were acquired from an affiliate of GE Capital Corporation), (2) the
issuance of the restricted notes of $1,310 million, (3) the repayment of MSAF
group's $400 million of subclass A-1 notes, and (4) the increase in equity
resulting from capital contributions from a subsidiary of MSDW. The pro forma
adjustments for the purpose of the balance sheet presentation give effect to
such transactions as though they had occurred as of February 29, 2000.
The unaudited pro forma consolidated statements of operations were prepared
by adjusting the consolidated statements of operations of MSAF group for the
fiscal year ended November 30, 1999 and the three month period ended February
29, 2000. The unaudited pro forma consolidated statements of operations give
effect to MSAF group's acquisition of 29 aircraft from a subsidiary of MSDW and
the issuance of the restricted notes. The pro forma adjustments for the purposes
of the statements of operations presentation give effect to such transactions as
though they had occurred at December 1, 1998.
The pro forma adjustments are based upon currently available information
and certain assumptions that management of MSAF group believes are reasonable
under the circumstances. The pro forma statements and accompanying notes should
be read in conjunction with the consolidated financial statements of MSAF group
and the notes thereto included elsewhere in this prospectus. The pro forma
statements do not purport to represent what MSAF group's financial position or
results of operations would have actually been if the aforementioned
transactions in fact had occurred on such date at the beginning of the period
indicated or to project MSAF group's financial position or results of operations
at any future date or for any future period.
<TABLE>
<CAPTION>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
As of February 29, 2000
(Unaudited)
MSAF Group Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- --------
<S> <C> <C> <C>
(Dollars in thousands)
ASSETS
Cash and cash equivalents............................. $39,391 $1,310,000 (1) $60,425 (5)
(412,450) (2)
Receivables: (876,516) (3)
Lease income, net.................................... 2,041 1,493 (3) 3,534
Investment income and other.......................... 183 183
Aircraft under operating leases, net................. 874,286 1,027,484 (3) 1,901,770
Investment in capital lease, net..................... 17,382 17,382
Underwriting and other issuance related costs, net of
amortization......................................... 15,655 12,450 (2) 28,105
-------- ---------- ----------
Total Assets.......................................... $948,938 $1,062,461 $2,011,399
======== ========== ==========
73
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
As of February 29, 2000
(Unaudited)
MSAF Group Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- --------
<S> <C> <C> <C>
(Dollars in thousands)
LIABILITIES AND BENEFICIAL
INTERESTHOLDER'S (DEFICIT)/EQUITY
Payables:
Interest payable to Noteholders...................... $2,397 $2,397
Deferred rental income................................ 5,650 $8,913 (3) 14,563
Liability for maintenance............................. 64,935 50,947 (3) 115,882
Other liabilities..................................... 11,033 7,121 (3) 22,077
3,923 (4)
Notes payable:
Subclass A-1......................................... 400,000 (400,000) (2) --
Subclass A-2......................................... 229,516 229,516
Subclass A-3......................................... 580,000 (1) 580,000
Subclass A-4......................................... 200,000 (1) 200,000
Subclass A-5......................................... 400,000 (1) 400,000
Subclass B-1......................................... 90,044 90,044
Subclass B-2......................................... 75,000 (1) 75,000
Subclass C-1......................................... 99,910 99,910
Subclass C-2......................................... 55,000 (1) 55,000
Subclass D-1......................................... 110,000 110,000
--------- ---------- ----------
1,013,485 980,904 1,994,389
--------- ---------- ----------
Commitments and contingencies
Beneficial Interestholder's (Deficit) / Equity:
Beneficial Interest................................ 1 1
Deemed (Distribution)/Contribution................. (15,305) 85,480 (3) 66,252
(3,923) (4)
Accumulated Deficit................................ (49,243) (49,243)
--------- ---------- ----------
Total Beneficial Interestholder's (Deficit)/Equity. (64,547) 81,557 17,010
--------- ---------- ----------
Total Liabilities and Beneficial Interestholder's
(Deficit)/Equity.................................. $ 948,938 $1,062,461 $2,011,399
========= ========== ==========
</TABLE>
----------
(1) To record the net proceeds from the restricted notes of approximately
$1,310 million.
(2) To record the redemption of MSAF group's subclass A-1 notes and the payment
of $12.5 million of financing and other costs associated with the issuance
of the restricted notes.
(3) To record the purchase of $962.0 million of net assets from a subsidiary of
MSDW (including $1,027.5 million of aircraft, $1.5 million of lease
payments receivable, $8.9 million of deferred rental income, $50.9 million
of maintenance liabilities and $7.1 million of security deposits) and to
record a capital contribution from that subsidiary of MSDW of $85.5
million.
(4) To record the contribution of $3.9 million of interest rate swaps to MSAF
group from a subsidiary of MSDW at book value.
(5) The pro forma increase in MSAF group's cash and cash equivalents of $21.0
million is comprised of the following: an increase in the liquidity reserve
amount of $5.0 million, security deposits of $7.1 million and advance
rental payments of $8.9 million.
74
<PAGE>
<TABLE>
<CAPTION>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal year ended November 30, 1999
(Unaudited)
MSAF Group Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- --------
<S> <C> <C> <C>
(Dollars in thousands)
Revenues:
Lease income, net............................... $114,651 $126,103 (1) $240,754
Investment income on collection account......... 1,845 75 (1) 1,920
-------- -------- --------
Total revenues.................................. 116,496 126,178 242,674
-------- -------- --------
Expenses:
Interest expense................................ 63,584 59,428 (2) 123,012
Depreciation expense............................ 47,060 53,209 (1) 100,269
Operating expenses:
Service provider and other fees............... 8,568 6,305 (1) 14,873
Maintenance and other aircraft related costs.. 5,216 4,569 (1) 9,785
-------- -------- --------
Total expenses.................................. 124,428 123,511 247,939
-------- -------- --------
Net loss......................................... $ (7,932) $ 2,667 $ (5,265)
======== ======== ========
</TABLE>
----------
(1) To record the estimated amount of revenues and expenses resulting from the
acquisition of the 29 aircraft from a subsidiary of MSDW.
(2) To record the interest relating to the issuance of the restricted notes,
net of the elimination of interest expense associated with the repayment of
the subclass A-1 notes.
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<PAGE>
<TABLE>
<CAPTION>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended February 29, 2000
(Unaudited)
MSAF Group Pro Forma Pro Forma
Historical Adjustments Combined
<S> <C> <C> <C>
(Dollars in thousands)
Revenues:
Lease income, net................................. $25,716 $32,647 (1) $58,363
Investment income on collection account.......... 539 - 539
------- ------- -------
Total revenues.................................... 26,255 32,647 58,902
------- ------- -------
Expenses:
Interest expense.................................. 15,245 14,144 (2) 29,389
Depreciation expense.............................. 11,765 13,302 (1) 25,067
Operating expenses:
Service provider and other fees................. 1,682 1,216 (1) 2,898
Maintenance and other aircraft related costs.... 7,429 2 (1) 7,431
------- ------- -------
Total expenses.................................... 36,121 28,664 64,785
------- ------- -------
Net loss........................................... $(9,866) $ 3,983 $(5,883)
======= ======= =======
</TABLE>
----------
(1) To record the estimated amount of revenues and expenses resulting from the
acquisition of the 29 aircraft from a subsidiary of MSDW.
(2) To record the interest relating to the issuance of the restricted notes,
net of the elimination of interest expense associated with the repayment of
the subclass A-1 notes.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
The MSAF group entities were organized in late 1997 and since that time
their principal business activity has been the acquisition of aircraft and the
placement of such aircraft on operating lease. MSAF group's future business is
expected to consist principally of aircraft operating lease activities,
acquisitions of additional aircraft and sales of aircraft. Cash flows generated
from such activities will be used to service interest and principal on the
notes, any refinancing notes and any additional notes but only after various
expenses of MSAF group have been paid for, including any taxes, obligations to
lessees including maintenance obligations, fees and expenses of ILFC and other
service providers and payments to MSAF group's interest rate swap
counterparties.
MSAF group's ability to generate sufficient cash from its aircraft assets
to service the notes will depend primarily on (1) the rental rates it can
achieve on leases and the lessees' ability to perform according to the terms of
those leases and (2) the prices it can achieve on any aircraft sales. MSAF
group's ability to service the notes will also depend on the level of its
operating expenses, including maintenance obligations which will increase as the
aircraft age, and on any unforeseen contingent liabilities arising.
MSAF group's cash receipts and disbursements are determined, in part, by
the overall economic condition of the operating leasing market. The operating
leasing market, in turn, is affected by various cyclical factors including the
level and volatility of interest rates, the availability of credit, fuel costs
and general and regional economic conditions affecting lessee operations and
trading; manufacturer production levels; passenger demand; retirement and
obsolescence of aircraft models; manufacturers exiting or entering the market or
ceasing to produce aircraft types; re-introduction into service of aircraft
previously in storage; governmental regulation; and air traffic control
infrastructure constraints such as limitations on the number of landing slots.
MSAF group's ability to compete against other lessors is determined, in
part, by (1) the composition of its fleet in terms of mix, relative age and
popularity of the aircraft types, (2) operating restrictions imposed by the
indenture and (3) the ability of other lessors, who may possess substantially
greater financial resources, to offer leases on more favorable terms than MSAF
group.
Any statements contained herein that are not historical facts, or that
might be considered an opinion or projection, whether expressed or implied, are
meant as, and should be considered, forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are based on assumptions and opinions concerning a variety of known
and unknown risks. If any assumptions or opinions prove incorrect, any forward-
looking statements made on that basis may also prove materially incorrect.
Acquisition of Additional Aircraft Since Last Quarterly Date
As of February 29, 2000, the total number of aircraft owned by MSAF group
was 32 aircraft and an engine. As of February 29, 2000, 31 aircraft and the
engine were subject to lease contracts (or in one case, a conditional sale
agreement) with 27 lessees in 19 countries. As of February 29, 2000, the
aircraft under three of the lease contracts had not been delivered to the
respective lessee. One of the aircraft was delivered on March 17, 2000, one was
delivered on April 1, 2000 and the third aircraft was delivered on May 16, 2000.
MSAF group's one off-lease aircraft was subject to a non-binding letter of
intent for lease.
On March 15, 2000, MSAF group acquired a portfolio of 29 commercial
aircraft from subsidiaries of MSDW. All but one of the 29 aircraft were
delivered on March 15, 2000. The remaining aircraft, a B737-300 on lease to
Lithuanian Airlines, was subject to a financing that terminated on April 24,
2000 and delivered to MSAF group on May 1, 2000. All of these aircraft were
subject to lease contracts with 24 lessees in 16 countries. The acquisition was
financed by the issuance of additional securitized notes and by a capital
contribution from an indirect wholly-owned subsidiary of MSDW.
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Lessee Difficulties Since Last Quarterly Date
The following discussion gives effect to MSAF's acquisition of aircraft on
March 15, 2000, and is as of April 15, 2000. Significant developments since that
date are discussed below under "--Recent Developments."
As of April 15, 2000, four of our lessees were in arrears. The four
aircraft on lease to these lessees represented 5.34% of the portfolio by
appraised value at November 30, 1999. The total amount of rental payments,
maintenance reserves and other amounts that were in arrears with respect to
these four lessees was $3.6 million. This amount represents 1.62% of our assumed
annual lease rental payments for the next year. We hold security deposits of
$1.9 million against these arrears. The weighted average number of days past due
of such arrears was 83 days. In addition to current arrears, in January 2000,
one lessee of two A320-200 aircraft agreed to restructure rental and maintenance
arrears amounting to $1.3 million. These arrears are scheduled to be repaid
commencing in June 2000.
Regional Analysis of Existing Arrears
The categorization of countries into geographical regions, Developed
Markets, Emerging Markets and Other is determined using MSCI designations.
Europe and Middle East (Emerging)
As of April 15, 2000, MSAF group leased 6.65% of the portfolio by appraised
value at November 30, 1999 in the Europe and Middle East (Emerging) region. One
of the four lessees in arrears, Air Alfa, is based in Turkey. At April 15, 2000,
the total rental and maintenance arrears owed by this lessee was $2.1 million
against which MSAF group holds a security deposit of $0.7 million. The aircraft
represents 1.98% of the portfolio by appraised value at November 30, 1999. The
obligations of Air Alfa under the lease are guaranteed by its parent company,
Kombassan Holdings, and the servicer has instituted legal steps in Turkey to
enforce the guarantee.
Europe (Developed)
As of April 15, 2000, MSAF group leased 27.41% of the portfolio by
appraised value at November 30, 1999 in the Europe (Developed) region. At April
15, 2000, none of the lessees in this region were in arrears.
In January 2000, MSAF group reached an agreement with TransAer to defer
$1.3 million of rental and maintenance obligations. Repayment of the rental
arrears plus interest is scheduled to be made over the three months beginning on
June 1, 2000. MSAF group holds security deposits of $1.0 million against
TransAer's deferred arrears. The aircraft represents 3.14% of the portfolio by
appraised value at November 30, 1999.
Asia (Emerging)
As of April 15, 2000, MSAF group currently leased 16.44% of the portfolio
by appraised value at November 30, 1999 in the Asia (Emerging) region. At April
15, 2000, none of these lessees were in arrears.
Latin America (Emerging)
As of April 15, 2000, MSAF group, leased 7.39% of the portfolio by
appraised value of the portfolio at November 30, 1999 in the Latin America
(Emerging) region (5.02% in Mexico and 2.37% in Brazil). At April 15, 2000, two
of the four lessees in arrears were based in Latin America, both in Brazil.
The rental arrears of a current Brazilian lessee, VASP, were restructured
in March 1999. Repayment of the arrears plus interest was scheduled to begin
August 1999 and end January 2000. On February 10, 2000 the lessee made a payment
of $1.3 million in full settlement of its current and deferred arrears up to
January 31, 2000. As of April 15, 2000, VASP owed $0.4 million in rental against
which MSAF group holds a security deposit of $0.7 million.
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The second current Brazilian lessee has been operating one A310-300 subject
to a capital lease. In August 1999, MSAF group and the lessee agreed to modify
the terms of the existing capital lease by increasing the total rental payments
to be received and extending the lease terms. As of April 15, 2000, the lessee
had not yet paid $1.0 million of current arrears, representing approximately 96
days of rental due. Since February 29, 2000, ILFC has advised us that it is in
the process of repossessing this aircraft.
A former Brazilian lessee, VARIG, negotiated an early termination of its
lease of a B747-300 aircraft in July 1999. The lease was scheduled to expire in
April 2003. The total amount of rental payments and maintenance reserves due
under this lease to July 1999, the date of the termination agreement, was $4.8
million against which we drew down a security deposit of $1.1 million. Under the
terms of the termination agreement, VARIG is scheduled to repay $10.8 million
over eight years to offset arrears of $4.8 million and approximately $6.0
million for maintenance and downtime costs. Provided no default has occurred by
October 2005 under this note payable, the total remaining payments will be
reduced by approximately $1.1 million on a pro-rata basis between October 2005
and October 2007, the scheduled final payment date under the note. The first
payment of $0.4 million under this agreement was due and paid in October 1999.
Maintenance work including repairs to the engines has been completed and the
aircraft has been re-leased for three years to Air Atlanta Icelandic, commencing
on March 17, 2000. This aircraft represented 2.45% of the portfolio by appraised
value at November 30, 1999. Recently, the re-leasing market for the B747-300
aircraft has been severely affected by overcapacity in the widebody market in
general and for this aircraft type in particular. The new lease rate for this
aircraft is approximately 20% of the previous rental, reflecting the significant
fall in demand for this aircraft type and the current oversupply. Future lease
rentals for this type of aircraft will, in part, depend on the state of the
Asian economies, where demand for these aircraft and other widebodies has been
strongest in the past.
TAESA, a former Mexican lessee defaulted on its obligations under its lease
of a B737-400 aircraft and the aircraft was repossessed in December 1999. The
lease was scheduled to expire in May 2001. The total amount of rental payments
and maintenance reserves due under the lease at the date of repossession was
$0.6 million. This amount was partially offset by a security deposit of $0.5
million. This aircraft represents 1.09% of the portfolio by appraised value at
November 30, 1999. On February 21, 2000, a court in Mexico declared TAESA
bankrupt. It is uncertain whether MSAF group will be able to recover the $0.1
million outstanding from TAESA.
North America (Developed)
MSAF group currently leases 15.44% of the portfolio by appraised value at
November 30, 1999 in the North America (Developed) region. At April 15, 2000,
none of the lessees based in North America was in arrears.
On February 2, 2000, Canadian Airlines announced a debt restructuring and
moratorium plan. The plan resulted in the suspension of payments of about $135
million to lenders and aircraft lessors, including MSAF group. In March 2000, we
reached an agreement with the lessee to restructure the lease by slightly
reducing the lease rate effective from February 2000 and extending the term by
four years to May 2010. The lessee's security deposit of $0.3 million was used
to fund the February rental. In March 2000, the lessee resumed rental payments
and also made part payment toward refunding the security deposit balance. At the
same time, the lease was assigned to a subsidiary of Air Canada, Air Canada
Capital Limited. This aircraft, an A320-200, represented 1.49% of the portfolio
by appraised value at November 30, 1999.
Other
MSAF group currently leases 15.61% of the portfolio by appraised value at
November 30, 1999 in the "Other" region. As of April 15, 2000, one of the four
current lessees in arrears was based in the Other region. At April 1, 2000,
maintenance reserves owed by Icelandair were $0.1 million against which MSAF
group holds a security deposit of $0.5 million.
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Recent Developments
Repossessions Since April 15, 2000
Since April 15, 2000 we have repossessed the aircraft on lease to the two
Brazilian lessees, B.R.A. and VASP. Both aircraft have been flown out of Brazil
to a maintenance facility in the US.
The lease with B.R.A. has not yet been terminated by ILFC and continues in
effect until both parties agree a termination agreement. Total arrears owed by
B.R.A., including arrears that were restructured in August 1999, amounted to
$4.9 million. This aircraft is an A310-300 and represents 1.38% of the portfolio
by appraised value at November 30, 1999.
On May 13, 2000, following legal action taken by ILFC, the lease with VASP
was terminated and the aircraft was repossessed. VASP owed rental arrears of
$0.5 million against which we hold security deposits of $0.7 million.
Exercise of Early Termination Option
Braathens has notified MSAF group that it intends to exercise the early
termination option in its lease for one of its aircraft. The aircraft, a
B737-500, is subject to a lease that commenced in April 1998 and was scheduled
to expire in April 2003. The lease will now terminate in April 2001. A
termination fee of one month's rental is payable to MSAF group.
Letter of Intent
As of April 15, 2000, our one off-lease aircraft was subject to a
non-binding letter of intent for lease with a carrier based in the Middle East
that did not result in a lease agreement. However, the aircraft is now the
subject of a non-binding letter of intent for lease with a carrier based in
emerging Europe.
Airworthiness Directive
On May 25, 2000, the United States Federal Aviation Administration issued
an Airworthiness Directive relating to fire safety standards in certain types of
aircraft. The Airworthiness Directive, which applies to our one MD-82 and four
MD-83 aircraft, together representing 4.83% of our portfolio by appraised value
at November 30, 1999, requires operators of those aircraft to replace fire
insulation blankets covered with metalized Mylar. Under the leases of the
affected aircraft, all costs of compliance with Airworthiness Directives are the
obligation of the lessees.
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Results of Operations for the Three Months Ended February 29, 2000, and the
Three Months Ended February 28, 1999
Net Loss
For the three month period ended February 29, 2000, MSAF group incurred a
net loss of ($9.9) million, as compared to a net loss of ($3.7) million for the
three month period ended February 28, 1999. The increase in net loss reflects
lower rental revenues and higher maintenance and other aircraft related costs,
partially offset by a decrease in interest expense.
MSAF group is a Delaware business trust treated as a branch of MS Financing
Inc., an indirect wholly owned subsidiary of MSDW, for U.S. federal, state and
local income tax purposes. As such, MSAF group is not subject to U.S. federal,
state and local income taxes.
Lease Income
Lease income for the three month period ended February 29, 2000 amounted to
$25.7 million as compared to $27.1 million for the three month period ended
February 28, 1999. The decrease in lease income is due to certain aircraft being
re-leased in less favorable market conditions, coupled with lost revenues
associated with four grounded aircraft. These decreases were partially offset by
a lower provision for doubtful accounts.
MSAF group's operating results for the three month period ended February
29, 2000 were adversely affected by provisions for doubtful accounts totaling
$0.9 million. Such provisions were recorded by MSAF group due to financial
difficulties experienced by certain of MSAF group's current lessees, as well as
to reserve against amounts owed to MSAF group by certain of its former lessees
whose aircraft have already been repossessed (see "Lessee Difficulties").
Provisions for doubtful accounts were $3.0 million in the three month period
ended February 28, 1999. Lease income may decline in future periods due to
potential lessee defaults and arrears including those discussed above.
MSAF group records the cash prepayments made by lessees for maintenance as
a component of the liability for maintenance account which appears on the
Interim Condensed Consolidated Balance Sheets. When the lessee incurs
maintenance expenditures, MSAF group must return a corresponding amount of the
prepayment to the lessee. At this time, MSAF group will forward cash to the
lessee, with a corresponding decrease to the liability for maintenance account.
MSAF group will only reimburse the lessee for the cost of maintenance
expenditures to the extent that sufficient prepayments have been made by the
lessee. At the time an aircraft is re-leased to a new lessee, an assessment is
made of the expected maintenance reserve requirements; any excess reserve is
then released to lease income. No maintenance reserves were released to lease
income in the three month periods ended February 29, 2000 and February 28, 1999.
Investment Income
Investment income for the three month period ended February 29, 2000
amounted to $0.5 million as compared to $0.4 million in the three month period
ended February 28, 1999. Investment income represents interest income on MSAF
group's cash and cash equivalents.
Interest Expense
Interest expense, net of swap income of $0.3 million, amounted to $15.2
million for the three month period ended February 29, 2000. Interest expense,
including swap costs of $0.8 million, amounted to $16.3 million for the three
month period ended February 28, 1999. Interest expense relates to the interest
paid on the notes which were issued on March 3, 1998. The decline in interest
expense is due to lower average principal balances of the notes during the three
month period ended February 29, 2000 as compared to the prior year period. The
weighted average interest rate on the Subclass A-1 to D-1 notes during the three
month period ended February 29, 2000 was 6.56% as compared to 6.28% during the
three month period ended February 28, 1999. The average debt in respect of the
Subclass A-1 to D-1 notes during the three month period ended February 29, 2000
was $931.9 million as compared to $973.8 million during the three month period
ended February 28, 1999.
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As of February 29, 2000, MSAF group was a party to seven interest rate
swaps with Morgan Stanley Capital Services Inc. ("MSCS"), a wholly owned
subsidiary of MSDW. In five of these swaps, MSAF group paid a fixed monthly
coupon and received one month LIBOR on a notional balance of $900 million and in
two of these swaps, MSAF group paid one month LIBOR and received a fixed monthly
coupon on a notional balance of $200 million.
Three of the swaps, having an aggregate notional principal amount of $700
million, were accounted for as hedges of the notes. Under these swap
arrangements, MSAF group paid fixed and received floating amounts on a monthly
basis. The fair value of the liability assumed relating to those swaps which
were being accounted for as hedges was deferred and recognized when the
offsetting gain or loss was recognized on the hedged transaction. This amount
and the differential payable or receivable on such interest rate swap contracts,
to the extent such swaps were deemed to be effective hedges for accounting
purposes, were recognized as an adjustment to interest expense.
The remaining four swaps had an aggregate gross notional principal amount
of $400 million. Under these swap arrangements, MSAF group paid/received fixed
and received/paid floating amounts on a monthly basis. MSAF group determined
that these swaps did not qualify for hedge accounting. The fair value of the
liability assumed related to these swaps was accounted for on a mark-to-market
basis with changes in fair value reflected in interest expense.
See "Interest Rate Risk Management" below for more information regarding
MSAF group's swaps positions and hedging policy.
Depreciation
Depreciation expense amounted to $11.8 million for both the three month
periods ended February 29, 2000 and February 28, 1999.
Operating Expenses
Service Provider and Other Fees. Service provider and other fees for the
three month period ended February 29, 2000 were $1.7 million as compared to $2.0
million in the three month period ended February 28, 1999. The most significant
element in both periods was the aircraft servicing fee paid to ILFC, which
amounted to $1.0 million in the three month period ended February 29, 2000 and
$1.3 million in the three month period ended February 28, 1999. A significant
portion of the fees paid to ILFC are calculated as a percentage of contracted
rentals. Accordingly, the lower fees paid to ILFC in the three month period
ended February 29, 2000 reflected the lower level of contracted rental revenues
during the period. MSAF group's service provider expenses also included $0.4
million in respect of administrative agency and cash management fees in both the
three month periods ended February 29, 2000 and February 28, 1999.
Maintenance and Other Aircraft Related Costs. Maintenance and other
aircraft related costs for the three month period ended February 29, 2000 were
$7.4 million as compared to $1.1 million for the three month period ended
February 28, 1999. The increase was primarily attributable to certain
maintenance and redelivery costs to be incurred by MSAF group associated with
two aircraft previously leased to Oman Air and one aircraft previously leased to
TAESA. Such costs are necessary to prepare the aircraft for new lessees (see
"Lessee Difficulties").
Included within maintenance and other aircraft related costs were
insurance, re-leasing and other costs incurred in the three month period ended
February 29, 2000, which amounted to $0.4 million, as compared to $0.6 million
for the three month period ended February 28, 1999. It is expected that
re-leasing costs will increase over the next several months due to costs
relating to reconfiguring aircraft for new lessees upon redelivery.
Results of Operations - Year Ended November 30, 1999
MSAF group's results of operations for the year ended November 30, 1999
("Fiscal 1999") are not directly comparable to those of the year ended November
30, 1998 ("Fiscal 1998") as MSAF group did not own its aircraft portfolio
throughout Fiscal 1998. In addition, the notes were issued on March 3, 1998 and
accordingly, MSAF group did not incur any interest expense for the first three
months of Fiscal 1998.
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Net (Loss) /Income
MSAF group incurred a net loss of $7.9 million in Fiscal 1999 as compared
to net income of $20.2 million in Fiscal 1998. The decrease in net income
primarily reflects higher levels of interest expense, depreciation expense and
maintenance and other aircraft related costs in Fiscal 1999.
MSAF group is a Delaware business trust treated as a branch of MS Finance
Inc. for U.S. Federal, state and local income tax purposes. As such, MSAF group
is not subject to U.S. Federal, state and local income taxes.
Lease Income
Lease income for Fiscal 1999 amounted to $114.7 million as compared to
$120.0 million in Fiscal 1998. MSAF group's lease income for Fiscal 1999 were
adversely affected by provisions for doubtful accounts aggregating $6.4 million.
Such provisions were recorded by MSAF group due to financial difficulties
experienced by certain of its existing lessees, as well as to reserve against
amounts owed to MSAF group by certain of its former lessees whose aircraft have
already been repossessed (see "Lessee Difficulties"). Provisions for doubtful
accounts amounted to $0.7 million for Fiscal 1998. The increase in provisions
for doubtful accounts were partially offset by an increase in lease revenues, as
MSAF group did not own all of the aircraft throughout Fiscal 1998.
Lease income also includes certain maintenance reserve amounts which are
received from certain of MSAF group's lessees. MSAF group records the cash
prepayments made by lessees for maintenance as a component of the liability for
maintenance account which appears on the Consolidated Balance Sheets. When the
lessee incurs maintenance expenditures, MSAF group must return a corresponding
amount of the prepayment to the lessee. At this time, MSAF group will forward
cash to the lessee, with a corresponding decrease to the liability for
maintenance account. MSAF group will only reimburse the lessee for the cost of
maintenance expenditures to the extent that sufficient prepayments have been
made by the lessee. At the time an aircraft is re-leased to a new lessee, an
assessment is made of the expected maintenance reserve requirements; any excess
reserve is then released to lease income.
Investment Income
MSAF group earned investment income of $1.8 million in Fiscal 1999 as
compared to $2.2 million in Fiscal 1998. Investment income has declined as the
excess cash held in March 1998 was utilized to acquire an additional aircraft
during Fiscal 1998, as well as the return of excess cash to investors in respect
of an undelivered aircraft.
Interest Expense
Interest expense, including swap costs of $5.3 million as compared to $2.2
million in Fiscal 1998, amounted to $63.6 million in Fiscal 1999 as compared to
$50.5 million in Fiscal 1998. Interest expense relates to the cost of the notes
which were issued on March 3, 1998. The weighted average interest rate on the
Subclass A-1 to D-1 notes during Fiscal 1999 was 6.03% as compared to 6.33% in
Fiscal 1998. The average debt in respect of the Subclass A-I to D-1 notes
outstanding during Fiscal 1999 was $956.0 million as compared to $1,012.2
million in Fiscal 1998. Interest expense is higher in Fiscal 1999 because the
notes were issued on March 3, 1998 and accordingly, MSAF group did not incur any
interest expense for the first three months of Fiscal 1998.
As of November 30, 1999, MSAF group was a party to seven interest rate
swaps with MSCS. In five of these swaps, MSAF group paid a fixed monthly coupon
and received one month LIBOR on a notional balance of $900 million and in two of
these swaps, MSAF group paid one month LIBOR and received a fixed monthly coupon
on a notional balance of $200 million.
MSAF group was a party to one additional interest rate swap with MSCS with
a notional balance of $100 million that matured on November 15, 1999. In that
swap MSAF group paid a fixed monthly coupon and received one month LIBOR.
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All eight original swaps were originally entered into by MSCS, with an
internal swaps desk as the counterparty, on November 12, 1997 and February 19,
1998, respectively. On March 3, 1998, all eight of the original swaps were
assigned to MSAF group by MSCS and on such date such swaps had an aggregate fair
value of approximately $(15.3) million. No consideration was paid to or received
by MSAF group in connection with the assumption of these swap positions. MSAF
group has recorded the assumption of these interest rate swaps at their fair
value by recognizing a liability within other liabilities in its Consolidated
Balance Sheets, with a corresponding charge to deemed distribution, a component
of Beneficial Interestholder's Deficit.
Three of the original swaps assumed from MSCS having an aggregate notional
principal amount of $700 million were accounted for as hedges of its obligations
under the notes. Under these swap arrangements MSAF group paid fixed and
received floating amounts on a monthly basis. The fair value of the liability
assumed relating to those swaps was deferred and recognized when the offsetting
gain or loss was recognized on the hedged transaction. This amount and the
differential payable or receivable on such interest rate swap contracts, to the
extent such swaps were deemed to be effective hedges for accounting purposes,
were recognized as an adjustment to interest expense. The portion of these swaps
not deemed to be hedges for accounting purposes were accounted for on a
mark-to-market basis with changes in fair value reflected in interest expense.
The remaining four swaps assumed by MSAF group had an aggregate gross
notional principal amount of $400 million at November 30, 1999. Under these swap
arrangements, MSAF group paid/received fixed and received/paid floating amounts
on a monthly basis. MSAF group determined that these swaps do not qualify for
hedge accounting. The fair value of the liability assumed related to these swaps
is accounted for on a mark-to-market basis with changes in fair value reflected
in interest expense.
Notwithstanding the different accounting treatments for the various swaps,
all eight swaps were required to hedge MSAF group's interest rate exposure on an
economic basis. In November 1997, MSAF group had contracted to purchase the
aircraft and their associated fixed rate leases but, prior to the time of
pricing the notes, was exposed to movements in interest rates with respect to
its anticipated liabilities under the notes. Accordingly, in November 1997, six
swaps with a notional balance of $1,000 million were entered into by MSCS under
which MSAF group would pay fixed amounts and receive floating amounts. Once the
notes were priced in February 1998, MSAF group could determine that to hedge the
interest rate exposure associated with its variable rate debt it required swaps
with a notional balance of approximately $800 million. Accordingly, in February
1998, MSCS entered into re-balancing swaps with a notional amount of $200
million under which MSAF group would pay floating amounts and receive fixed
amounts.
The net economic effect of assigning all eight swaps with a gross notional
amount of $1.2 billion to MSAF group on March 3, 1998 was to fix MSAF group's
interest rate liability at November 12, 1997, shortly after the date MSAF group
incurred its exposure to movements in interest rates when it agreed to purchase
the aircraft with associated fixed rate leases. See "Interest Rate Risk
Management" below for more information regarding MSAF group's swaps positions
and hedging policy.
Depreciation
The charge for depreciation in Fiscal 1999 amounted to $47.1 million as
compared to $38.9 million in Fiscal 1998. The increase in Fiscal 1999 reflects
that MSAF group did not own all of the aircraft throughout the entire Fiscal
1998 period.
Operating Expenses
Service Provider and Other Fees. Service provider and other fees for Fiscal
1999 were $8.6 million as compared to $9.5 million in Fiscal 1998. The most
significant element in both periods was the aircraft servicing fee paid to ILFC,
which amounted to $5.2 million in Fiscal 1999, and $6.0 million in Fiscal 1998.
The fee paid in Fiscal 1998 included an initial upfront fee of $2.0 million paid
to ILFC at the inception of the Servicing Agreement. MSAF group's service
provider expenses also included $1.6 million in respect of administrative agency
and cash management fees in Fiscal 1999 as compared to $1.3 million in Fiscal
1998. These fees were lower in Fiscal 1998 as MSAF group did not own all of the
aircraft throughout that period.
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Maintenance and Other Aircraft Related Costs. Maintenance and other
aircraft related costs in Fiscal 1999 amounted to $5.2 million as compared to
$3.0 million in Fiscal 1998. The increase in Fiscal 1999 primarily reflected
additional maintenance and redelivery costs incurred by MSAF group associated
with an aircraft previously leased to Guyana Airways. Such costs were necessary
to prepare the aircraft for a new lessee. In the next six months it is likely
that maintenance disbursements will increase due to an increase in the number of
anticipated maintenance events.
Included within maintenance and other aircraft related costs were
insurance, re-leasing and other costs which amounted to $2.5 million in Fiscal
1999 as compared to $1.0 million in Fiscal 1998. The increase reflects a higher
level of re-leasing events during Fiscal 1999. It is expected that re-leasing
costs will increase proportionately over the next several months due to costs
relating to reconfiguring aircraft for new lessees upon redelivery.
Results of Operations - Year Ended November 30, 1998
MSAF group's results of operations for Fiscal 1998 and the period from
October 30, 1997 (date of formation) to November 30, 1997 ("Fiscal 1997") are
discussed below. The results for Fiscal 1998 and Fiscal 1997 are not directly
comparable since Fiscal 1997 only reflects one month of operations.
Net Income
Net income for Fiscal 1998 was $20.2 million. Fiscal 1997's net income was
$4.7 million.
Lease Income
Lease income for Fiscal 1998 amounted to $120.0 million. Many of the
aircraft were not owned by MSAF group for the entire year. During the year,
there was a loss in lease rental revenues caused by four aircraft on the ground
("AOG") ($2.0 million). Four aircraft had been repossessed from Western Pacific
Airlines, Transaero and Pan Am Airlines (formerly Carnival) but were all subject
to signed lease agreements as of November 30, 1998. The four aircraft were
placed on lease with Olympic Airways, VASP, TAESA and Flying Colours. Part of
the AOG period was spent performing maintenance work on all four aircraft prior
to re-leasing.
Lease income for Fiscal 1997 was $4.7 million, primarily reflecting a gain
of $4.6 million relating to an aircraft leased to a customer under a sales-type
capital lease.
Investment Income
MSAF group earned investment income of $2.2 million in Fiscal 1998.
Investment income is expected to decline in future periods because excess cash
has now either been used to acquire the aircraft or refunded to investors in
respect of one undelivered aircraft.
Interest Expense
Interest expense, including swap costs of $2.2 million, amounted to $50.5
million in Fiscal 1998. Interest expense relates to the cost of the notes which
were issued on March 3, 1998 and, therefore, only outstanding for approximately
nine months in the period. The weighted average interest rate on the subclass
A-1 to D-1 notes during Fiscal 1998 was 6.33% and the average debt in respect of
the subclass A-1 to D-1 notes outstanding during Fiscal 1998 was $1,012.2
million.
Depreciation
The charge for depreciation in Fiscal 1998 amounted to $38.9 million. The
charge is expected to be proportionately higher in future periods given that
MSAF group did not own all of the aircraft throughout Fiscal 1998.
Depreciation expense was $0.04 million in Fiscal 1997, which was
attributable to the three aircraft owned by MSAF group during that period.
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Operating Expenses
Service Provider and Other Fees. Service provider and other fees for Fiscal
1998 were $9.5 million. The most significant element was the aircraft servicing
fee paid to ILFC, which amounted to $6.0 million for the year and included an
initial upfront fee of $2.0 million paid to ILFC at the inception of the
Servicing Agreement. A significant portion of the fees payable to ILFC are
calculated as a percent of rental revenue actually received. Accordingly, the
fees paid to ILFC reflected the lower rental revenue caused by AOGs and
undelivered aircraft during the period. MSAF group's service provider expenses
also included $1.3 million in respect of administrative agency and cash
management fees.
Maintenance and Other Aircraft Related Costs. Maintenance and other
aircraft related costs in Fiscal 1998 amounted to $3.0 million. These costs
reflected additional maintenance work that was performed on the four aircraft
which were repossessed. This work included an airframe structural check for
certain of the aircraft and the installation of new landing gear.
Included within maintenance and other aircraft related costs were
insurance, re-leasing and other costs incurred in Fiscal 1998, which amounted to
approximately $1.0 million.
Financial Resources and Liquidity
See Appendix 2 for more information regarding the cash performance of MSAF
group for the year ended November 30, 1999. See Appendix 3 for more information
regarding the cash performance of MSAF group for the three months ended February
29, 2000.
Liquidity
MSAF group's cash and cash equivalents at February 29, 2000 were $39.4
million. Of this amount, $25 million represents the cash portion of the
Liquidity Reserve Amount (as defined below) and $14.4 million represents rental
and maintenance receipts and cash held for accrued expenses.
In addition to the $25 million cash portion at February 29, 2000, the
Liquidity Reserve Amount also contained $39.6 million of undrawn credit and
liquidity facilities from MSDW and ILFC.
MSAF group's cash and cash equivalents balances at November 30, 1999 were
$35.1 million. Of this amount, $25 million represents the cash portion of the
liquidity reserve amount (as defined below) and $10.1 million represents rental
and maintenance receipts and cash held for accrued expenses.
In addition to the $25 million cash portion at November 30, 1999, the
liquidity reserve amount also contained $40.4 million of undrawn credit and
liquidity facilities from MSDW and ILFC.
Cash Flows from Operating Activities
Operating cash flows depend on many factors including the performance of
lessees and MSAF group's ability to re-lease aircraft, the average cost of the
notes, the effectiveness of MSAF group's interest rate hedging policies and
whether MSAF group will be able to refinance certain subclasses of Notes that
may not be repaid with lease cash flows.
Net cash provided by operating activities for the three month period ended
February 29, 2000 amounted to $10.3 million, principally reflecting non-cash
depreciation expense of $11.8 million, a net loss of ($9.9) million and an
increase in the liability for maintenance account of $7.5 million.
Net cash provided by operating activities for the three month period ended
February 28, 1999 amounted to $10.7 million, principally reflecting non-cash
depreciation expense of $11.8 million, a net loss of ($3.7) million and an
increase in the provision for doubtful accounts of $3.0 million.
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Net cash provided by operating activities in Fiscal 1999 amounted to $43.6
million, principally reflecting non-cash depreciation expense of $47.1 million,
a net loss of ($7.9) million, and provision for doubtful accounts of $6.4
million.
Net cash provided by operating activities in Fiscal 1998 amounted to $83.9
million, principally reflecting non-cash depreciation expense of $38.9 million,
net income of $20.2 million, and changes in maintenance liabilities of $13.2
million and deferred rental income of $7.4 million.
Cash Flows from Investing and Financing Activities
In both the three month periods ended February 29, 2000 and February 28,
1999, MSAF group did not utilize any cash for investing activities.
Cash flows used for financing activities were $6.1 million in the three
month period ended February 29, 2000 and $10.1 million in the three month period
ended February 28, 1999. In both periods, net cash used for financing activities
reflected repayments of principal on the notes.
In Fiscal 1999, MSAF group did not utilize any cash for investing
activities while in Fiscal 1998, cash of $887.3 million was used to acquire
aircraft.
In Fiscal 1999, the $43.3 million of cash used for financing activities
reflected repayments of principal on the notes. In Fiscal 1998, net cash flows
provided by financing activities were $838.2 million, reflecting proceeds
received from the issuance of notes, repayment of borrowings from MS Finance
Inc. and repayments of principal on the notes.
Indebtedness
At February 29, 2000, MSAF group's indebtedness primarily consisted of the
subclass A-1 to D-1 notes in the amount of $929.5 million. At November 30, 1999,
MSAF group's indebtedness primarily consisted of the subclass A-1 to D-1 notes
in the amount of $935.5 million.
Liquidity Reserve Amount
The "liquidity reserve amount" is intended to serve as a source of
liquidity for MSAF group's maintenance reimbursement obligations, security
deposit return obligations, operating expenses, contingent liabilities and note
obligations. The liquidity reserve amount may be funded with cash and letters of
credit, guarantees or other credit support instruments ("eligible credit
facilities") provided by, or supported with further eligible credit facilities
provided by, a person (an "eligible provider") whose short-term unsecured debt
is rated P-1 by Moody's, A-1+ by Standard & Poor's, or D-1+ by DCR or is
otherwise designated as an eligible provider by the controlling trustees. Both
the ILFC facility discussed below under "--ILFC Facility" and the MSDW facility
discussed below under "--MSDW Facility" are eligible credit facilities and
comprise part of the liquidity reserve amount. There are currently no other
eligible credit facilities in place.
The liquidity reserve amount was approximately $64.6 million on February
29, 2000. The liquidity reserve amount was approximately $65.4 million on
November 30, 1999. The "minimum liquidity reserve amount" may be funded with
cash and with eligible credit facilities and was approximately $15 million in
cash on February 29, 2000. The liquidity reserve amount and the minimum
liquidity reserve amount may be increased or decreased from time to time for any
reason (including upon acquisitions of additional aircraft) by an action of the
controlling trustees in light of changes in, among other things, the condition
of the aircraft, the terms and conditions of the leases, the financial condition
of the lessees, sales of aircraft and prevailing industry conditions; provided
that MSAF group will obtain confirmation in advance in writing from the rating
agencies that any proposed reduction in the liquidity reserve amount or the
minimum liquidity reserve amount will not result in a lowering or withdrawal by
any of the rating agencies of their respective ratings of any class of notes.
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If the balance of cash on deposit, together with the amount available for
drawing under any eligible credit facilities, should fall below the liquidity
reserve amount at any time (including as a result of MSAF group's determination
that the liquidity reserve amount should be increased, as required by the rating
agencies or otherwise), MSAF group may continue to make all payments, and any
credit or liquidity enhancement facilities may be drawn to fund such payments,
including required payments on the Notes, which rank prior to, or equally with,
payments of the minimum principal payment amount on the class D notes under the
indenture and any permitted accruals other than in respect of modification
payments, provided that the balance of cash on deposit, together with the amount
available for drawing under any eligible credit facilities, does not fall below
the minimum liquidity reserve amount at its then current level. "Modification
payments" refers to any capital expenditures for the purpose of effecting any
optional improvement or modification of any aircraft, or for the optional
conversion of any aircraft from a passenger aircraft to a freighter or mixed-use
aircraft, for the purpose of purchasing or otherwise acquiring any engines or
parts outside of the ordinary course of business. "Permitted accruals" refers to
amounts in respect of expenses and costs that are not regular, monthly recurring
expenses, including modification payments and refinancing expenses, if any,
anticipated to become due and payable in any future interest accrual period.
However, the balance of cash on deposit, together with the amount available for
drawing under any eligible credit facilities, may fall below the minimum
liquidity reserve amount at its then current level and MSAF group may continue
to make payments of, and any credit or liquidity enhancement facilities may be
drawn to fund such payments, all accrued and unpaid interest on any subclass of
the most senior class of notes then outstanding to avoid an event of default,
with respect to the notes and, on the final maturity date of any subclass
thereof, principal of any subclass of the most senior class of notes then
outstanding to avoid an event of default with respect to the notes.
Amounts drawn under any eligible credit facility will either be repayable
at the third level in the priority of payments, as set forth in the indenture
before the first collection account top-up (any such facility, a "primary
eligible credit facility") or at the 11(th) level in the priority of payments,
before the second collection account top-up (any such facility, a "secondary
eligible credit facility"). The "first collection account top-up" is the amount,
if positive, equal to (A) the minimum liquidity reserve amount less (B) amounts
available for drawing under any primary eligible credit facilities. The "second
collection account top-up" is the amount, if positive, equal to (A) the
liquidity reserve amount less (B) an amount equal to cash amounts reserved at
the third level in the priority of payments plus amounts available for drawing
under any eligible credit facilities.
The liquidity reserve amount and the minimum liquidity reserve amount have
been determined largely based on an analysis of historical experience,
assumptions regarding MSAF group's future experience and the frequency and cost
of certain contingencies in respect of the aircraft that we currently own, and
are intended to provide liquidity for meeting the cost of maintenance
obligations and non-maintenance, aircraft-related contingencies such as removing
regulatory liens, complying with airworthiness directives and repossessing and
re-leasing aircraft. In analyzing the future impact of these costs, assumptions
have been made regarding their frequency and amount based upon historical
experience. There can be no assurance, however, that historical experience will
prove to be relevant in the future or that actual cash that we receive in the
future will not be significantly less than that assumed. Any significant
variation may materially adversely affect our ability to make payments of
interest and principal on the notes.
If at any time the aggregate outstanding principal balance of the Notes is
less than or equal to the liquidity reserve amount, the balance of funds, if
any, in the collection account will be distributed in accordance with the
priority of payments.
On March 15, 2000, in connection with the acquisition of additional
aircraft and the issuance of the restricted notes, the liquidity reserve amount
increased to approximately $125.2 million and the minimum liquidity reserve
amount increased to approximately $30 million.
ILFC Facility
Under an amended and restated custody and loan agreement ILFC will hold all
cash security deposits paid with respect to the aircraft in our portfolio except
(1) amounts that ILFC determines in good faith to be no longer held on behalf of
a lessee, whether upon expiry of or default under the applicable lease or
otherwise, (2) any cash security deposits in an amount exceeding three months'
rent with respect to a single aircraft and paid by a single lessee and (3)
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certain security deposits that ILFC has transferred to MSAF group. ILFC will
retain any interest accruing on amounts of aircraft security deposits that it
holds.
In addition ILFC will make loans to us which we may use for the same
purposes as those for which the liquidity reserve amount may be applied,
including to pay interest and minimum principal payment amounts payable under
the indenture on the notes. ILFC's obligation to make such amounts available
shall be limited to the ILFC facility commitment, which was approximately $29.6
million on February 29, 2000. The ILFC facility commitment was equal to (1) at
any time before an early termination of the servicing agreement for a reason
other than a sale of all the aircraft in our portfolio or the repayment or
defeasance of our debt, the sum of (A) $10 million plus (B) total security
deposits held by ILFC for our benefit at the time minus (C) all drawings that we
have previously made under the ILFC facility that are required to be repaid to
ILFC but not repaid at the time and (2) after either of those events, $10
million minus all ILFC facility drawn amounts required to be repaid to ILFC but
not repaid at such time.
The ILFC facility is a secondary eligible credit facility, so on the
payment date following any drawing on the ILFC facility, we will be obligated,
to the extent there are available collections remaining after payment of the
minimum principal payment amount on the class D notes under the indenture, to
repay amounts drawn under the ILFC facility to ILFC, together with accrued
interest at 3% per annum, calculated on the basis of a 360-day year consisting
of twelve 30-day months and compounded daily.
ILFC's agreement to provide the ILFC facility will expire on the earliest
of (1) May 1, 2025, (2) a sale of all the aircraft in our portfolio and (3) the
repayment or defeasance of all our debt.
ILFC's short-term unsecured debt is currently rated P-1 by Moody's, A-1+ by
Standard & Poor's and D-1+ by DCR, so it is an eligible provider. At any time
and for so long as ILFC is not an eligible provider, ILFC's obligations under
the ILFC facility will be supported by an eligible credit facility satisfactory
to MSAF group provided by an eligible provider at ILFC's expense.
On March 15, 2000, in connection with the acquisition of additional
aircraft and the issuance of the restricted notes, the ILFC facility commitment
was increased to approximately $52.1 million.
MSDW Facility
Under the MSDW facility, MSDW will make loans to us which we may use for
the same purposes as those for which the liquidity reserve amount may be
applied, including to pay interest and minimum principal payment amounts on the
notes. MSDW's obligation to make loans shall be limited to the MSDW facility
commitment, which, on February 29, 2000, was equal to the sum of (1) $10 million
minus (2) all drawings that we have previously made and not repaid under the
MSDW facility.
The MSDW facility is a secondary eligible credit facility, so on the
payment date following any drawing on the MSDW facility, we will be obligated,
to the extent that there are available collections remaining after payment of
the minimum principal payment amount on the class D notes, to repay amounts
drawn under the MSDW facility to MSDW, together with accrued interest at 3% per
annum, calculated on the basis of a 360-day year consisting of twelve 30-day
months and compounded daily.
MSDW's agreement to provide the MSDW facility will expire on the earlier of
(1) a sale of all the aircraft and (2) the repayment or defeasance of all our
debt. MSDW has been designated by the controlling trustees as an eligible
provider. MSDW's long-term unsecured debt is currently rated Aa3 by Moody's, A+
by Standard & Poor's and AA by DCR.
On March 15, 2000, in connection with the acquisition of additional
aircraft and the issuance of the restricted notes, the MSDW facility commitment
was increased to $30 million.
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Other Facilities
There are currently no primary eligible credit facilities in place. We may
put in place other eligible credit facilities from time to time, each of which
shall be designated by the controlling trustees as a primary eligible credit
facility or a secondary eligible credit facility. In addition, we may from time
to time put in place other credit or liquidity enhancement facilities which are
not eligible credit facilities. Amounts drawn under any such other facilities
are payable at the 11(th) level in the order of priorities, before the second
collection account top-up.
Interest Rate Sensitivity
MSAF group's principal market risk exposure is to changes in interest
rates. This exposure arises from its notes and the derivative instruments used
by MSAF to manage interest rate risk.
The terms of each subclass of the notes, including the outstanding
principal amount and estimated fair value as of February 29, 2000 were as
follows:
<TABLE>
<CAPTION>
Outstanding
Principal Amount Annual Expected Final Estimated Fair
at February 29, Interest Rate Payment Final Maturity Value at
Subclass Of Note 2000 (payable monthly) Date Date February 29, 2000
---------------- ---------------- ----------------- ------------------ --------------- -----------------
$(000's)
<S> <C> <C> <C> <C> <C>
Subclass A-1 (1). $400,000 LIBOR+0.21% March 15, 2000 March 15, 2023 $400,000
Subclass A-2..... 229,516 LIBOR+0.35% September 15, 2005 March 15, 2023 229,085
Subclass B-1..... 90,044 LIBOR+0.65% March 15, 2013 March 15, 2023 87,610
Subclass C-1..... 99,910 6.90% March 15, 2013 March 15, 2023 85,236
Subclass D-1..... 110,000 8.70% March 15, 2014 March 15, 2023 95,700
</TABLE>
----------
(1) The subclass A-1 notes were refinanced on March 15, 2000.
Interest Rate Risk Management
MSAF's policy is not to be adversely exposed to material movements in
interest rates. Our leasing revenues are generated primarily from rental
payments, which are currently entirely fixed but may be either fixed or floating
with respect to future leases. In general, an interest rate exposure arises to
the extent that our interest obligations in respect of our notes do not
correlate with rental payments for different rental periods, including rental
payments attributable to existing and future leases. Future leases are relevant
because the duration of our obligations under our floating rate notes is
significantly longer than the duration of lease income under our fixed rate
leases. We currently manage this exposure by entering into swaps and purchasing
options to enter into swaps. In the future we may also use other derivative
instruments. Currently, our aim is to manage the exposure created by our
floating interest rate obligations given that future lease rates on new leases
may not be repriced at levels which fully reflect changes in market interest
rates in the previous lease period. Accordingly, our current swap portfolio
tries to minimize the risk created by our longer term floating interest rate
obligations and measures that risk by reference to the duration of those
obligations and the expected sensitivity of future lease rates to future market
interest rates.
The controlling trustees are responsible for reviewing and approving the
overall interest rate management policies and transaction authority limits. Our
financial advisor, Morgan Stanley & Co. Incorporated, assists us in developing
and implementing our interest rate risk management policies.
Current Swap Portfolio
As of February 29, 2000, MSAF group was a party to seven interest rate
swaps with Morgan Stanley Capital Services, Inc. In five of these swaps MSAF
group paid a fixed monthly coupon and received one month LIBOR and in two of
these swaps MSAF group paid one month LIBOR and received a fixed monthly coupon
on the notional balances as set out below.
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<TABLE>
<CAPTION>
Estimated Fair
Fixed Value
Fixed Monthly Monthly at February 29,
Notional Balance Effective Date Maturity Date Pay Rate Receive Rate 2000
---------------- -------------- ------------- -------- ------------ -----------------
($000's) (%) (%) ($000's)
<S> <C> <C> <C> <C> <C>
$300,000 November 12, 1997 November 15, 2000 6.1325 -- $ 602
200,000 November 12, 1997 November 15, 2002 6.2150 -- 4,078
200,000 November 12, 1997 November 15, 2004 6.2650 -- 7,366
150,000 November 12, 1997 November 15, 2007 6.3600 -- 8,036
50,000 November 12, 1997 November 15, 2009 6.4250 -- 3,060
150,000 February 19, 1998 November 15, 2007 -- 5.860 (12,496)
50,000 February 19, 1998 November 15, 2009 -- 5.905 (4,881)
</TABLE>
On March 15, 2000, in connection with the acquisition of additional
aircraft and the issuance of the restricted notes, MSAF group became a party to
six additional interest rate swaps, in which it pays a fixed monthly coupon and
receives one month LIBOR on the notional balances as set forth below.
<TABLE>
Fixed Monthly Fixed Monthly
Notional Balance Effective Date Maturity Date Pay Rate Receive Rate
---------------- -------------- ------------- -------- ------------
($000's) (%) (%)
<S> <C> <C> <C> <C>
$100,000 January 24, 2000 November 22, 2006 7.3365 --
100,000 January 24, 2000 November 22, 2009 7.4450 --
100,000 January 24, 2000 November 22, 2011 7.4600 --
100,000 January 24, 2000 November 22, 2014 7.3550 --
100,000 January 24, 2000 November 22, 2019 7.3690 --
200,000 February 25, 2000 February 25, 2002 7.1200 --
</TABLE>
Policy Review
We regularly review our hedging requirements. In the future we expect to
seek to enter into further swaps or unwind part or all of the existing and any
future swaps. In addition, if we acquire additional aircraft, we will need to
rebalance our position.
Counterparties
We will monitor counterparty risk on an ongoing basis. Counterparties will
be subject to the prior approval of the controlling trustees. Our counterparties
are currently all affiliates of MSDW. Future counterparties may consist of the
affiliates of major U.S. and European financial institutions (including
special-purpose derivative vehicles) which have credit ratings, or which provide
collateralization arrangements, consistent with maintaining the ratings of our
notes.
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DESCRIPTION OF THE NOTES
The following description is a summary of the provisions of all of our
outstanding notes, the indenture, the security trust agreement, the cash
management agreement and other agreements. It does not restate these agreements
in their entirety. We urge you to read the indenture and the security trust
agreement because these agreements define your rights as holders of the notes.
The following discussion uses terms that have specific definitions in the
indenture and other transaction agreements. You should refer to the Index of
Defined Terms beginning on page I-1 for a glossary of the defined terms used in
this prospectus.
General
We have issued the notes in registered form only and in minimum
denominations of $100,000 and integral multiples of $1,000 in excess of
$100,000.
The notes are obligations of MSAF only and are not secured by the aircraft.
The notes do not represent obligations of any lessee, MSDW, the trustee or ILFC.
Bankers Trust Company is the trustee under the indenture.
Form
MSAF will issue each subclass of notes as one or more global notes. Each
global note will be registered in the name of Cede & Co., as nominee of DTC, and
will be deposited with Bankers Trust Company, the trustee, as custodian for DTC.
Beneficial interests in the notes therefore will be in electronic, book-entry
form and shown only on, and transfers thereof will be effected only through,
records maintained by DTC or its nominee and its participants.
You will receive a definitive note in exchange for your book-entry
interests only under the circumstances described under "Book-Entry Registration,
Global Clearance and Settlement -- Definitive Notes". You should also refer to
"Book-Entry Registration, Global Clearance and Settlement" for a description of
how book-entry interests in the notes and definitive notes may be held and
transferred and how payments on them will be distributed.
Ratings
Each subclass of notes is rated as of the date of this prospectus as
follows:
<TABLE>
Rating Agencies
------------------------------------
Standard&Poor's Moody's DCR
--------------- ------- ---
<S> <C> <C> <C>
Subclass A-2 Notes...... AA Aa2 AA
Subclass A-3 Notes...... AA Aa2 AA
Subclass A-4 Notes...... AA Aa2 AA
Subclass A-5 Notes...... AA Aa2 AA
Subclass B-1 Notes...... A A2 A
Subclass B-2 Notes...... A A2 A
Subclass C-1 Notes...... BBB Baa2 BBB
Subclass C-2 Notes...... BBB Baa2 BBB
Subclass D-1 Notes...... BB Ba2 BB
</TABLE>
The ratings of the notes address the likelihood of the timely payment of
interest and the ultimate payment of principal and premium, if any, on the
notes. The rating agencies have not rated our ability to pay step-up interest on
any subclass of the notes. The ratings assigned to the notes do not address the
effect of any imposition of any withholding tax on any payments under the
leases, the notes or otherwise.
A rating is not a recommendation to buy, sell or restricted notes because
the ratings do not address market price or suitability for a particular investor
and may be subject to revision, suspension or withdrawal at any time by the
assigning rating agency. If a rating agency lowers, suspends or withdraws its
rating of any subclass of notes, no person or entity has any obligation to
support MSAF's obligations under the notes in any way.
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Payments and Distributions
On each payment date, the trustee will pay (or will instruct a paying agent
appointed in Luxembourg to pay) to the noteholders the amount of interest,
principal and any premium then due on the notes of each subclass, so long as the
trustee or paying agent confirms that it has received these amounts by 1:00 p.m.
(New York time) on the payment date. If the trustee or the paying agent confirms
receipt of the payment after that time, then it will pay to the noteholders
these amounts on the business day after the business day it received the
payment. With respect to a payment date other than the final payment date
relating to any subclass of notes, the trustee or paying agent will make
relevant payments to the noteholders of record on the record date immediately
preceding such payment date. The final distribution with respect to any note,
however, will be made only upon presentation and surrender of such note by the
noteholder or its agent (including any holder in street name) at the office or
agency of the trustee or paying agent. So long as the notes are listed on the
Luxembourg Stock Exchange, we must appoint and maintain a paying agent in
Luxembourg.
Payment of Principal and Interest
General
The notes are direct obligations of MSAF and are not secured by the
aircraft. Our only sources of payment for the notes and our other obligations
are:
o the payments made by the lessees under the leases;
o proceeds from any sales or other dispositions of our assets;
o net payments to us received under our swap agreements (and any other
hedging instruments we may enter into);
o interest earned on the investment of cash balances; and
o net cash proceeds received from the sale of refinancing notes.
The notes are subordinated to expenses and other obligations we have,
according to the order of priorities that we describe under "-- Priority of
Payments". Each class and subclass of notes has the priority given to it
according to the priority of payments in the indenture. On any payment date we
may not make any payment of principal, interest or any premium on any class of
notes unless we have also made all payments ranking higher in the priority of
payments on that date. The subordination provisions of the indenture may not be
amended or modified without the agreement of each swap provider, each holder of
a class of notes that is affected by the amendment or modification and each
holder of any class of notes that ranks senior to an affected class. The
priority of the expenses and payments under swap agreements may not be amended
or modified under any circumstances.
If an event of default occurs, then the holders of a class of notes (except
the class A notes) may not give a default notice or exercise any other remedy
until all amounts owed by us under the more senior classes of notes have been
paid.
Under the leases, the lessees must make rental and other payments and
related collateral payments directly to the rental account held in the name of
the security trustee. This amount will then be transferred, within one business
day of receipt, to the collection account, except for limited amounts that must
be left on deposit to comply with local laws. Any amounts that we receive that
are required to be segregated will be transferred to the lessee funded account.
Unsegregated amounts that we receive will be transferred directly to the
collection account. On the basis of our assumptions, we expect these amounts
will be sufficient to pay the principal, interest and any premium, on the notes
and all other amounts payable by us to the trustee, the swap providers and the
service providers, in each case when and as due.
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Interest
Each note bears interest on the outstanding principal balance, payable
monthly in arrears on each payment date. An interest accrual period is the
period from and including a payment date up to but excluding the next payment
date. The final interest accrual period for each subclass of notes will end on
but exclude the final maturity date or the date upon which all principal,
interest and any premium on such subclass of notes is paid in full. Each
subclass of notes will bear interest for each interest accrual period at the
rate per annum set forth on page 2 of this prospectus.
Interest on the subclass A-3, A-4, A-5, B-1 and B-2 notes will be
calculated on the basis of a 360-day year and the actual number of days elapsed
in an interest accrual period. Interest on the subclass C-1, C-2 and D-1 notes
will be calculated on the basis of one-twelfth of an annual interest payment on
the outstanding principal balance and in the case of an incomplete interest
accrual period on the basis of a 360-day year consisting of twelve 30-day
months.
If we do not repay the subclass A-3, A-4 or B-2 notes in full on or before
their expected final payment date, additional interest will accrue on the
subclass A-3 and A-4 notes at the rate of 1.00% per annum and on the subclass
B-2 notes at the rate of 1.50% per annum, until such notes are repaid in full.
We refer to this additional interest as "step-up interest". We may also issue
additional notes or refinancing notes that will accrue step-up interest after
their expected final payment date. Step-up interest will be subordinated to
other amounts payable on the class A, B, C and D notes, including accrued and
unpaid interest, the Minimum Principal Payment Amount and the Scheduled
Principal Payment Amount. The rating agencies have not rated our ability to pay
step-up interest.
Reference Agency Agreement
For the purpose of calculating the rate of interest payable on the subclass
A-2, A-3, A-4, A-5, B-1 and B-2 notes, we have entered into a reference agency
agreement with the trustee, Bankers Trust Company as reference agent and the
cash manager. The reference agent determines LIBOR for each interest accrual
period on a reference date, the date that is two business days before the
payment date on which the interest accrual period begins.
Under the reference agency agreement, the reference agent determines LIBOR
as follows:
On each reference date, the reference agent will determine LIBOR as the per
annum offered rate for deposits in U.S. dollars for a period of one month that
appears on the display designated as page "3750" on the Telerate Monitor (or
such other page or service as may replace it for the purpose of displaying LIBOR
of major banks for U.S. dollar deposits) at approximately 11:00 a.m. (London
time).
If this offered rate is replaced by the corresponding rates of more than
one bank, then the determination of LIBOR shall be made on the basis of the
average of the rates (being at least two) that appear. If these rates do not
appear or the Telerate page is unavailable, the reference agent will request
that each of the banks or a substitute reference bank in London provide the
reference agent with its offered quotation to prime banks for dollar deposits in
London for the next interest accrual period as at 11:00 a.m. (London time) on
the reference date. In this case, the floating rate of interest for each
subclass of notes will be the average of the quotations received (at least two)
plus the applicable interest spread over LIBOR (and step-up interest, if
payable).
If one or no reference bank provides a quotation, the reference agent will
select New York City banks which provide quotations for their U.S. dollar
lending rate to leading European banks on the reference date for the next
interest accrual period. In this case, the interest rate for the next interest
accrual period will be the average of these quotations plus the applicable
interest spread over LIBOR (and step-up interest, if payable). If the banks
selected do not provide these quotations, the interest rate will be the rate
that applied to the last interest accrual period.
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Once it determines the interest rate, the reference agent will calculate
the interest amount for the interest accrual period for the subclass A-2, A-3,
A-4, A-5, B-1 and B-2 notes as:
Interest amount = P x I x N
--------
360
where:
P = outstanding principal balance of the subclass at the beginning of the
interest accrual period, as estimated by the reference agent
I = applicable interest rate for the subclass for the interest accrual period
and
N = number of days in the interest accrual period
The reference agent's determination of LIBOR, the interest rate and the
interest amount for the subclass A-2, A-3, A-4, A-5, B-1 and B-2 notes (in the
absence of negligence, wilful default, bad faith or manifest error) will be
conclusive and binding upon all parties.
For the subclass A-2, A-3, A-4, A-5, B-1 and B-2 notes, the reference agent
will give notice of applicable LIBOR, the payment date, the interest rate for
the relevant interest accrual period and the amount of interest on the subclass
to MSAF, the listing agent for the Luxembourg Stock Exchange and the cash
manager. Holders of the subclass A-2, A-3, A-4, A-5, B-1 and B-2 notes may
obtain such information at the offices of the listing agent or paying agent in
Luxembourg or otherwise in the cash reports provided to noteholders by the
trustee on the second business day before each payment date and any other date
for distribution of any payments with respect to the notes.
If the reference agent does not or is unable to determine the interest rate
and amount for an interest accrual period as described above, the administrative
agent will determine such rate of interest or calculate such interest amount in
accordance with the provisions described above.
MSAF reserves the right to terminate the appointment of the reference agent
at any time on 30 days' notice and to appoint a replacement reference agent in
its place. Notice of any such termination will be given to the holders of the
subclass A-2, A-3, A-4, A-5, B-1 and B-2 notes. The reference agent may not be
removed or resign its duties unless a successor has been appointed.
Principal Amortization
For each class of notes, only to the extent that there are sufficient funds
in the collection account, principal will be distributed on each payment date
equal to the sum of the following amounts:
o the Minimum Principal Payment Amount;
o the Scheduled Principal Payment Amount;
o the Supplemental Principal Payment Amount (only applicable to the
class A and class B notes); and
o redeemed principal as described below in paragraphs (21) through (24)
under "-- Priority of Payments".
If we issue any additional notes or refinancing notes, each issuance will
be a new subclass of the relevant class of notes.
In the following discussion, we use the defined terms "Assumed Portfolio
Value" and "Adjusted Portfolio Value". These terms have the following meanings:
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For each payment date, the "Assumed Portfolio Value" will equal the sum of
the Assumed Values of all aircraft in the portfolio on the calculation date
preceding the payment date. On that date, the "Assumed Value" of an aircraft
will be calculated as follows:
Assumed Value = IAV x DF(t)
-----
DF(c)
where:
IAV = the "initial appraised value" of that aircraft,
DF(t) = the depreciation factor for that aircraft on the relevant
calculation date and
DF(c) = the depreciation factor for that aircraft on the relevant
acquisition date
For each aircraft, "initial appraised value" means the average of three
appraised base values of the aircraft as of a date not more than six months
before the date we acquired the aircraft.
For each aircraft, the depreciation factor at time "t" will be calculated
as follows:
( ( t ) )
DF(t) = ( 1 ( --- ) ) x 1.02(t)
( ( EUL ) )
where:
t = age of the aircraft in years and
EUL = the expected useful life of the aircraft (which we assume is 25 years);
provided that the depreciation factor shall not be less than zero at any time.
The depreciation factors produce a "depreciation curve" that assumes that
the value of an aircraft will decline at an accelerating rate as the aircraft
ages. We have used the depreciation factors described above solely for the
purpose of determining repayments of principal of the notes. They are not
intended to predict or conform to actual declines in aircraft values over any
period. Furthermore, variables used to calculate the depreciation factor will
change as the composition of the portfolio changes through acquisitions and
sales of aircraft. Finally, we may in the future apply different depreciation
factors or alternative methodologies to express the assumed decline in values of
additional aircraft. In addition, the Minimum Class Percentages, the Scheduled
Class Percentages and the Supplemental Class Percentages for the class A and
class B notes and Minimum Target Principal Balances and Scheduled Target
Principal Balances for the class C and class D notes will change as additional
aircraft are acquired. The Pool Factors and the Extended Pool Factors for each
subclass that are described below will not change as the composition of the
portfolio changes.
For each payment date, the "Adjusted Portfolio Value" will equal the sum of
the Adjusted Values of all aircraft in the portfolio on the calculation date
preceding the payment date. On that date, the "Adjusted Value" of an aircraft
will be calculated as follows:
Adjusted Value = AAV x DF(t)
-----
DF(A)
where:
AAV = the "average appraised value" of that aircraft,
DF(t) = the depreciation factor for that aircraft on the relevant calculation
date and
DF(A) = the depreciation factor for that aircraft on the date of the most recent
appraisal.
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For each aircraft, "average appraised value" means the average of three
appraised base values of that aircraft as of the date of the most recent
appraisal.
Minimum Principal Payment Amount. For each class of notes, on each payment
date, the "Minimum Principal Payment Amount" will be calculated as follows:
Minimum Principal Payment Amount = OPB - MTPB
where:
OPB = the outstanding principal balance of such class and
MTPB = the "Minimum Target Principal Balance" for such class as described below;
provided that the Minimum Principal Payment Amount may not be
less than zero on any payment date.
The "Minimum Target Principal Balance" will be calculated
differently for each class of notes.
For the class A and class B notes, the Minimum Target Principal
Balance will be calculated as follows:
Minimum Target Principal Balance = MCP x APV
where:
MCP = the "Minimum Class Percentage" as set forth in Appendices 6 and 7 to this
prospectus and
APV = the "Assumed Portfolio Value" for the payment date as defined above.
You should refer to Appendix 5 to this prospectus for a schedule of the
Assumed Portfolio Value for each month through the final maturity date of the
notes.
In the case of the class A notes only, if the outstanding principal balance
of the class A notes (including any additional notes and refinancing notes) is
greater than the Adjusted Portfolio Value (as described above), then the Minimum
Target Principal Balance of the class A notes will be equal to the Scheduled
Target Principal Balance of the class A notes (as described below).
For the class C and class D notes, the Minimum Target Principal Balance for
each payment date is set out in Appendices 8 and 9 to this prospectus.
Scheduled Principal Payment Amount. For each class of notes, on each
payment date, the "Scheduled Principal Payment Amount" will be calculated as
follows:
Scheduled Principal Payment Amount = OPB - STPB
where:
OPB = the outstanding principal balance of such class (after giving effect to
any payment of the Minimum Principal Payment Amount for such class) and
STPB = the "Scheduled Target Principal Balance" for such class as described
below;
provided that the Scheduled Principal Payment Amount may not be less than zero
on any payment date.
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The "Scheduled Target Principal Balance" will be calculated differently for
each class of notes.
For the class A notes, on each payment date, the Scheduled Target Principal
Balance will be calculated as follows:
Scheduled Target Principal Balance = SCP x AAPV
where:
SCP = the "Scheduled Class Percentage" on that payment date, as set forth in
Appendix 6 to this prospectus and
AAPV = the lesser of (A) the Assumed Portfolio Value on that payment date and
(B) 105% of the AdjustedPortfolio Value on that payment date
For the class B notes, on each payment date, the Scheduled Target Principal
Balance will be calculated as follows:
Scheduled Target Principal Balance = SCP x APV
where:
SCP = the Scheduled Class Percentage on that payment date, as set forth in
Appendix 7 to this prospectus and
APV = the Assumed Portfolio Value on that payment date.
For the class C and class D notes, on each payment date, the
Scheduled Target Principal Balance is set out in Appendices 8 and 9 to this
prospectus.
Supplemental Principal Payment Amount. For the class A and class B notes,
on each payment date, the "Supplemental Principal Payment Amount" will be
calculated as follows:
Supplemental Principal Payment Amount = OPB - SupTPB
where:
OPB = the outstanding principal balance of such class (after giving effect to
any payment of the Minimum Principal Payment Amount and the Scheduled
Principal Payment Amount for such class) and
SupTPB = the "Supplemental Target Principal Balance" for such class as described
below;
provided that the Supplemental Principal Payment Amount may not be less than
zero on any payment date.
For the class A and class B notes, on each payment date, the "Supplemental
Target Principal Balance" will be calculated as follows:
Supplemental Target Principal Balance = SCP x APV
where:
SCP = the "Supplemental Class Percentage" on that date, as set forth in
Appendices 6 and 7 to this prospectus and
APV = the Assumed Portfolio Value on that date.
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Allocation of Principal Among Subclasses of Notes; Intra-Class Priority of
Payments
If, on a payment date, we must pay a principal amount on a class of notes
according to the order of priorities, then the available amount will be
allocated between relevant subclasses in the following order of priority. The
"remaining principal balance" of any subclass is the outstanding principal
balance of that subclass on the applicable payment date after giving effect to
any payments ranking higher in either this order of priorities or the order of
priorities among classes described in "-- Priority of Payments" and the
"remaining allocation" is the amount of available collections being allocated
among subclasses, after giving effect to any payments ranking higher in this
order of priorities.
(1) First, to each subclass in order of the subclass that was issued first,
the Extension Amount for that subclass. The "Extension Amount" will be
calculated as follows:
Extension Amount = RPB - (EPF x IPB)
where:
RPB = the remaining principal balance of the subclass,
EPF = the "Extended Pool Factor" for the subclass, as set forth in Appendix 11
to this prospectus and
IPB = the initial principal balance of the subclass at the time it was issued;
provided that the Extension Amount may not be less than zero.
If two or more subclasses were issued on the same date, available
collections will be applied to each of those subclasses proportionally according
to, but not to exceed, the Extension Amounts of those subclasses.
(2) Second, to each subclass, any remaining allocation proportionally
according to the amount of but not more than the Pool Factor Amount for that
subclass. The "Pool Factor Amount" will be calculated as follows:
Pool Factor Amount = RPB - (PF x IPB)
where:
RPB = the remaining principal balance of the subclass,
PF = the "Pool Factor" for the subclass, as set forth in Appendix 10 to this
prospectus and
IPB = the initial principal balance of the subclass at the time it was issued;
provided that the Pool Factor Amount may not be less than zero.
(3) Third, to each subclass with an expected final payment date on or
before the payment date, in order of the subclass that was issued first, any
remaining allocation.
If two or more subclasses were issued on the same date, the remaining
allocation will be applied to them in order of the subclass with the earliest
expected final payment date. If two or more of those subclasses have the same
expected final payment date, then the remaining allocation will be applied
proportionally according to the remaining principal balances of these
subclasses.
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(4) Fourth, to each subclass with an Excess Amortization Date (as set forth
below) on or before the payment date, any remaining allocation proportionally
according to the remaining principal balances of these subclasses.
(5) Fifth, to each subclass in order of the earliest expected final payment
date, any remaining allocation.
If two or more subclasses have the same expected final payment date, then
available collections will be applied proportionally to those subclasses
according to the remaining principal balances of these subclasses.
The "Excess Amortization Date" for each subclass of the notes is as set out
below:
Subclass of Notes Excess Amortization Date
----------------- ------------------------
Subclass A-2...................... April 15, 1998
Subclass A-3...................... March 15, 2002
Subclass A-4...................... March 15, 2003
Subclass A-5...................... April 15, 2000
Subclass B-1...................... April 15, 1998
Subclass B-2...................... March 15, 2007
Subclass C-1...................... March 15, 2013
Subclass C-2...................... October 15, 2016
Subclass D-1...................... March 15, 2010
Refinancing
We may repay any subclass of notes, in whole or in part, on any date with
the proceeds of the issuance of any refinancing notes issued in accordance with
the "Limitation on Indebtedness" covenant under the indenture. The amount we
will repay in connection with the refinancing of any subclass of notes will be
equal to the redemption price for such subclass that would be payable if we were
to redeem the notes on the refinancing date plus accrued and unpaid interest.
At least five days but not more than 30 days before the proposed
refinancing date, the trustee will give notice of the refinancing to each holder
of such subclass of notes in accordance with the notice provisions contained in
the indenture. In connection with any refinancing, we will deposit in the
refinancing account an amount equal to the redemption price, plus an amount
sufficient to pay or provide for all accrued and unpaid interest as of the
refinancing date. Each notice of refinancing will state:
o the applicable refinancing date;
o the redemption price of the notes to be repaid and the amount of
accrued but unpaid interest payable;
o that notes of the subclass to be repaid must be surrendered; and
o that, unless we default in the payment of the redemption price and
any accrued and unpaid interest, interest will cease to accrue on
the subclass of notes to be refinanced, on and after the refinancing
date. Once a notice of refinancing is published, each subclass of
notes to which it applies will become due and payable on the
refinancing date at their redemption price, together with accrued
and unpaid interest.
We intend to refinance the subclass A-3, A-4 and B-2 notes on their
expected final payment dates by issuing and selling refinancing notes in the
capital markets. If we are unable to repay any subclass A-3, A-4 or B-2 notes in
full at their expected final payment dates, we will pay additional interest of
1.00% per annum on the subclass A-3 or A-4 notes and 1.50% per annum on the
subclass B-2 notes, until such notes are repaid in full. However, our failure to
refinance the subclass A-3, A-4 or B-2 notes by their expected final payment
dates will not constitute an event of default. If we are unable to refinance the
subclass A-3, A-4 or B-2 notes on their expected final payment dates, then that
subclass will thereafter be entitled to a principal repayment schedule intended
to ensure that the remaining outstanding principal balance of the subclass A-3,
A-4 or B-2 notes will be repaid in full on or before their final maturity date.
Redemption
Optional Redemption. On any payment date, we may, at our election, redeem
any subclass of the notes out of any amounts other than available collections
(including proceeds from refinancing notes or from third parties), in whole or
in part, at the applicable "redemption price" plus accrued but unpaid interest.
In the case of an optional redemption:
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o the redemption price of the subclass A-2, A-3, A-4, A-5, B-1 and B-2
notes will be the outstanding principal balance of the subclass
being redeemed multiplied by the redemption premium set out in the
table below;
o the redemption price of the subclass C-1 and C-2 notes will be the
higher of:
o the discounted present value of Scheduled Principal Payment
Amounts and interest from the redemption date to the applicable
expected final payment date, discounted at the applicable Treasury
yield plus 1.00%
or
o the outstanding principal balance on the redemption date;
o the redemption price in respect of a redemption of the subclass D-1
notes occurring before March 15, 2003 will equal the higher of:
o the discounted present value of Scheduled Principal Payment
Amounts of the subclass D-1 notes and interest through, but not
including March 15, 2003, plus the product of the applicable
redemption premium set out in the table below and the assumed
outstanding principle balance for March 15, 2003 discounted at a
rate equal to the Treasury yield plus 1.00%
or
o the outstanding principal balance on the redemption date; and
o the redemption price in respect of a redemption of the subclass D-1
notes occurring on or after March 15, 2003 will be the outstanding
principle balance on the redemption date being redeemed multiplied by
the redemption premium set out in the table below.
<TABLE>
<CAPTION>
Redemption Premium
---------------------------------------------------------------------------------------
Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Redemption Date A-2 Notes A-3 Notes A-4 Notes A-5 Notes B-1 Notes B-2 Notes D-1 Notes
--------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
On or after March 15, 2000. 101.00% 101.00% 101.50% 101.50% 102.00% 101.75% --
On or after March 15, 2001. 100.50% 100.50% 101.00% 101.00% 101.50% 101.50% --
On or after March 15, 2002. 100.00% 100.00% 100.50% 100.75% 101.00% 101.25% --
On or after March 15, 2003. -- -- 100.00% 100.50% 100.50% 101.00% 105.25%
On or after March 15, 2004. -- -- -- 100.25% 100.00% 100.75% 104.50%
On or after March 15, 2005. -- -- -- 100.00% -- 100.50% 103.75%
On or after March 15, 2006. -- -- -- -- -- 100.25% 103.00%
On or after March 15, 2007. -- -- -- -- -- 100.00% 102.25%
On or after March 15, 2008. -- -- -- -- -- -- 101.50%
On or after March 15, 2009. -- -- -- -- -- -- 100.75%
On or after March 15, 2010. -- -- -- -- -- -- 100.00%
On or after March 15, 2011. -- -- -- -- -- -- --
</TABLE>
Treasury yield means, on any payment date the interest rate (expressed as a
monthly equivalent yield) determined to be the rate equivalent to the semiannual
yield to maturity (and, in the case of United States Treasury bills, converted
to a bond equivalent yield) for United States Treasury securities maturing on
the Average Life Date of such subclass and trading in the public securities
markets, either
o as determined by interpolation between the most recent weekly
average yield to maturity for two series of United States Treasury
securities trading in the public securities markets, (A) one
maturing as close as possible to, but earlier than, the Average Life
Date of such subclass and (B) the other maturing as close
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as possible to, but later than, the Average Life Date of such subclass
in each case as published in the most recent H.15 (519)
or
o if a weekly average yield to maturity for United States Treasury
securities maturing on the Average Life Date of such subclass is
reported in the most recent H.15 (519), such weekly average yield to
maturity as published in such H.15 (519).
"H.15 (519)" means the weekly statistical release designated as such, or
any successor publication, published by the Board of Governors of the Federal
Reserve System. The date of determination of the Treasury Yield with respect to
the subclass C-2 notes shall be the fourth business day prior to the applicable
payment date and the "most recent H.15 (519)" means the H.15 (519) published
prior to the close of business on the fourth business day prior to the
applicable payment date.
"Average Life Date" is the date which follows the applicable payment date
by a period equal to the Remaining Weighted Average Life of such subclass.
"Remaining Weighted Average Life" with respect to any subclass of notes on any
payment date is calculated as follows:
Remaining Weighted Average Life = 1 x M (P(t) x t)
--- [the sum of]
OPB t=0
where:
OPB = the outstanding principal balance of such subclass on such payment date,
t = the number of days to each payment date occurring on or after such
payment date for such subclass,
P(t) = the Scheduled Principal Payment Amount due on the payment date t days
after such payment date, and
M = the final payment date for such subclass.
Redemption from Available Collections. On each payment date, we will apply
available collections to make distributions in accordance with the order of
priorities described under "-- Priority of Payments". On each payment date,
therefore, we must redeem any subclass of notes to the extent that there are
available collections remaining at the levels in the order of priorities at
which we are required to make a payment of principal on that subclass of notes.
In the case of a redemption from available collections:
o the redemption price of the subclass A-2, A-3, A-4, A-5, B-1 and B-2
notes will be the outstanding principal balance of the subclass
being redeemed, without premium; and
o the redemption price of the subclass C-1, C-2 and D-1 notes will be
the same redemption price as in the case of an optional redemption,
as described above.
Redemption for Taxation Purposes. All payments of principal, interest and
premium, if any, that we make in respect of any notes will be made without
withholding or deduction for or on account of any present or future taxes or
duties of whatever nature unless required by law. If such withholding or
deduction is required by law, we will not be obliged to pay any additional
amounts in respect of such withholding or deduction.
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If at any time:
(a) we are, or on the next payment date will be, required to make any
withholding or deduction under the laws or regulations of any
applicable tax authority with respect to any payment in respect of any
subclass of notes; or
(b) we are or will be subject to any circumstance (whether by reason of
any law, regulation, regulatory requirement or double-taxation
convention, or the interpretation or application thereof, or
otherwise) leading to the imposition of a tax (whether by direct
assessment or by withholding at source) or other similar imposition by
any jurisdiction which would
(1) materially increase our cost of making payments in respect of any
subclass of notes or of complying with our obligations under or
in connection with any notes;
(2) materially increase our operating or administrative
expenses; or
(3) otherwise obligate us or any of our subsidiaries to make any
material payment on, or calculated by reference to, the
amount of any sum received or receivable by us, or by the
administrative agent on behalf of us as contemplated by the
administrative agency agreement;
then we will inform the trustee at such time of any such requirement or
imposition and shall use our best efforts to avoid the effect of the same. We
shall take no action to avoid such effects unless each rating agency has
confirmed that such action will not result in the lowering or withdrawal by it
of its current rating of any subclass of MSAF notes then outstanding.
If, after using our best efforts to avoid the adverse effect described
above, we have not avoided such effects, then on any payment date we may, at our
election, redeem the outstanding principal balance of the notes of any or all
subclasses to which such withholding or deduction applies, in whole but not in
part, at the redemption price plus accrued but unpaid interest. However, any
such redemption may not occur more than 30 days before the time at which the
requirement or imposition described in (a) or (b) above is to become effective.
In the case of a redemption for taxation purposes, the redemption price of
any subclass of notes being redeemed will be the outstanding principal balance
of that subclass without premium.
Method of Redemption. If we propose to make an optional redemption or a
redemption for taxation purposes, at least 20 days but not more than 60 days
before the redemption date, the trustee will give notice of such redemption to
each holder of such subclass of notes. If we redeem any subclass of notes in
part, we will apply the redemption price proportionally to each holder of that
subclass. If we redeem any subclass of notes in whole, other than a redemption
for taxation purposes, we will deposit in the defeasance/redemption account the
redemption price, together with an amount sufficient to pay or provide for all
of the accrued and unpaid interest as of the redemption date. If we redeem all
or any part of a subclass of notes with available collections as required by the
priority of payments, we will send no notice of redemption.
Each notice of redemption will state:
o the applicable redemption date,
o the trustee's arrangements for making payments due,
o the redemption price of the notes to be redeemed,
o in the case of redemptions in whole, that notes of the subclass to be
redeemed must be surrendered (which action may be taken by any holder
of the notes or its authorized agent) to the trustee to collect the
redemption price and accrued and unpaid interest on such notes, and
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o in the case of redemptions in whole, that, unless we default in the
payment of the redemption price and any accrued and unpaid interest
thereon, interest on the subclass of notes called for redemption will
cease to accrue on and after the redemption date.
Once a notice of redemption for a redemption in whole is mailed, each
subclass of notes to which it applies will become due and payable on the
redemption date at its redemption price, together with accrued and unpaid
interest thereon.
Defeasance
We may at any time terminate all of our obligations under the notes and the
indenture. This is known as "legal defeasance". Legal defeasance will not apply
to (1) our obligations relating to the defeasance trust or (2) our obligations
to register the transfer or exchange of the notes, to replace mutilated,
destroyed, lost or stolen notes and to maintain a register in respect of the
notes.
In addition, we at any time may terminate our obligations under the
covenants described under "-- Indenture Covenants" and "-- Operating Covenants"
and the events of default described under "-- Events of Default and Remedies"
other than those described in clauses (1), (2), (3), (5) (solely with respect to
MSAF) and (6) (solely with respect to MSAF). This is known as "covenant
defeasance".
We may exercise our legal defeasance options even if we have already
exercised the covenant defeasance option. If we exercise our legal defeasance
options, payment of the notes may not be accelerated because of an event of
default. If we exercise our covenant defeasance options, payment of the notes
may not be accelerated because of the events of default described under "--
Events of Default and Remedies" other than those described in clauses (1), (2),
(3), (5) (solely with respect to MSAF) and (6) (solely with respect to MSAF).
In order to exercise either defeasance option, we must irrevocably deposit
in trust with the trustee any combination of cash or obligations of the U.S.
Government as will be sufficient for the payment of principal, premium (if any),
and interest on the notes to redemption or maturity. We also must comply with
other conditions, including delivering to the trustee an opinion of counsel to
the effect that holders of the notes (1) will not recognize income, gain or loss
for United States federal income tax purposes as a result of the deposit and
defeasance and (2) will be subject to United States federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred. In the case of legal
defeasance only, the opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable United States federal
income tax law.
Priority of Payments
On each payment date, the administrative agent will withdraw all amounts on
deposit in the collection account and will distribute them in the order of
priority set forth below. Any amount below will be paid only if all amounts
ranking senior to that amount are paid in full on the payment date.
(1) First, to the expense account, or directly to the relevant expense
payees, an amount equal to the required expense amount and then to the
relevant expense payees;
(2) Second, the following amounts:
(A) to the holders of each subclass of class A notes, all accrued and
unpaid interest excluding step-up interest, if applicable, on
such subclass of class A notes proportionately according to the
amount of accrued and unpaid interest on such subclass of class A
notes; and
(B) proportionately, to any swap provider, an amount equal to any
payment, other than subordinated swap payments, due from MSAF
under any swap agreement;
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(3) Third, (1) first, to any persons providing primary eligible credit
facilities, any amounts then payable to such persons under the terms
of their respective primary eligible credit facilities and (2) then,
retain in the collection account an amount, if positive, equal to (A)
the minimum liquidity reserve amount less (B) amounts available for
drawing under any primary eligible credit facilities;
(4) Fourth, to the holders of class A notes, in the order of priority by
subclass set forth under "-- Allocation of Principal among Subclasses
of Notes; Intra-Class Priority of Payments", an amount equal to the
Minimum Principal Payment Amount with respect to the class A notes;
(5) Fifth, to the holders of each subclass of class B notes, all accrued
and unpaid interest, excluding step-up interest, if applicable, on
such subclass of class B notes proportionately according to the amount
of accrued and unpaid interest on such subclass of class B notes;
(6) Sixth, to the holders of class B notes, in the order of priority by
subclass set forth under "-- Allocation of Principal among Subclasses
of Notes; Intra-Class Priority of Payments", an amount equal to the
Minimum Principal Payment Amount with respect to the class B notes;
(7) Seventh, to the holders of each subclass of class C notes, all accrued
and unpaid interest, excluding step-up interest, if applicable, on
such subclass of class C notes proportionately according to the amount
of such accrued and unpaid interest on such subclass of class C notes;
(8) Eighth, to the holders of Class C notes, in the order of priority by
subclass set forth under "-- Allocation of Principal among Subclasses
of Notes; Intra-Class Priority of Payments", an amount equal to the
Minimum Principal Payment Amount with respect to the class C notes;
(9) Ninth, to the holders of each subclass of class D notes, all accrued
and unpaid interest, excluding step-up interest, if applicable, on
such subclass of class D notes proportionately according to the amount
of such accrued and unpaid interest on such subclass of class D notes;
(10) Tenth, to the holders of class D notes, in the order of priority by
subclass set forth under "-- Allocation of Principal among Subclasses
of Notes; Intra-Class Priority of Payments", an amount equal to the
Minimum Principal Payment Amount with respect to the class D notes;
(11) Eleventh, (1) first, to any persons providing credit or liquidity
enhancement facilities that are not primary eligible credit
facilities, any amounts then payable to such persons under the terms
of their facilities and (2) then, retain in the collection account an
amount, if positive, equal to (A) the liquidity reserve amount less
(B) the sum of the amount of cash reserved under (3) above plus the
amounts available for drawing under any eligible credit facilities;
(12) Twelfth, to the holders of class A notes, in the order of priority by
subclass set forth under "-- Allocation of Principal among Subclasses
of notes; Intra-Class Priority of Payments", an amount equal to the
Scheduled Principal Payment Amount with respect to the class A notes;
(13) Thirteenth, to the holders of class B notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the Scheduled Principal Payment Amount with respect to the
class B notes;
(14) Fourteenth, to the holders of class C notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the Scheduled Principal Payment Amount with respect to the
class C notes;
(15) Fifteenth, to the holders of class D notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the Scheduled Principal Payment Amount with respect to the
class D notes;
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(16) Sixteenth, to the permitted accruals balance in the expense account,
an amount equal to permitted accruals in respect of any modification
payments (or any part thereof);
(17) Seventeenth, to the holders of each subclass of notes entitled
thereto, an amount equal to all accrued and unpaid step-up interest on
such subclass, if any, proportionately according to the amount of such
accrued and unpaid step-up interest;
(18) Eighteenth, to the holders of the beneficial interest, the beneficial
interest distribution amount;
(19) Nineteenth, to the holders of class A notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the Supplemental Principal Payment Amount with respect to the
class A notes;
(20) Twentieth, to the holders of class B notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the Supplemental Principal Payment Amount with respect to
class B notes;
(21) Twenty-first, to the holders of class D notes, in the order of
priority by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the redemption price of the outstanding principal balance, if
any, of any subclass of class D notes;
(22) Twenty-second, to the holders of class C notes, in the order of
priority by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the redemption price of the outstanding principal balance, if
any, of any subclass of class C notes;
(23) Twenty-third, to the holders of class B notes, in the order of
priority by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the redemption price of the outstanding principal balance, if
any, of any subclass of class B notes;
(24) Twenty-fourth, to the holders of class A notes, in the order of
priority by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes; Intra-Class Priority of Payments", an amount
equal to the redemption price of the outstanding principal balance, if
any, of any subclass of class A notes;
(25) Twenty-fifth, payments to swap providers which are subordinated in
accordance with their terms; and
(26) Twenty-sixth, to the holders of the beneficial interest, all remaining
amounts.
Priority of Payments following a Default Notice
If a default notice is delivered to MSAF or the administrative agent or an
event of default described in clause (5) or (6) under "-- Events of Default and
Remedies" occurs and continues, the allocation of payments described above will
not apply. Instead, all amounts on deposit in the collection account and the
expense account will be applied in the following order of priority:
(1) First, to the expense account, or directly to the relevant expense
payees, an amount equal to the required expense amount;
(2) Second, proportionately, to the providers of any primary eligible
credit facilities, such amounts as are required to make any payments
due to such providers under their primary eligible credit facilities;
(3) Third, the following amounts: (A) proportionately to the holders of
each subclass of class A notes, all accrued and unpaid interest
(including step-up interest, if any) on, and all outstanding principal
of, such subclass and (B) proportionately to any swap provider, such
amounts as are required to make any payments (other than subordinated
swap payments) due to such swap provider under any swap agreement;
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(4) Fourth, proportionately to the holders of each subclass of class B
notes, all accrued and unpaid interest (including step-up interest, if
any) on and all outstanding principal of such subclass of class B
notes;
(5) Fifth, proportionately to the holders of each subclass of class C
notes, all accrued and unpaid interest (including step-up interest, if
any) on and all outstanding principal of such subclass of class C
notes;
(6) Sixth, proportionately to the holders of each subclass of class D
notes, all accrued and unpaid interest (including step-up interest, if
any) on and all outstanding principal of such subclass of class D
notes;
(7) Seventh, proportionately to the providers of any credit or liquidity
enhancement facilities in favor of MSAF other than primary eligible
credit facilities, such amounts as are required to make any payments
due under their facilities;
(8) Eighth, proportionately to any swap provider, such amounts as are
required to make any subordinated swap payments due to such swap
provider under any swap agreement; and
(9) Ninth, to the holders of the beneficial interest, all remaining
amounts.
Indenture Covenants
No Release of Obligations. We will not take, or knowingly permit any
subsidiary to take, any action which would amend, terminate, other than any
termination in connection with the replacement of such agreement with an
agreement on terms substantially no less favorable to us and our subsidiaries
than the agreement being terminated, or discharge or prejudice the validity or
effectiveness of the indenture, other than as permitted therein, the security
trust agreement, the cash management agreement, the administrative agency
agreement, the financial advisory agreement or any servicing agreement or permit
any party to any such document to be released from such obligations, except, in
each case, as permitted or contemplated by the terms of such document, except:
we may take or permit such actions and may permit such releases if we shall have
first obtained an authorizing resolution of the controlling trustees determining
that such action, permitted action or release does not materially adversely
affect the interests of the noteholders.
Despite the preceding paragraph, in any case:
(1) we will not take any action which would result in any amendment or
modification to any conflicts standard or duty of care in such
agreements, and
(2) there must be at all times an administrative agent, a cash manager, a
financial advisor and, unless a servicer resigns prior to the
appointment of a replacement servicer as a result of any failure to
pay amounts due and owing to it, one or more servicers with respect to
all aircraft in the portfolio.
Limitation on Encumbrances. We will not, and will not permit any subsidiary
to, create, incur, assume or suffer to exist any mortgage, pledge, lien,
encumbrance, charge or security interest, including, without limitation, any
conditional sale, or any sale with recourse against the seller or any affiliate
of the seller, or any agreement to give any security interest over or with
respect to any of our or any of our subsidiary's assets, excluding segregated
funds, including, without limitation, all beneficial interests in trusts,
ordinary shares and preferred shares, any options, warrants and other rights to
acquire such shares of capital stock and any indebtedness of any subsidiary held
by us or a subsidiary.
However, we may create, incur, assume or suffer to exist:
(1) any permitted encumbrance;
(2) any security interest created or required to be created under the
security trust agreement;
(3) encumbrances over rights in or derived from leases, upon confirmation
from the rating agencies in advance that such action or event will not
result in the lowering or withdrawal of any rating assigned by any
rating
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agency to any of the notes, so long as any transaction or series of
transactions resulting in such encumbrance, taken as a whole, does not
materially adversely affect the amount of collections that would have
been received by us from such lease had such encumbrance not been
created, or
(4) any other encumbrance the validity or applicability of which is being
contested in good faith in appropriate proceedings by us or any of our
subsidiaries.
Affiliate means, with respect to any person, any other person that,
directly or indirectly, controls, is controlled by or is under common control
with, such person or is a director or officer of such person.
Control of a person means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of such person,
whether through the ownership of voting stock, by contract or otherwise.
Permitted encumbrance means:
(1) any lien for taxes, assessments and governmental charges or levies not
yet due and payable or which are being contested in good faith by
appropriate proceedings;
(2) in respect of any aircraft, any liens of a repairer, carrier or hanger
keeper arising in the ordinary course of business by operation of law
or any engine or parts-pooling arrangements or other similar lien;
(3) any permitted lien or encumbrance on any aircraft, engines or parts as
defined under any lease thereof (other than liens or encumbrances
created by the relevant lessor);
(4) any liens created by or through or arising from debt or liabilities or
any act or omission of any lessee in each case either in contravention
of the relevant lease (whether or not such lease has been terminated)
or without the consent of the relevant lessor (as long as if such
lessor becomes aware of any such lien, such lessor shall use
commercially reasonable efforts to have any such liens lifted);
(5) any head lease, lease, conditional sale agreement or purchase option
existing on the relevant closing date or any aircraft agreement
meeting the requirements of (c) or (e) of the second paragraph under
the "Limitation on Aircraft Sales" covenant;
(6) any lien for air navigation authority, airport tending, gate or
handling (or similar) charges or levies;
(7) any lien created in favor of us or any of our subsidiaries or the
security trustee;
(8) any lien not referred to in (1) through (7) above which would not
adversely affect the owner's rights and does not exceed the greater of
1% of the aggregate initial appraised value of the portfolio and
$250,000 per aircraft; and
(9) any encumbrance arising under the ILFC facility or any other
agreements the terms of which contemplate that custody of security
deposits held for lessees with respect to additional aircraft is held
by a third party.
Limitation on Restricted Payments. MSAF will not, and will not permit any
of its subsidiaries to:
(1) declare or pay any dividend or make any distribution on its stock held
by persons other than MSAF or any of its subsidiaries; except that, so
long as no event of default occurs and continues, MSAF may make
payments on its beneficial interest to the extent permitted by the
indenture;
(2) purchase, redeem, retire or otherwise acquire for value any beneficial
interest in MSAF or any stock of its subsidiaries held by and on
behalf of persons other than MSAF, any of its subsidiaries or other
Persons permitted under the requirements of (2)(b) under the
"Limitation on the Issuance, Delivery and Sale of Capital Stock"
covenant;
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(3) make any interest, principal or premium payment on the notes or make
any voluntary or optional repurchase, defeasance or other acquisition
or retirement for value of indebtedness of MSAF or any of its
subsidiaries that is not owed to MSAF or any of its subsidiaries other
than in accordance with the notes and the indenture; except that MSAF
or any of its affiliates may repurchase, defease or otherwise acquire
or retire any of the notes other than from available collections so
long as any new notes of MSAF issued in connection with such
transaction rank pari passu with the notes being repurchased,
defeased, acquired or retired; provided further that the controlling
trustees shall determine that such action does not materially
adversely affect the noteholders and shall have obtained confirmation
in advance that such action will not result in the lowering or
withdrawal of any rating assigned by any rating agency to any of the
MSAF notes; or
(4) make any investments (other than permitted account investments,
investments permitted under the "Limitation on Engaging in Business
Activities" covenant, allowed restructurings and investments in any
subsidiaries that own additional aircraft).
The term "investment" for purposes of the above covenant means any loan or
advance to a person or entity, any purchase or other acquisition of any
beneficial interest, capital stock, warrants, rights, options, obligations or
other securities of such person or entity, any capital contribution to such
person or entity or any other investment in such person or entity. The term
"investment" shall not include any obligation of a purchaser of an aircraft to
make deferred or installment payments pursuant to any aircraft agreement
specified in clauses (c) or (e) of the second paragraph under "Limitations on
Aircraft Sales" below so long as MSAF retains a security interest in the
relevant aircraft until all such obligations are discharged.
Limitation on Dividends and Other Payment Restrictions. MSAF will not, and
will not permit any of its subsidiaries to, create or otherwise suffer to exist
any consensual encumbrance or restriction of any kind on the ability of any
subsidiary to:
(1) declare or pay dividends or make any other distributions permitted by
applicable law, or purchase, redeem or otherwise acquire for value,
any beneficial interest in MSAF or the stock of any such subsidiary,
as the case may be;
(2) pay any indebtedness owed to MSAF or such subsidiary;
(3) make loans or advances to MSAF or such subsidiary; or
(4) transfer any of its property or assets to MSAF or any other subsidiary
thereof.
The foregoing restrictions shall not apply to any consensual encumbrances
or other restrictions:
(1) existing on March 3, 1998, with respect to the initial 32 aircraft and
one engine, or, with respect to additional aircraft, on the date such
aircraft is acquired, under any related document, including any
amendments, extensions, refinancings, renewals or replacements of such
documents so long as the consensual encumbrances and restrictions in
any such amendments, extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the
holders of the MSAF notes than those previously in effect and being
amended, extended, refinanced, renewed or replaced; or
(2) in the case of clause (4) above:
(a) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset; or
(b) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or consensual encumbrance on,
any property or assets of MSAF or any subsidiary not otherwise
prohibited by the indenture. This covenant shall not prevent MSAF
or any subsidiary from creating, incurring, assuming or suffering
to exist any encumbrances not otherwise prohibited under the
indenture.
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Limitation on Engaging in Business Activities. MSAF will not, and will not
permit any subsidiary to, engage in any business or activity other than:
(1) purchasing or otherwise acquiring aircraft assets (subject to the
limitations set forth in the "Limitation on Aircraft Acquisitions"
covenant);
(2) owning, holding, converting, maintaining, modifying, managing,
operating, leasing, re-leasing and, subject to the limitations set
forth in the "Limitations on Aircraft Sales" covenant, selling or
otherwise disposing of the aircraft;
(3) entering into all contracts and engaging in all related activities
incidental thereto, including from time to time accepting, exchanging,
holding or permitting any of its subsidiaries to accept, exchange or
hold promissory notes, contingent payment obligations or equity
interests, of lessees or their affiliates issued in connection with
the bankruptcy, reorganization or other similar process, or in
settlement of delinquent obligations or obligations anticipated to be
delinquent, of such lessees or their respective affiliates in the
ordinary course of business;
(4) providing loans to, and guaranteeing or otherwise supporting the
obligations and liabilities of, MSAF's subsidiaries or any future MSAF
group entity, in each case on such terms and in such manner as the
controlling trustees see fit and (whether or not such member of MSAF
group derives a benefit therefrom) so long as such loans, guarantees
or other supports are provided in connection with the purposes set
forth in clauses (1)-(3) of this covenant and that written
notification is made to each rating agency of such loan, guarantee or
other support;
(5) financing or refinancing the business activities described in clauses
(1)-(3) of this covenant through the offer, sale and issuance of any
securities of MSAF, upon such terms and conditions as the controlling
trustees see fit, for cash or in payment or in partial payment for any
property purchased or otherwise acquired by MSAF group or any future
MSAF group entity;
(6) engaging in currency and interest rate exchange transactions for the
purposes of avoiding, reducing, minimizing, hedging against or
otherwise managing the risk of any loss, cost, expense or liability
arising, or which may arise, directly or indirectly, from any change
or changes in any interest rate or currency exchange rate or in the
price or value of any of the property or assets of MSAF or any of its
subsidiaries within limits determined by the controlling trustees from
time to time and submitted to the rating agencies, including but not
limited to dealings, whether involving purchases, sales or otherwise,
in foreign currency, spot and forward interest rate exchange
contracts, forward interest rate agreements, caps, floors and collars,
futures, options, swaps, and any other currency, interest rate and
other similar hedging arrangements and other similar instruments;
(7) establishing, promoting and aiding in promoting, constituting, forming
or organizing companies, trusts, syndicates, partnerships or other
entities of all kinds in any part of the world for the purposes set
forth in clauses (1)-(3) above so long as written notification is made
to each rating agency that such company, trust, syndicate or
partnership is set up in compliance with the indenture;
(8) acquiring, holding and disposing of shares, securities and other
interests in any such entity or partnership referred to in clause (7)
of this covenant;
(9) disposing of shares, securities and other interests in, or causing the
dissolution of, any existing subsidiary so long as any disposition
which results in the disposition of an aircraft meets the requirements
set forth under the "Limitation on Aircraft Sales" covenant; and
(10) taking out, acquiring, surrendering and assigning policies of
insurance and assurances with any insurance company or companies which
MSAF or any of its subsidiaries may think fit and to pay the premiums
thereon.
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Limitation on Indebtedness. MSAF will not, and will not permit any of its
subsidiaries to, incur, create, issue, assume, guarantee or otherwise become
liable for or with respect to, or become responsible for, the payment of,
contingently or otherwise, whether present or future, indebtedness, except as
described below.
For the purposes of the indenture, "indebtedness" means, with respect to
any person at any date of determination without duplication:
(1) all indebtedness of such person for borrowed money;
(2) all obligations of such person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all obligations of such person in respect of letters of credit or
other similar instruments including reimbursement obligations with
respect thereto;
(4) all obligations of such person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than
six months after the date of purchasing such property or service or
taking delivery and title thereto or the completion of such services,
and payment deferrals arranged primarily as a method of raising
finance or financing the acquisition of such property or service;
(5) all obligations of such person under a lease of (or other agreement
conveying the right to use) any property, whether real, personal or
mixed, that is required to be classified and accounted for as a
capital lease obligation under generally accepted accounting
principles in the United States ("U.S. GAAP");
(6) all indebtedness (as defined in clauses (1) through (5) of this
paragraph) of other persons secured by a lien on any asset of such
person, whether or not such indebtedness is assumed by such person;
and
(7) all indebtedness as defined in clauses (1) through (5) of this
paragraph of other persons guaranteed by such person.
However, the above restriction does not apply to:
(1) indebtedness under the notes issued on March 3, 1998.
(2) indebtedness under any refinancing notes or other indebtedness issued
in connection with the repurchase, acquisition, defeasance or
retirement for value of notes so long as:
(a) such refinancing notes or other indebtedness receive ratings from
the rating agencies at the close of such refinancing or issuance
equal to or higher than those of the subclass being refinanced or
repurchased (determined at the date of incurrence);
(b) taking into account such refinancing or repurchase for value,
MSAF receives confirmation prior to such refinancing from the
rating agencies that such transaction will not result in the
lowering or withdrawal of any rating assigned by any rating
agency to any MSAF notes outstanding at such time; and
(c) the net proceeds of any such refinancing or issuance shall be
used only to repay the outstanding principal balance of the
subclass of the notes being so refinanced or repurchased, (plus
any redemption premium and transaction expenses relating
thereto).
(3) indebtedness under guarantees by MSAF or any subsidiary of any other
member of MSAF group other than guarantees described in clause (5)
below so long as no such indebtedness in respect of any member of MSAF
group other than MSAF or any subsidiary of MSAF shall be incurred if
it would materially adversely affect the noteholders.
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(4) indebtedness in respect of any additional notes incurred in connection
with a permitted additional aircraft acquisition so long as:
(a) taking into account the incurrence of such indebtedness, MSAF
receives prior confirmation that the incurrence of such
indebtedness will not result in the lowering or withdrawal of any
rating assigned by any rating agency to any of the notes
outstanding at such time;
(b) the net proceeds of such indebtedness shall be used only to
finance the permitted additional aircraft acquisition; and
(c) taking into account the incurrence of such indebtedness, MSAF
receives prior confirmation that the incurrence of such
indebtedness will not result in the lowering or withdrawal of the
rating assigned by each rating agency on the closing date of the
offering to the notes outstanding at such time.
(5) indebtedness in respect of guarantees by MSAF or any subsidiary of
indebtedness incurred by any future MSAF group entity other than a
subsidiary of MSAF in connection with a permitted additional aircraft
acquisition so long as:
(a) such future MSAF group entity shall have guaranteed the notes;
(b) the indebtedness being guaranteed would be permitted pursuant to
clause (2) or (4) above if such indebtedness were incurred
directly by MSAF or any subsidiary in connection with such
permitted additional aircraft acquisition; and
(c) the indebtedness being guaranteed was issued by such future MSAF
group entity under an indenture, the terms of which including the
covenants and other obligations of such future MSAF group entity
thereunder, are substantially similar to those of the indenture.
(6) indebtedness to aircraft sellers pursuant to aircraft acquisition or
similar agreements.
(7) indebtedness under intercompany loans or any agreement between MSAF or
any of its subsidiaries and any other members of MSAF group. Any
indebtedness owed by any member of MSAF group to MSAF shall be
evidenced by promissory notes and written notification shall be given
to each rating agency of the incurrence of such indebtedness.
(8) indebtedness of MSAF group under any credit or liquidity enhancement
facility provided in favor of MSAF group.
As used in the indenture, guarantee means any obligation, contingent or
otherwise, of any person directly or indirectly guaranteeing any indebtedness or
other obligation of any other person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
person:
(1) to purchase or pay or advance or supply funds for the purchase or
payment of such indebtedness or other obligation of any other person,
or
(2) entered into for purposes of assuring in any other manner the obligee
of such indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof in whole or in
part.
The term guarantee shall not include endorsements for collection or deposit
in the ordinary course of business. The term guarantee when used as a verb has a
corresponding meaning.
Limitation on Aircraft Sales. MSAF will not, and will not permit any of its
subsidiaries to, sell, transfer or otherwise dispose of any aircraft or any
interest therein, except as described below.
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MSAF and any of its subsidiaries will be permitted to sell, transfer or
otherwise dispose of, directly or indirectly:
(1) any engines or parts owned on March 3, 1998, or, in the case of
additional aircraft, any engines or parts owned on the date such
aircraft is acquired; or
(2) one or more aircraft or an interest in aircraft:
(a) under a purchase option or other agreements of a similar
character existing on the relevant closing date;
(b) within or among MSAF and its subsidiaries without limitation, and
among MSAF or any of its subsidiaries and any other member of
MSAF group if such sale, transfer or disposition, as the case may
be, would not materially adversely affect the noteholders and
written notification shall be given to each rating agency of such
sale, transfer or disposition;
(c) under any aircraft agreement as long as such sale does not result
in a concentration default, and the net present value of the cash
net sale proceeds is not less than the note target price;
(d) pursuant to receipt of insurance proceeds in connection with an
event of loss; or
(e) under an aircraft agreement and, in any one calendar year, not
exceeding 10% of the adjusted portfolio value as determined by
the most recent appraisal obtained for such calendar year so long
as:
(1) the controlling trustees unanimously confirm that each such
sale does not materially adversely affect MSAF and the
noteholders; and
(2) such sale does not result in a concentration default.
For the purpose of this covenant, the net present value of the cash net
sale proceeds of any sale, transfer or other disposition of any aircraft shall
mean the present value of all payments received or to be received by MSAF group
from the date of execution or option granting date, as the case may be, of the
relevant aircraft agreement through and including the date of transfer of title
to such aircraft, discounted back to the date of execution or option granting
date, as the case may be, of such aircraft agreement at the weighted average
cost of funds of MSAF group (based on the cost of funds represented by the notes
on the payment date immediately preceding such date and taking into account any
swap agreements).
The note target price of an aircraft means 103% of the aggregate
outstanding principal balance of the MSAF notes, together with any accrued but
unpaid interest thereon and any related swap breakage costs, allocable to such
aircraft on the date of the sale agreement or purchase option date, as the case
may be. On any date, the outstanding principal balance of MSAF notes allocable
to an aircraft will be calculated as follows:
Allocable Outstanding Principal Balance = OPB x ABV
----
APV
where:
ABV = the Adjusted Value of the aircraft,
APV = the Adjusted Portfolio Value and
OPB = the aggregate outstanding principal balance of all notes of MSAF on the
most recent payment date.
Aircraft agreement means any lease, sub-lease, conditional sale agreement,
finance lease, hire purchase agreement or other agreement (other than an
agreement relating to maintenance, modification or repairs) or any purchase
option granted to a person other than MSAF or its subsidiaries or any other
member of MSAF group to purchase an aircraft
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pursuant to a purchase option agreement, in each case where a person acquires or
is entitled to acquire legal title, or the economic benefits of ownership of,
such aircraft.
Net sale proceeds means the aggregate amount of cash received or to be
received from time to time (whether as initial or deferred consideration) by or
on behalf of the seller in connection with the transaction after deducting
(without duplication):
(1) reasonable and customary brokers' commissions and other similar fees
and commissions (including fees received by the servicer under the
servicing agreement); and
(2) the amount of taxes payable in connection with or as a result of such
transaction, in each case to the extent, but only to the extent, that
the amounts so deducted are, at the time of receipt of such cash,
actually paid to a person that is not an affiliate of the seller and
are properly attributable to such transaction or to the asset that is
the subject thereof.
Concentration default means an event of default under "-- Operating
Covenants -- Concentration Limits," as such covenant may be adjusted from time
to time upon approval by the rating agencies, which would arise if effect were
given to any sale, transfer or other disposition or any purchase or other
acquisition as of the date of the binding sale or purchase agreement even if the
sale, transfer or other disposition or purchase or other acquisition is
scheduled or expected to occur after the date of the binding agreement.
Limitation on Aircraft Acquisitions. MSAF will not, and will not permit any
of its subsidiaries, to purchase or otherwise acquire any aircraft except as
described below.
MSAF and any of its subsidiaries will be permitted to:
(1) purchase or otherwise acquire, directly or indirectly, additional
aircraft so long as:
(a) no event of default shall have occurred and be continuing;
(b) all Scheduled Principal Payment Amounts on the notes have been
paid;
(c) the acquisition does not result in a concentration default; and
(d) after giving effect to such acquisition:
o no more than 90% of the portfolio by appraised base value
consists of Stage 3 narrowbody aircraft and regional jets,
o no more than 50% of the portfolio by appraised base value
consists of Stage 3 widebody aircraft, and
o no more than 15% of the portfolio by appraised base value
consists of Stage 2 aircraft and turboprop aircraft,
unless the controlling trustees obtain advance confirmation that
such action will not result in the lowering or withdrawal of any
rating assigned by any rating agency to any of the MSAF notes
outstanding at such time; or
(2) act as sponsor of a future MSAF group entity other than a subsidiary
of MSAF that would fund an acquisition of aircraft assets with
indebtedness guaranteed by MSAF pursuant to the "Limitation on
Indebtedness" covenant as described above; so long as, if such
acquisition of aircraft assets had been consummated indirectly by
MSAF, such acquisition would have been permitted pursuant to the
preceding clause (1).
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A permitted additional aircraft acquisition means a transaction described
in clause (1) or (2) above.
Limitation on Modification Payments and Capital Expenditures. MSAF will
not, and will not permit any of its subsidiaries to, make any capital
expenditures for the purpose of effecting any optional improvement or
modification of any aircraft, or for the optional conversion of any aircraft
from a passenger aircraft to a freighter or mixed-use aircraft, for the purpose
of purchasing or otherwise acquiring any engines or parts outside of the
ordinary course of business except as described below.
MSAF may, and may permit any of its subsidiaries to, make modification
payments if:
(1) each modification payment, together with all other modification
payments made after March 3, 1998 with respect to any single aircraft,
do not exceed the aggregate amount of funds that would be necessary to
perform heavy maintenance as described in the applicable servicing
agreement on such aircraft, including the airframe and the engines;
(2) such modification payment is included in the annual operating budget
of the MSAF group and approved by the controlling trustees;
(3) the amount of funds necessary to make such modification payment shall
have been accrued in advance as a permitted accrual in the expense
account through transfers into the expense account pursuant to the
indenture or is otherwise allowed to be paid under permitted
indebtedness; and
(4) the aggregate amount of all modification payments made by members of
MSAF group, taken as a whole, pursuant to this covenant after March 3,
1998, including the modification payment in question, shall not exceed
5% of the aggregate initial appraised value of all aircraft acquired
by MSAF group.
Limitation on Consolidation, Merger and Transfer of Assets. MSAF will not,
and will not permit any subsidiary to, consolidate with, merge with or into, or
sell, convey, transfer, lease or otherwise dispose of its property and assets
(as an entirety or substantially as an entirety in one transaction or in a
series of related transactions) to, any other person, or permit any other person
to merge with or into MSAF or any subsidiary, unless:
(1) the resulting entity is a special purpose entity, the constituent
document of which is substantially similar to MSAF's amended and
restated trust agreement or the equivalent charter document of such
subsidiary, as the case may be, and, after such consolidation, merger,
sale, conveyance, transfer, lease or other disposition, payments from
such resulting entity to the holders of the notes do not give rise to
any withholding tax payments less favorable to the holders of the
notes than the amount of any withholding tax payments which would have
been required had such event not occurred;
(2) in the case of consolidation, merger or transfer by MSAF, the
surviving successor or transferee entity shall expressly assume all of
the obligations of MSAF in the indenture, the notes and each other
related document;
(3) the controlling trustees shall have obtained advance confirmation that
such action or event will not result in the lowering or withdrawal of
any rating assigned by any rating agency to any of the notes;
(4) immediately after giving effect to such transaction, no event of
default shall have occurred and be continuing; and
(5) MSAF delivers to the trustee an officers' certificate and an opinion
of counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture comply with the above
criteria and, if applicable, the "Limitation on Aircraft Sales"
covenant and that all conditions precedent provided for in the
indenture relating to such transaction have been complied with.
This covenant shall not apply to any such consolidation, merger, sale,
conveyance, transfer, lease or disposition:
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(1) within and among MSAF and any of its subsidiaries and among MSAF group
if such consolidation, merger, sale, conveyance, transfer, lease or
disposition, as the case may be, would not materially adversely affect
the holders of the notes and written notification is made to each
rating agency;
(2) complying with the terms of the "Limitation on Aircraft Sales"
covenant; or
(3) effected as part of a single transaction providing for the redemption
or defeasance of the MSAF notes in accordance with the terms thereof
as described under "-- Payment of Principal and Interest --
Redemption" or "-- Payment of Principal and Interest -- Defeasance",
respectively.
Limitation on Transactions with Affiliates. MSAF will not, and will not
permit any subsidiary to, directly or indirectly, enter into, renew or extend
any transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any
affiliate of MSAF or any subsidiary, except upon fair and reasonable terms no
less favorable to MSAF or such subsidiary than could be obtained, at the time of
such transaction or at the time of the execution of the relevant agreement, in a
comparable arm's-length transaction with a person that is not such an affiliate.
The foregoing limitation shall not apply to:
(1) any transaction in connection with the establishment of MSAF group,
its acquisition of the initial 32 aircraft and one spare engine, any
substitute aircraft or pursuant to the terms of the related documents;
(2) any transaction within and among MSAF or any of its subsidiaries and
any other member of MSAF group, except that no such transaction, other
than between MSAF and any of its subsidiaries, shall be consummated if
it would materially adversely affect the holders of the MSAF notes;
(3) the payment of reasonable and customary fees to, and the provision of
reasonable and customary liability insurance in respect of, the
controlling trustees;
(4) any payments on the beneficial interest in accordance with the
indenture and under "-- Payment of Principal and Interest -- Priority
of Payments";
(5) any permitted additional aircraft acquisition or any transaction
complying with the "Limitation on Aircraft Sales" covenant;
(6) any payments of the types referred to in clauses (1) or (2) of the
"Limitation on Restricted Payments" covenant and not prohibited
thereunder;
(7) entering into any transaction effected as part of a single transaction
providing for the redemption or defeasance of the MSAF notes, in
accordance with the terms thereof as described under "-- Payment of
Principal and Interest -- Redemption" or "-- Payment of Principal and
Interest -- Defeasance", respectively;
(8) entering into an interest rate swap or option on an interest rate swap
or other instrument used for the management of interest rate risk with
MSDW or any of its affiliates; or
(9) the tax indemnification agreement between MSAF and MSDW.
Limitation on the Issuance, Delivery and Sale of Capital Stock. MSAF will
not:
(1) issue, deliver or sell any shares, interests, participations or other
equivalents (however designated, whether voting or non-voting, other
than beneficial interests, shares, participations or other equivalents
existing on March 3, 1998) in equity; or
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(2) sell, or permit any subsidiary, directly or indirectly, to issue,
deliver or sell, any interests, shares, participations or other
equivalents (however designated, whether voting or non-voting, other
than such shares, interests, participations or other equivalents
existing on March 3, 1998) in equity except:
(a) issuances or sales of further beneficial interests in MSAF having
economic terms that are no less favorable to the noteholders than
those of the beneficial interest existing on March 3, 1998;
(b) issuances or sales of shares of stock of foreign subsidiaries of
MSAF to nationals in the jurisdiction of incorporation or
organization of such subsidiary, as the case may be, to the
extent required by applicable law or necessary in the
determination of the controlling trustees to avoid an adverse tax
consequence in any such jurisdiction;
(c) the pledge of the beneficial interests and shares in MSAF's
subsidiaries pursuant to the security trust agreement;
(d) the sale, delivery or transfer of any stock of any member of the
MSAF group as part of a single transaction providing for the
redemption or defeasance of the MSAF notes, in accordance with
the terms set forth under "-- Payment of Principal and Interest
-- Redemption" or "-- Payment of Principal and Interest --
Defeasance", respectively;
(e) the sale of any stock of any subsidiary in connection with any
sale of aircraft in compliance with the terms of the "Limitation
on Aircraft Sales" covenant; and
(f) the sale, delivery, transfer or pledge of beneficial interests or
stock of any MSAF group member to or for the benefit of any other
MSAF group member.
Bankruptcy and Insolvency. MSAF:
(1) will promptly provide the trustee and the rating agencies with notice
of the institution of any proceeding by or against MSAF or any of its
subsidiaries, as the case may be, seeking to adjudicate any of them a
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of their debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking an entry
of an order for relief or the appointment of a receiver, trustee or
other similar official for either or for any substantial part of their
property;
(2) will not take any action to waive, repeal, amend, vary, supplement or
otherwise modify its trust agreement that would adversely affect the
rights, privileges or preferences of any holder of the notes, as
determined by the controlling trustees; and
(3) will not, without an affirmative unanimous written resolution of the
controlling trustees and the independent trustees take any action to
waive, repeal, amend, vary, supplement or otherwise modify the
provision of the amended and restated trust agreement which requires a
unanimous resolution of the controlling trustees and the independent
trustees, or limits the actions of beneficial interest holders, with
respect to voluntary insolvency proceedings or consents to involuntary
insolvency proceedings.
In addition, under the terms of the amended and restated trust agreement
the controlling trustees and independent trustees will agree that while the
notes are outstanding they will not take any action:
(1) to cause MSAF to institute any proceeding seeking liquidation or
insolvency (or similar proceeding);
(2) in the case of any such proceeding instituted against MSAF, to
authorize or consent to such proceedings; or
(3) to terminate MSAF's existence.
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Operating Covenants
Concentration Limits. Unless the controlling trustees obtain prior written
confirmation from each of the rating agencies that no lowering or withdrawal of
the then current rating of any subclass of notes will result, MSAF will not
permit any of its subsidiaries to lease or re-lease any aircraft if entering
into such proposed lease would cause the portfolio, to exceed any of the
concentration limits set forth below. The indenture permits breaches of these
concentration limits upon any renewal, extension or restructuring of any lease.
For purposes of this restriction, the portfolio:
o excludes any aircraft then subject to an aircraft agreement and
expected to be disposed of within one year from the effective date
of such lease pursuant to clauses (c) and (e) under "-- Indenture
Covenants -- Limitation on Aircraft Sales,"
but
o includes any aircraft which MSAF group has entered into a binding
agreement to acquire and which the controlling trustees reasonably
expect to acquire within 180 days from the date of effectiveness of
such agreement.
Percentage of Most Recent
Appraised Value of
Lessee Concentration Limits Portfolio(1)
--------------------------- -------------------------
Single Lessee rated BBB/Baa2
(or the equivalent) or better........ 15%
Other single Lessees.................... 10%
Five largest Lessees.................... 35%
Percentage of Most Recent
Appraised Value of
Country Concentration Limits Portfolio(1)
---------------------------- --------------------------
United States........................... 25%
Countries rated BBB/Baa2
(or the equivalent) or better(2)...... 20%
Other................................... 15%
Percentage of Most Recent
Appraised Value of
Region Concentration Limits Portfolio(1)
--------------------------- -------------------------
Any single Developed Market Region(3)... 50%
Any single Emerging Market Region(3).... 25%
Other(4)................................ 20%
Asia/Pacific............................ 55%
----------
(1) Percentage to be obtained by dividing the aggregate most recent appraised
values of all aircraft leased or to be leased to lessees habitually based
in the applicable country by the aggregate most recent appraised values of
all aircraft then owned by MSAF group and any future MSAF group member.
(2) Based on the sovereign foreign currency debt rating assigned by the rating
agencies to the country in which a lessee is habitually based at the time
the relevant lease is executed.
(3) The designations of Emerging Markets and Developed Markets are as
determined and published by Morgan Stanley Capital International from time
to time based on, among other things, gross domestic product levels,
regulation of foreign ownership of assets, the regulatory environment,
exchange controls and perceived investment risk. The current designations
are as set out below:
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<TABLE>
<CAPTION>
Region Country
<S> <C>
Developed Markets
Europe.................................. Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,
The Netherlands, Portugal, Spain, Sweden, the United Kingdom,
Norway and Switzerland
North America........................... Canada and the United States of America
Pacific................................. Australia, Hong Kong, Japan, New Zealand and Singapore
Emerging Markets
Asia.................................... China, India, Indonesia, South Korea, Malaysia, Pakistan, Philippines,
Sri Lanka, Taiwan and Thailand
Europe and Middle East.................. Czech Republic, Greece, Hungary, Israel, Jordan, Poland, and Turkey
Latin America........................... Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela
Other.................................... All other countries (generally those that have small or underdeveloped
capital markets, including Fiji, Iceland, Lithuania, Macau, Malta and
Mauritius)
</TABLE>
(4) In addition no more than 10% of the most recent appraised value of the
portfolio shall be leased to lessees habitually based in countries in the
region designated as "Other" that are rated below BBB/Baa2 (or the
equivalent) and no more than 5% of the most recent appraised value of the
portfolio shall be leased to lessees habitually based in countries in the
region designated as "Other" that are in Africa.
In addition, the indenture does not permit MSAF or any subsidiary to lease
aircraft operated or to be operated by lessees domiciled in the following
jurisdictions: Burma, Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria. We
may amend this list from time to time upon the approval of the rating agencies.
In addition, the indenture requires MSAF to obtain political
risk insurance for each aircraft subject to a lease and habitually based in
the following jurisdictions: Angola, Armenia, Azerbaijan, Belarus, Benin,
Bhutan, Cameroon, Cape Verde Islands, Chad, Comoros, Congo, Equatorial Guinea,
Eritrea, Ethiopia, Grenada, Kazakhstan, Kirbati, Kyrgistan, Liberia, Moldova,
Mongolia, Niger, Sao Tome & Principe, Somalia, Turkmenistan and Uzbekistan. We
may amend this list from time to time upon the approval of the rating
agencies. It is our policy to decide on a case-by-case basis whether to
voluntarily obtain political risk insurance beyond the requirements of the
indenture. We do not currently have any political risk insurance.
Compliance with Law, Maintenance of Permits. MSAF will:
(1) comply, and cause each of its subsidiaries to comply, in all material
respects with all applicable laws;
(2) obtain, and cause each of its subsidiaries to obtain, all material
governmental including regulatory registrations, certificates,
licenses, permits and authorizations required for such person's use
and operation of the aircraft, including, without limitation, a
current certificate of airworthiness for each aircraft (issued by the
applicable aviation authority and in the appropriate category for the
nature of operations of such aircraft), except that:
(a) no certificate of airworthiness shall be required for any
aircraft:
o during any period when such aircraft is undergoing
maintenance, modification or repair; and
o following the withdrawal or suspension by such applicable
aviation authority of certificates of airworthiness in
respect of all aircraft of the same model or period of
manufacture as such aircraft;
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in that case MSAF shall comply, and cause each of its
subsidiaries to comply, with all directions of such
applicable aviation authority in connection with such
withdrawal or suspension;
(b) no registration, certificates, licenses, permits or
authorizations required for the use or operation of any aircraft
need be obtained with respect to any period when such aircraft is
not being operated; and
(c) no such registrations, certificates, licenses, permits or
authorizations shall be required to be maintained for any
aircraft that is not the subject of a lease, except to the extent
required under applicable laws;
(3) not cause or knowingly permit, directly or indirectly, through any of
its subsidiaries, any lessee to operate any aircraft under any lease
in any material respect contrary to any applicable law; and
(4) not knowingly permit, directly or indirectly, through any of its
subsidiaries, any lessee not to obtain all material governmental
(including regulatory) registrations, certificates, licenses, permits
and authorizations required for such lessee's use and operation of any
aircraft under any operating lease except in the cases provided in
clauses (2)(a) and (2)(b) above.
This covenant shall not be breached by virtue of any act or omission of a
lessee or sub-lessee, or of any person which has possession of the aircraft or
any engine for the purpose of repairs, maintenance, modification or storage, or
by virtue of any requisition, seizure, or confiscation of the aircraft (other
than seizure or confiscation arising from a breach by MSAF or a subsidiary of
such covenant) so long as:
(1) no member of MSAF group consents or has consented to such third party
event; and
(2) the member of MSAF group which is the lessor or owner of such aircraft
promptly and diligently takes such commercially reasonable actions as
a leading international aircraft operating lessor or owner would
reasonably take in respect of such third party event, including,
(taking into account, among other things, the laws of the
jurisdictions in which the aircraft are located), seeking to compel
such lessee or other relevant person to remedy such third party event
or seeking to repossess the relevant aircraft or engine.
Appraisal of Portfolio. MSAF will, at least once each year and in any case
no later than October 31 of each year, deliver to the trustee appraisals of the
base value of each of the aircraft, from at least three independent appraisers
that are members of the International Society of Transport Aircraft Trading or
any similar organization. Each appraisal shall be dated within 30 days prior to
its delivery to the trustee.
Maintenance of Assets. MSAF will:
(1) in the case of each aircraft and engine that is subject to a lease,
cause directly or indirectly, through any of its subsidiaries, such
aircraft and engine to be maintained in a state of repair and
condition consistent with the reasonable commercial practice of
leading international aircraft operating lessors with respect to
similar aircraft under lease, taking into consideration, among other
things, the identity of the relevant lessee (including the credit
standing and operating experience thereof), the age and condition of
the aircraft and the jurisdiction in which such aircraft will be
operated or registered under such lease; and
(2) in the case of each aircraft that is not subject to a lease, maintain,
and cause each of its subsidiaries to maintain, such aircraft in a
state of repair and condition consistent with the reasonable
commercial practice of leading international aircraft operating
lessors with respect to aircraft not under lease. A third party event
will not cause a breach of this covenant so long as:
(a) no member of MSAF group consents or has consented to the third
party event; and
(b) the member of MSAF group which is the lessor or owner of such
aircraft promptly and diligently takes such commercially
reasonable actions as a leading international aircraft operating
lessor would
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reasonably take in respect of the third party event,
including seeking to compel such lessee or other relevant person
to remedy the third party event or seeking to repossess the
relevant aircraft or engine.
Notification of Trustee and Administrative Agent. MSAF will notify the
trustee and administrative agent as soon as MSAF or any of its subsidiaries
becomes aware of any loss, theft, damage or destruction to any aircraft or
engine if the potential cost of repair or replacement of such asset (without
regard to any insurance claim related thereto) may exceed $2,000,000.
Leases. MSAF shall adopt and has agreed to cause the servicer to use, and
will adopt and will agree to cause any additional servicer replacing the
servicer pursuant to the terms of the servicing agreement to use, the pro forma
lease agreement or agreements then used by the servicer or such additional
servicer, as the case may be, in connection with its aircraft operating leasing
services business generally, as such pro forma lease agreement or agreements may
be revised from time to time by the servicer or additional servicer as a
starting point in the negotiation of future leases.
In the case of any future lease entered into in connection with:
(1) the renewal or extension of a lease;
(2) the leasing of an aircraft to a person that is or was a lessee under a
pre-existing lease; or
(3) the leasing of an aircraft to a person that is or was a lessee under
an operating lease of an aircraft that is being managed or serviced by
the servicer or such additional servicer, as the case may be,
a form of lease substantially similar to the pre-existing lease or
operating lease may, in lieu of the pro forma lease, be used by the
servicer or such additional servicer, as a starting point in the
negotiation of such future lease with persons who are not members of the
MSAF group or any future MSAF group entity.
Opinions. MSAF will not enter into, and will not permit any of its
subsidiaries to enter into, any future lease with any person that is not a
member of MSAF group or change the jurisdiction of registration of any aircraft
that is subject to a lease, unless, upon entering into such future lease or
changing the jurisdiction or registration of such aircraft or within a
commercially reasonable period thereafter, the servicer or additional servicer,
as the case may be, obtains such legal opinions, if any, with regard to
compliance with the registration requirements of the relevant jurisdiction,
enforceability of the future lease and such other matters customary for such
transactions to the extent that receiving such legal opinions is consistent with
the reasonable commercial practice of leading international aircraft operating
lessors.
Insurance. MSAF will maintain or cause, directly or indirectly through its
subsidiaries, to be maintained with reputable and responsible insurers or with
insurers that maintain relevant reinsurance with reputable and responsible
reinsurers:
(1) airline hull insurance for each aircraft in an amount at least equal
to the note target price for such aircraft or the equivalent thereof
from time to time if such insurance is denominated in a currency other
than United States dollars;
(2) airline liability insurance for each aircraft and occurrence in an
amount at least equal to the relevant amounts set forth in the
indenture for each model of aircraft; and
(3) airline political risk insurance for each aircraft subject to a lease
and habitually based in a jurisdiction determined in accordance with
the political risk insurance guidelines, as set forth in the indenture
and as amended from time to time with the consent of the rating
agencies, in an amount at least equal to the note target price, or the
equivalent thereof from time to time if such insurance is denominated
in a currency other than United States Dollars, for such aircraft;
except that such insurance may be subject to commercially reasonable
deductible and self-insurance arrangements, taking into account, among
other things, the creditworthiness and experience of the lessee, if
any, the type of aircraft and market practices in the aircraft
insurance industry generally. The coverage and terms (including
endorsements, deductibles and self-insurance
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arrangements) of any insurance maintained with respect to any aircraft
not subject to a lease shall be substantially consistent with the
commercial practices of leading international aircraft operating
lessors regarding similar aircraft.
In determining the amount of insurance required to be maintained, MSAF may
take into account any indemnification from, or insurance provided by, any
governmental, supranational or inter-governmental authority or agency (other
than, with respect to political risk insurance, any governmental authority or
agency of any jurisdiction for which political risk insurance must be obtained),
the sovereign foreign currency debt rating of which is rated AA, or the
equivalent, by at least one of the rating agencies, against any risk with
respect to an aircraft. The amount of such indemnification or insurance when
added to the amount of insurance against such risk maintained by MSAF or which
MSAF has caused to be maintained, shall be at least equal to the amount of
insurance against such risk otherwise required by the covenant taking into
account self-insurance permitted by the covenant. Any such indemnification or
insurance provided by such government shall provide substantially similar
protection as the insurance required by the covenant. MSAF will not be required
to maintain, or to cause to be maintained, any insurance otherwise required
hereunder to the extent that such insurance is not generally available in the
relevant insurance market at commercially reasonable rates from time to time.
Indemnity. MSAF will, and will cause each of its subsidiaries to, include
in each lease between a member of MSAF group and a person who is not a member of
MSAF group an indemnity in respect of the lease in respect of any losses or
liabilities arising from the use or operation of the aircraft during the term of
such lease, subject to such exceptions, limitations and qualifications as are
consistent with the reasonable commercial practices of leading international
aircraft operating lessors.
Events of Default and Remedies
Each of the following events will be an event of default with respect to
any class of notes, except as specified below:
(1) failure to pay interest on the notes of such class or any subclass
thereof, other than step-up interest, in each case when such amount
becomes due, and such default continues for a period of five or more
business days;
(2) failure to pay principal or premium, if any, on the notes of such
class or any subclass thereof either on or prior to the applicable
final maturity date;
(3) failure to pay any amount other than interest when due and payable in
connection with any note of such class or any subclass thereof, to the
extent that there are at such time available collections therefor, and
such default continues for a period of five or more business days;
(4) failure by MSAF to comply with any of the covenants, obligations,
conditions or provisions binding on it under the indenture or the
notes (other than a payment default for which provision is made in
clause (1), (2) or (3) above), if such failure materially adversely
affects the holders of such class of notes and continues for a period
of 30 days or more after written notice thereof has been given to MSAF
by the cash manager, the administrative agent, the servicer or
additional servicer, or by holders of at least 25% of the aggregate
outstanding principal balance of the notes of the most senior class of
the notes outstanding;
(5) a court having jurisdiction in the premises enters a decree or order
for:
(1) relief in respect of MSAF, or any subsidiary (other than a
subsidiary which owns or leases aircraft having an aggregate base
value of less than 10% of the Adjusted Portfolio Value at that
time) (a "significant subsidiary") under any applicable law
relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization, examination, relief of debtors or
other similar law now or hereafter in effect;
(2) appointment of a receiver, liquidator, examiner, assignee,
custodian, trustee, sequestrator or similar official of MSAF or
any significant subsidiary; or
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(3) the winding up or liquidation of the affairs of MSAF or any
significant subsidiary and, in each case, such decree or order
shall remain unstayed or such writ or other process shall not
have been stayed or dismissed within 90 days from entry thereof;
(6) MSAF or any significant subsidiary:
(a) commences a voluntary case under any applicable law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization, examination, relief of debtors or other similar
law now or hereafter in effect, or consents to the entry of an
order for relief in any voluntary case under any such law;
(b) consents to the appointment of or taking possession by a
receiver, liquidator, examiner, assignee, custodian, trustee,
sequestrator or similar official of MSAF or any significant
subsidiary or for all or substantially all of the property and
assets of MSAF or any significant subsidiary; or
(c) effects any general assignment for the benefit of creditors;
(7) any judgment or order for the payment of money in excess of 5% of the
aggregate adjusted portfolio value shall be rendered against MSAF or
any subsidiary or any other member of MSAF group and either:
(a) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order; or
(b) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect. However, any
such judgment or order shall not be an event of default under the
indenture if and for so long as:
o the amount of such judgment or order is covered by a valid
and binding policy of insurance between the defendant and
the insurer covering payment thereof; and
o such insurer, which shall be rated at least A by A.M. Best
Company or any similar successor entity, has been notified
of, and has not disputed the claim made for payment of, the
amount of such judgment or order;
(8) the constitutional documents of MSAF cease to be in full force and
effect without replacement documents having the same terms being in
full force and effect.
The indenture provides that, within 30 days of when an event of default
occurs in respect of any class of notes, the trustee will give to the
noteholders of such class notice, transmitted by mail, of all uncured or
unwaived defaults under the indenture known to it on such date. If an event of
default other than an event of default under (5) or (6) above) with respect to
the senior class of notes shall have occurred and be continuing, the trustee for
the senior class may, and, when instructed by the holders of 25% of the
aggregate outstanding principal balance of the senior class of notes, shall,
give a default notice to MSAF, the administrative agent, the trustee and the
cash manager declaring the outstanding principal balance of the notes and all
accrued and unpaid interest thereon to be due and payable.
At any time after the senior trustee has declared the outstanding principal
balance of the notes to be due and payable and before the exercise of any other
remedies pursuant to the indenture, holders of a majority of the outstanding
principal balance of the senior class of notes, by written notice to MSAF, the
senior trustee and the administrative agent, may, except in the case of:
(1) a default in the deposit or distribution of any payment required to be
made on the notes of such class;
(2) a payment default on such class of notes; or
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(3) a default in respect of any covenant or provision of the indenture
that cannot by the terms thereof be modified or amended without the
consent of each noteholder affected thereby,
rescind and annul such declaration and thereby annul its consequences if:
(1) there has been paid to or deposited with the senior trustee
an amount sufficient to pay all overdue installments of interest on the
notes, and the principal of and premium, if any, on the notes that
would have become due otherwise than by such declaration of
acceleration;
(2) the rescission would not conflict with any judgment or decree; and
(3) all other defaults and events of default, other than nonpayment of
interest and principal on the notes that have become due solely
because of such acceleration, have been cured or waived.
If an event of default under clause (5) or (6) above occurs, the
outstanding principal balance of the notes and all accrued and unpaid interest
thereon shall automatically become due and payable without any further action by
any party.
After the occurrence and during the continuation of an event of default:
(1) the class B noteholders will not be permitted to give or direct the
giving of a default notice or to exercise any remedy in respect of
such event of default until all interest and principal on the class A
notes have been paid in full,
(2) the class C noteholders will not be permitted to give a default notice
or to exercise any remedy in respect of such event of default until
all interest and principal on the class A notes and the class B notes
have been paid in full, and
(3) the class D noteholders will not be permitted to give a default notice
or to exercise any remedy in respect of such event of default until
all interest and principal on the class A notes, the class B notes and
the class C notes have been paid in full.
The trustee shall provide each rating agency with a copy of any default
notice it receives pursuant to the indenture.
The indenture contains a provision entitling the trustee, subject to its
duty during a default to act with the required standard of care, to be
indemnified by the holders of any class of the notes before proceeding to
exercise any right or power under the indenture or the administrative agency
agreement at the request or direction of such holders. Except in limited
circumstances, no holder of the notes will have the right, other than through
the senior trustee acting in accordance with the indenture, to sue for recovery
or take any other actions to enforce the obligations of MSAF to pay any and all
amounts due and payable under the notes, and no holder of the notes will have
the right to take any steps to cause the filing for bankruptcy of MSAF. However,
such limitation does not apply to a suit instituted by any holder of a note for
the enforcement of payment of principal or interest on such note on or after the
respective due dates therefor unless such holder shall have consented thereto.
The senior trustee is entitled to exercise any and all remedies available under
the indenture.
The term default means the occurrence of any event which is, or after
notice or lapse of time, or both, would constitute an event of default.
Intercreditor Rights
Subject to the terms of the indenture, the senior trustee will have sole
discretion as to whether to direct the administrative agent to exercise and
enforce any and all remedies with respect to the notes. The senior trustee may
take various actions in respect of the notes, without regard to the interests of
any other creditors.
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13300/861/EDGAR/s4_2.ed
Modification and Waiver
If the trustee receives a request for its consent to an amendment,
modification or waiver under the indenture, the notes or any related document
relating to the notes, the trustee shall mail a notice of such proposed
amendment, modification or waiver to each noteholder as to whether or not to
consent to such amendment, modification or waiver.
The indenture provides that, with the consent of the holders of a majority
of the outstanding principal balance of the notes (acting as a single class),
modifications may be made to the notes or the indenture except that without the
consent of any swap provider and the holder of each outstanding note affected,
we may not make any modification of the provisions:
o setting forth the frequency or the currency of payment of, the maturity
of, or the method of calculation of the amount of any interest, principal
and premium, if any, payable in respect of any subclass of notes;
o reducing the percentage of the aggregate outstanding principal balance of
any subclass of notes required to approve any such amendment or waiver; or
o altering the manner or priority of payment of any subclass of notes.
Any such modification approved by the required holders of any subclass of
notes will be binding on the holders of the relevant subclass of notes and each
party to the indenture. This provision shall not prevent MSAF or any subsidiary
from amending any lease if such amendment is otherwise permitted by the
indenture. The senior trustee may also waive any event of default.
The subordination provisions contained in the indenture may not be amended
or modified without the consent of each swap provider, each provider of a
credit facility, each holder of the class of notes affected thereby and each
holder of any class of notes ranking senior to such notes.
In no event shall the provisions relating to the priority of the expenses
or swap payments in the indenture be amended or modified.
Notices to Noteholders
Except as provided below, any notice to the noteholders will be valid if
given:
(1) by publication in the Luxemburger Wort or, if such newspaper shall
cease to be published or timely publication therein shall not be
practicable, in such English language newspaper or newspapers as the
trustee shall approve having a general circulation in Europe;
(2) by either of (a) the information contained in such notice appearing
on the relevant page of the Reuters screen or such other medium for
the electronic display of data as may be approved by the trustee and
notified to noteholders or (b) publication in the Financial Times and
The Wall Street Journal (National Edition) or, if either newspaper
shall cease to be published or timely publication therein shall not
be practicable, in such English language newspaper or newspapers as
the trustee shall approve having a general circulation in Europe and
the United States; and
(3) until such time as any definitive notes are issued and, so long as
the notes are registered in the name of a nominee for DTC, Euroclear
and/or Clearstream, delivery of the relevant notice to DTC, Euroclear
and/or Clearstream for communication by them to noteholders.
The trustee may approve some other method of giving notice to the
noteholders if, in its opinion, the method:
(1) is reasonable, having regard to the number and identity of the
noteholders and/or to market practice then prevailing;
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<PAGE>
(2) is in the best interests of the noteholders; and
(3) will comply with the rules of the Luxembourg Stock Exchange or such
other stock exchange (if any) on which the notes are then listed.
Any such notice shall be deemed to have been given on such date as the
trustee may approve so long as notice of such method is given to the
noteholders in such manner as the trustee shall require.
Notice specifying the rate, amount or payment date in respect of any
floating rate notes, or in respect of any repayment of principal on any notes
shall, for so long as the notes are listed on the Luxembourg Stock Exchange and
so long as the rules of the Luxembourg Stock Exchange so require, be given to
the Luxembourg Stock Exchange.
However this requirement shall be satisfied until such time as any
definitive notes are issued to all noteholders and so long as the notes are
held on behalf of DTC, Clearstream and Euroclear by:
(1) delivery of the relevant notice to DTC, Clearstream and Euroclear for
communication by them to the noteholders without the need for
publication in the Luxemburger Wort; and
(2) delivery of the notice to the Luxembourg Stock Exchange and the
paying agent in Luxembourg.
Any notice specifying:
(1) an increase in the interest rate of any subclass of notes due to
step-up interest or failure by MSAF to comply with the registration
requirements for the notes; or
(2) redemption of principal of any notes,
must be published in the Luxemburger Wort or another daily newspaper of
general circulation in Luxembourg. Such notice shall be deemed to have been
given on the first day on which any of such conditions shall have been met.
Governing Law and Jurisdiction
The indenture, the notes, the administrative agency agreement and the cash
management agreement are to be governed by and construed in accordance with the
laws of the State of New York. In the indenture, the administrative agency
agreement and the cash management agreement, MSAF has submitted to the
jurisdiction of the United States Federal and New York State courts located in
The City of New York for all purposes of or in connection with the notes, the
administrative agency agreement and cash management agreement and has
designated a person in the city of New York to accept service of any process on
its behalf.
Beneficial Interest
The nominal value of the beneficial interest in MSAF is $1.00. MSDW
Aircraft Holdings indirectly holds 100% of the beneficial interest, but MSDW
Aircraft Holdings may transfer all or a portion of the beneficial interest to a
related or unrelated person in the future. The beneficial interest will rank
junior in priority of payment to certain payments on the notes and certain
other obligations of MSAF and, to the extent held by more than one person, pari
passu among such persons. Pursuant to the subordination provisions of the
indenture, payments on the beneficial interest, other than the beneficial
interest distribution amount, as set forth in "-- Payment of Principal and
Interest -- Priority of Payments", are subordinated to all payments of interest
and principal on the notes and no payments may be made on the beneficial
interest other than the beneficial interest distribution amount while the notes
remain outstanding.
When, as and if declared by the controlling trustees, a beneficial
interest distribution amount shall only be payable on any payment date
occurring after March 15, 2003 and will not exceed the lesser of:
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<PAGE>
(1) 3% of the difference, if positive, between the adjusted portfolio
value on such payment date and the outstanding principal balance of
the MSAF notes (determined prior to application of available
collections on such payment date); and
(2) 15% of available collections on such payment date after application
of payments and retentions (1) through (17) as set forth above under
"-- Payment of Principal and Interest -- Priority of Payments".
The Accounts
The administrative agent, acting on behalf of the security trustee, has
established the following accounts:
(1) the collection account;
(2) the expense account;
(3) the rental account;
(4) the lessee funded account;
(5) the refinancing account; and
(6) the defeasance/redemption account.
Each of the collection account, the expense account, the rental accounts,
the lessee funded account and the aircraft purchase account has been
established at a bank having:
(1) a long-term unsecured debt rating of not less than AA, or the
equivalent, by the rating agencies; or
(2) a certificate of deposit rating of A-1+ by Standard & Poor's and P-1
by Moody's and that is acceptable to the other rating agencies.
Where required by the terms of the relevant leases, certain rental
accounts may be established at banks having ratings of less than AA, or the
equivalent, by the rating agencies, or a certificate of deposit rating of less
than A-1+ by Standard and Poor's and P-1 by Moody's. Except where local legal
or regulatory reasons do not permit, all of such accounts will be held in the
names of the security trustee, who will have sole dominion and control over the
accounts, including, among other things, the sole power to direct withdrawals
from or transfers among such accounts. Subject to certain conditions set forth
in the administrative agency agreement, the security trustee will delegate such
authority over the accounts to the administrative agent; the security trustee
will not be responsible for the acts or omissions of the administrative agent.
For as long as any notes remain outstanding, funds on deposit in the
accounts will be invested and reinvested by the cash manager at MSAF group's
written direction (or, following delivery to MSAF or the administrative agent
of a default notice or if any event of default described in clause (5) or (6)
under "-- Events of Default and Remedies" shall have occurred and be
continuing, at the security trustee's written direction). These investments
must be permitted account investments maturing, in the case of the collection
account and expense account, such that sufficient funds shall be available to
make required payments on the first succeeding scheduled payment date after
such permitted account investments are made. Investment and reinvestment of
funds in the lessee funded account must be made in a manner and with maturities
that conform to the requirements of the related leases or aircraft agreements.
Investment earnings on funds deposited in any account, net of losses and
investment expenses, will, if permitted by the terms of the related leases in
the case of such funds in the lessee funded account, be deposited in the
collection account and treated as collections.
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Rental Accounts
The lessees will make all payments under the leases directly into the
applicable rental accounts. The administrative agent will transfer, or cause to
be transferred, all funds deposited into the rental accounts into the
collection account as collections within one business day of receipt thereof,
other than certain limited amounts, if any, required to be left on deposit for
local legal or regulatory reasons.
The Collection Account
Collections include all amounts received by MSAF group, including:
(1) rental payments;
(2) payments under any credit or liquidity enhancement facility;
(3) payments under any letter of credit, letter of comfort, letter of
guarantee or other assurance in respect of a lessee's obligations
under a lease;
(4) the cash portion of the liquidity reserve amount;
(5) amounts received in respect of claims for damages or in respect of
any breach of contract for nonpayment of any of the foregoing
(including any amounts received from any MSAF group subsidiary,
whether by way of distribution, dividend, repayment of a loan or
otherwise and any proceeds received in connection with any allowed
restructuring);
(6) net proceeds of any aircraft sale or amounts received under any
aircraft agreement;
(7) proceeds of any insurance payments in respect of any aircraft or any
indemnification proceeds;
(8) certain amounts transferred from the lessee funded account to the
collection account;
(9) certain security deposits transferred from ILFC;
(10) net payments to MSAF group under any swap agreement;
(11) investment income, if any, on all amounts on deposit in the accounts
(in each case to the extent consistent with the terms of applicable
related leases); and
(12) any other amounts received by any member of the MSAF group other than
segregated funds, certain funds to be applied in connection with a
redemption, certain funds received in connection with a refinancing
and other amounts required to be paid over to any third party
pursuant to any related document.
Collections on deposit in the collection account will be calculated by the
administrative agent on the calculation date. The portion of the required
expense amount that has not been paid directly by the administrative agent to
expense payees will be transferred into the expense account on each payment
date and the administrative agent may, from time to time, transfer other
amounts into the expense account in respect of unanticipated expenses falling
due and payable within such interest accrual period. If funds are available on
any payment date, the administrative agent will also transfer amounts in
respect of expenses and costs that are not regular, monthly recurring expenses,
including modification payments and refinancing expenses, if any, anticipated
to become due and payable in any future interest accrual period. Amounts
received for segregated security deposits and maintenance reserves (as
described below) will be transferred directly into the lessee funded account.
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The Lessee Funded Account
Certain lessee security deposits and supplemental rent payments to provide
for maintenance reserves may be required to be segregated from other MSAF group
funds in the future. Amounts we receive from lessees in respect of such
security deposits and maintenance obligations will be held in the lessee funded
account. Funds on deposit in the lessee funded account will be used to make
certain maintenance and security deposit repayment related payments (or such
other payments as may be required or permitted under the terms of the relevant
leases) or may be applied against maintenance-related payments otherwise
required to be made by the lessee during the term of the related lease and will
not be used to make payments in respect of the notes or the notes at any time,
including after the delivery of a default notice. In certain circumstances
where lessees relinquish their rights to receive certain maintenance and
security deposit payments upon the expiration of a lease, surplus funds may be
credited from the lessee funded account to the collection account.
The Expense Account
On each payment date, the administrative agent will withdraw from the
funds deposited in the collection account, in the priority of payments
established for the notes, an amount equal to the required expense amount. We
will then use this amount to pay the expenses. If the required expense amount
has not been paid directly by the administrative agent to expense payees, the
required expense amount will be deposited into the expense account. In
addition, in the period between payment dates, the administrative agent may
make further withdrawals of cash from the collection account in order to
satisfy expenses due and payable prior to the next payment date that were not
previously anticipated to become so due and payable on the previous payment
date. If funds on deposit in the collection account are less than the required
expense amount on any payment date, MSAF group will be unable to pay the
required expense amount in full on such date, which may lead to a default under
one or more of the related documents or MSAF group's various service
agreements. All available collections remaining in the collection account will
be used by the administrative agent to make payments on the notes in accordance
with the priority of payments established therefor under "-- Payment of
Principal and Interest -- Priority of Payments".
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REPORTS TO NOTEHOLDERS
Monthly Reports to Noteholders
Summary
On the second business day before each payment date and any other date on
which we will distribute payments with respect to any subclass of notes, the
administrative agent will send to the trustee for further distribution to each
noteholder a monthly report relating to the payment to be made. The monthly
report will consist of two parts. The full format of each of those parts is
shown below. The first part will be called "Summary Performance to Date" and
will show (1) a comparison of our cumulative cash flow performance to the date
of the report with the Base Case as adjusted if necessary to reflect any
undelivered aircraft or aircraft sales, both in dollar amounts and as a
percentage of lease rentals and (2) an analysis of our interest coverage, debt
coverage and loan-to-value ratios in comparison with those assumed in this
prospectus under "Summary -- The Notes". The second part will be called "Cash
Report for the Month" and will show (1) a summary of account activity, (2) an
analysis of expense account and collection account activity, including a
breakdown of the priority of payments for that month, (3) payments on the notes
by subclass (including a breakdown per $100,000 initial outstanding principal
balance) and (4) floating rate note information for the next interest accrual
period.
Summary Performance to Date
The Summary Performance to Date will contain the following information:
<TABLE>
Actual Base Case Variance Actual Base Case Variance
------ --------- -------- ------ --------- --------
All amounts in U.S. dollars millions % of Lease Rentals
unless otherwise stated
<S> <C> <C> <C> <C> <C> <C>
CASH COLLECTIONS
Lease Rentals...................
Renegotiated Leases.............
Rental Resets...................
------ ------ ------ ------ ------ ------
Contracted Lease Rentals
Movement in Current Arrears
Balance..........................
Less Net Stress-related Costs....
Bad debts.......................
Capitalised arrears.............
Security deposits drawn down....
AOG.............................
Other Leasing Income............
Repossession....................
------ ------ ------ ------ ------ ------
Sub-total........................
------ ------ ------ ------ ------ ------
Net Lease Rentals................
Interest Earned..................
Net Maintenance..................
Total Cash Collection............
====== ====== ====== ====== ====== ======
CASH EXPENSES
Aircraft Operating Expenses......
Insurance.......................
Re-leasing and other overheads..
------ ------ ------ ------ ------ ------
sub-total........................
------ ------ ------ ------ ------ ------
SG&A Expenses....................
Aircraft Services Fees...........
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<PAGE>
Actual Base Case Variance Actual Base Case Variance
------ --------- -------- ------ --------- --------
All amounts in U.S. dollars millions % of Lease Rentals
unless otherwise stated
<S> <C> <C> <C> <C> <C> <C>
Base Fee........................
Rent Collected Fee..............
Rent Contracted Fee.............
Incentive Fee...................
------ ------ ------ ------ ------ ------
Sub-total........................
Other Servicer Fees..............
------ ------ ------ ------ ------ ------
Sub-total........................
------ ------ ------ ------ ------ ------
Total Cash Expenses..............
====== ====== ====== ====== ====== ======
NET CASH COLLECTIONS
Total Cash Collections...........
Total Cash Expenses..............
Interest Payments................
Swap Payments....................
Exceptional Item.................
------ ------ ------ ------ ------ ------
TOTAL............................
====== ====== ====== ====== ====== ======
PRINCIPAL PAYMENTS
[Each subclass of notes]
------ ------ ------ ------ ------ ------
Total
====== ====== ====== ====== ====== ======
Debt Balances
------ ------
[Each subclass of notes]
====== ======
</TABLE>
<TABLE>
Coverage Ratios Closing Base Case Actual
--------------- ------- --------- ------
<S> <C> <C> <C>
Interest Coverage Ratio..........
[Each class of notes]............
Debt Coverage Ratio..............
[Each class of notes]............
Loan-to-Value Ratios.............
Assumed Portfolio Value..........
Adjusted Portfolio Value.........
Liquidity Reserve Amount.........
Of which -- Cash.................
-- Letters of Credit held..
Sub-total........................
Less Lessee Security Deposits....
Less Accrued Expenses............
Subtotal.........................
Total Asset Value................
Note Balances....................
[Each class of notes]............
Total............................
</TABLE>
Although we are not required under our indenture to provide the
information contained in the "Summary Performance to Date" section of our
monthly report, we believe that this additional information is beneficial to
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noteholders and we intend to provide it to them voluntarily each month. If we
find that noteholders do not find this information useful or would prefer a
different format, we reserve the right to vary the format of this section, to
include additional information or to omit it from the monthly report at any
time.
Cash Report for the Month
The Cash Report for the Month will contain the following information:
1. Account Activity Summary between Calculation Dates
<TABLE>
Prior Balance on
Balance Deposits Withdrawals Calculation Date
------- -------- ----------- ----------------
<S> <C> <C> <C> <C>
Expense Account........................
Collection Account.....................
Aircraft Purchase Account..............
Liquidity Reserve cash balance.........
------ ------ ------ ------
Total.................................
====== ====== ====== ======
</TABLE>
2. Analysis of Expense Account Activity
Opening Balance on Previous Calculation Date......................
Transfer from Collection Account on previous Payment Date.........
Permitted Aircraft Accrual........................................
Interim Transfer from Collection Account..........................
Interest Income...................................................
Balance on current Calculation Date...............................
Payments on previous payment date................................
Interim payments.................................................
other............................................................
------
Balance on current Calculation Date...............................
======
3. Analysis of Collection Account Activity
Opening Balance on Previous Calculation Date......................
Collections during period.........................................
lease rentals....................................................
maintenance reserves.............................................
other leasing income.............................................
interest income..................................................
interim transfer from Expense Account............................
Transfers from Aircraft Purchase Account..........................
Drawings under Credit or Liquidity Enhancement Facilities.........
Repayment of Drawings under Credit or Liquidity Enhancement
Facilities......................................................
Transfer to Expense Account on previous Payment Date..............
Required Expense Amount..........................................
Permitted Aircraft Modifications.................................
Net Swap payments on previous Payment Date........................
Aggregate Note Payments on previous Payment Date..................
Interim Transfer to Expense Account...............................
------
Balance on current Calculation Date...............................
======
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Analysis of Liquidity Reserve Amount
First Collection Account Reserve..................................
Second Collection Account Reserve.................................
Morgan Stanley Facility...........................................
ILFC Facility.....................................................
Letter of Credit.................................................
Cash Security Deposits...........................................
------
Liquidity Reserve Amount..........................................
------
Minimum Liquidity Reserve Amount..................................
======
Balance in Collection Account.....................................
Liquidity Reserve Amount..........................................
------
Available Collections............................................
======
Analysis of Current Payment Date Distributions
(i) Required Expense Amount..................................
(ii) (a) Class A Interest but excluding Step-up...................
(b) Swap Payments other than subordinated swap payments......
(iii)(a) Repayment of Primary Eligible Credit Facilities..........
(b) First Collection Account top-up (Minimum liquidity
reserve $15m)..........................................
(iv) Class A Minimum principal payment........................
(v) Class B Interest.........................................
(vi) Class B Minimum principal payment........................
(vii) Class C Interest.........................................
(viii) Class C Minimum principal payment........................
(ix) Class D Interest.........................................
(x) Class D Minimum principal payment........................
(xi) (a) Secondary Eligible Credit Facilities (ILFC and Morgan
Stanley Facilities)....................................
(b) Second collection account top-up.........................
(xii) Class A Scheduled principal..............................
(xiii) Class B Scheduled principal..............................
(xiv) Class C Scheduled principal..............................
(xv) Class D Scheduled principal..............................
(xvi) Permitted accruals for Modifications.....................
(xvii) Step-up interest.........................................
(xviii) Beneficial interest......................................
(xix) Class A Supplemental principal...........................
(xx) Class B Supplemental principal...........................
(xxi) Class D Redemption Price.................................
(xxii) Class C Redemption Price.................................
(xxiii) Class B Redemption Price.................................
(xxiv) Class A Redemption Price.................................
(xxv) Subordinated Swap payments...............................
(xxvi) all remaining amounts to holders of Beneficial interests.
Total Payments with respect to Payment Date..............
less collection Account Top Ups (iii)(b) and
(xi)(b) above..........................................
------
======
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4. Payments on the Notes by Subclass
List each
subclass of notes
-----------------
(a) Floating Rate Notes
Applicable LIBOR................................
Applicable Margin...............................
Applicable Interest Rate........................
Day Count.......................................
Actual Number of Days...........................
Interest Amount Payable.........................
Step-up Interest Amount Payable.................
------
Total Interest Paid.............................
======
Expected Final Payment Date.....................
Excess Amortisation Date........................
------
Original Balance................................
Opening Outstanding Principal Balance...........
------
Extended Pool Factors...........................
Pool Factors....................................
------
Extension Amount................................
Pool Factor Amount..............................
Surplus Amortisation............................
------
Total Principal Distribution Amount.............
======
Redemption Amount...............................
amount allocable to principal..................
amount allocable to premium....................
------
Closing Outstanding Principal Balance...........
======
(b) Fixed Rate Notes
Applicable Interest Rate........................
Day count.......................................
Number of Days..................................
Interest Amount Payable.........................
------
Total Interest Paid.............................
======
Expected Final Payment Date.....................
Excess Amortisation Date........................
Opening Outstanding Principal Balance...........
------
Extended Pool Factors...........................
Pool Factors....................................
Extended Amount.................................
Pool Factor amount..............................
------
Total Principal Distribution Amount.............
======
Redemption Amount...............................
amount allocable to principal..................
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List each
subclass of notes
-----------------
amount allocable to premium....................
------
Closing Outstanding Principal Balance...........
======
Current Payment Date............................
Current Calculation Date........................
Previous Payment Date...........................
Previous Calculation Date.......................
5. Floating Rate Note information for next Interest Accrual Period
Start of Interest Accrual Period
End of Interest Accrual Period
Reference Date
Applicable LIBOR................................
Applicable Margin...............................
Applicable Interest Rate........................
Actual Pool Factor..............................
Fixed Rate Notes
Actual Pool Factor..............................
6. Payments per $ 100,000 Initial Outstanding Principal Balance of Notes
(a) Floating Rate Notes
Opening Outstanding Principal Balance...........
Total Principal Payments........................
Closing Outstanding Principal Balance...........
------ ------ ------
Total Interest..................................
------ ------ ------
Total Premium...................................
====== ====== ======
(b) Fixed Rate Notes
Opening Outstanding Principal Balance...........
Total Principal Payments........................
Closing Outstanding Principal Balance...........
------ ------
Total Interest..................................
------ ------
Total Premium...................................
====== ======
We are required under our indenture to provide the information contained
in the "Cash Report for the Month" section of our monthly report to
noteholders.
Securities and Exchange Commission Reports
We will file each monthly report with the Commission in a Report on Form
8-K. The monthly reports for each April 15, July 15 and October 15 will be
accompanied by a statement setting forth an analysis of collection account
activity for the preceding fiscal quarter ended February 28, May 31 and August
31, respectively, together with a discussion and analysis of such activity and
of any significant developments affecting MSAF group in such quarter. Each
quarterly report will also include an updated description of the aircraft then
in the portfolio and the related lessees in substantially similar format to the
description set forth under "The Portfolio -- MSAF group Portfolio Analysis".
We will file each
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quarterly report with the Commission in a Report on Form 8-K. We will also
include each quarterly report in a Report on Form 10-Q. Finally, the monthly
report for each February 15 will be accompanied by a statement setting forth an
analysis of collection account activity for the preceding fiscal year ended
November 30, together with a discussion and analysis of such activity and of
any significant developments affecting MSAF group in such year. Each annual
report will also include updated information regarding the current portfolio
leases and lessees to substantially the same effect as the information set
forth under "The Portfolio". We will file each annual report with the
Commission in a Report on Form 8-K. We will also include each annual report in
a Report on Form 10-K and the financial data relating to annual collection
account activity in such 10-K will be audited by Deloitte & Touche LLP.
Information for Noteholders' US Federal Tax Returns
After the end of each calendar year, the trustee will furnish to each
person who was a holder of any subclass of notes at any time during that
calendar year a statement containing the sum of the amounts determined under
"4. Payment on the Notes by Subclass" in the "Cash Report for the Month"
section of the monthly report above for that year or portion of the year for
the relevant subclass, and such other items as are readily available to the
trustee that the noteholder reasonably requests as necessary in preparing its
United States federal tax returns. So long as any subclass of notes are
registered in the name of DTC or its nominee, this statement will be prepared
on the basis of the information supplied to the trustee by DTC and the DTC
participants, and the trustee will deliver it to the DTC participants to be
available for forwarding by the DTC participants to the applicable noteholders
as described above.
Notices in Luxembourg and on BLOOMBERG([Registered])
Following each date on which a report described above is sent to
noteholders, the trustee will publish or cause to be published in the
Luxemburger Wort (or another daily newspaper in Luxembourg) a notice to the
effect that the information described above will be available for review at the
main office of the listing agent for the notes in Luxembourg. Notices to
noteholders regarding the notes will be given by publication in the Luxemburger
Wort. The trustee will notify the Luxembourg Stock Exchange promptly following
each payment date. In addition, promptly after each payment date, the
administrative agent intends to provide the same information to Bloomberg
Financial Markets for publication on the BLOOMBERG(R) Service. This information
can be found on BLOOMBERG([Registered]) at "[MSAF MTGE]".
Definitive Notes
If any notes are issued in the form of definitive notes, the trustee will
prepare and deliver the reports described above to each holder of record of a
definitive note in accordance with the name and period of beneficial ownership
of such holder of record appearing on the records of the trustee. The trustee
maintains the records concerning the holders of the notes.
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BOOK-ENTRY REGISTRATION, GLOBAL CLEARANCE AND SETTLEMENT
Book-Entry Registration
Investors will own their notes either directly through The Depository
Trust Company ("DTC") in the United States or through Clearstream or Morgan
Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear") in Europe if they are participants in such
systems, or indirectly through organizations that are participants in such
systems. Except as set forth below, the notes will be issued in global form
without interest coupons (each, a "global note") and will be registered in the
name of Cede & Co. as the nominee for DTC. Investors will be entitled to
receive a physical certificate registered in the investor's name ("definitive
notes") only in the limited circumstances described below. Unless and until
definitive notes are issued, all references in this prospectus to actions by
noteholders will refer to actions taken by DTC upon instructions from
participants whose securities are held by DTC, and all references herein to
distributions, notices, reports and statements to noteholders will refer to
distributions, notices, reports and statements, respectively, to DTC or Cede &
Co., as the registered holder of the notes, or to DTC participants for
distribution to noteholders in accordance with DTC procedures.
Clearstream and Euroclear will hold omnibus positions on behalf of their
participants through their securities accounts on the books of Clearstream's
and Euroclear's respective depositaries which, in turn, will hold such
positions in securities accounts in such depositaries' names on the books of
DTC. Citibank, N.A. will act as depositary for Clearstream and Morgan Guaranty
Trust Company of New York will act as depositary for Euroclear.
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between participating organizations whose
securities are held by Clearstream and participants in Euroclear will occur in
the ordinary way in accordance with the applicable rules and operating
procedures of Clearstream and Euroclear.
Cross-market transfers between persons holding directly or indirectly
through DTC participants, on the one hand, and directly or indirectly through
Clearstream participants or Euroclear participants, on the other hand, will be
effected by DTC in accordance with DTC rules and on behalf of Clearstream or
Euroclear, as the case may be, by its respective depositary. However, such
cross-market transactions will require delivery of instructions to Clearstream
or Euroclear, as the case may be, by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines.
If the transaction meets its settlement requirements, Clearstream or Euroclear,
as the case may be, will deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with
procedures for same-day funds settlement applicable to DTC. Clearstream
participants and Euroclear participants may not deliver instructions directly
to Clearstream's and Euroclear's depositaries.
Because of time-zone differences, credits of beneficial interests in the
notes received in Clearstream or Euroclear as a result of a transaction with a
DTC participant will be made during the next business day following the DTC
settlement date on which securities settlement processing takes place. Such
credits or any transactions in such notes settled during such processing, will
be reported to the relevant Clearstream participant or Euroclear participant on
such business day. Cash received in Clearstream or Euroclear as a result of
sales of beneficial interests in the global notes by or through a Clearstream
participant or Euroclear participant to a DTC participant will be received with
value on the DTC settlement date but will be available in the relevant
Clearstream or Euroclear cash account only as of the business day following
settlement in DTC.
DTC
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for DTC participants and to
facilitate the clearance and settlement of securities transactions between DTC
participants through electronic book-entry changes in accounts of DTC
participants, thereby eliminating the need for physical movement of
certificates. DTC participants include securities brokers and dealers
(including the initial purchaser of the notes), banks, trust companies and
clearing corporations and may in the future include certain other
organizations.
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Indirect access to the DTC systems also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a DTC participant, either directly or indirectly.
Investors who are not DTC participants but desire to purchase, sell or
otherwise transfer ownership of, or other interests in, beneficial interests in
the notes may do so through DTC participants only. Indirect participants are
required to effect transfers through a DTC participant.
MSAF will make payments of interest, principal, and premium, if any, in
respect of the notes to DTC. These payments are the responsibility of MSAF.
Noteholders will receive all distributions of interest, principal and premium,
if any, in respect of the notes from the trustee or a paying agent, through DTC
participants and indirect participants. Disbursement of such payments to DTC
participants will be the responsibility of DTC and disbursement of such
payments to the noteholders will be the responsibility of DTC participants and
indirect participants. DTC's practice is to credit DTC participants' accounts
on the payment date in accordance with their respective holdings, as shown on
DTC's records, unless DTC has reason to believe that it will not receive
payment on such payment date. Payments by DTC participants to noteholders will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such DTC participant. So
long as the notes are registered in the name of Cede & Co., the only noteholder
will be Cede & Co., as nominee for DTC, and such nominee will be considered the
sole owner or holder of the notes for all purposes under the indenture and the
notes. While so registered, owners of beneficial interests in the notes will be
permitted to exercise the rights of noteholders indirectly only, through DTC,
DTC participants and, if relevant, indirect participants.
Under the rules, regulations and procedures governing DTC and its
operations, DTC is required to make book-entry transfers of the notes among the
DTC participants on whose behalf it acts with respect to the notes and to
receive and transmit distributions of interest, principal and premium, if any,
in respect of the notes. DTC participants and indirect participants similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective notes. DTC's procedures provide a
mechanism by which noteholders will receive payments and will be able to
transfer their interests.
DTC has advised MSAF that it will take any action permitted to be taken by
a noteholder in respect of each subclass of notes under the indenture at the
direction of the DTC participants only to whose accounts that subclass of notes
is credited. Additionally, DTC has advised MSAF that it will take such actions
with respect to any percentage of the outstanding principal amount of any
subclass of notes only at the direction of and on behalf of the DTC
participants whose customers own such outstanding principal amount. DTC may
take conflicting actions with respect to different subclasses of notes to the
extent that such actions are taken on behalf of DTC participants whose holdings
include such different subclasses of notes.
Clearstream
Distributions with respect to notes held beneficially through Clearstream
will be credited to cash accounts of Clearstream participants in accordance
with Clearstream rules and procedures, to the extent received by its
depositary. Clearstream will take any other action permitted to be taken by a
noteholder under the indenture on behalf of a Clearstream participant in
accordance with its rules and procedures only and subject to its depositary's
ability to effect such actions on its behalf through DTC.
Euroclear
Securities clearance accounts and cash accounts with Euroclear are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "terms and conditions"). The terms and conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities
and cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities of a particular subclass in Euroclear are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. Euroclear acts under the terms and conditions
only on behalf of Euroclear participants and has no record of or relationship
with persons holding through Euroclear participants.
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Distributions with respect to notes beneficially held through Euroclear
will be credited to the cash accounts of Euroclear participants in accordance
with the terms and conditions, to the extent received by its depositary.
Euroclear will take any other action permitted to be taken by a noteholder
under the indenture on behalf of a Euroclear participant in accordance with the
terms and conditions only subject to its depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
Definitive Notes
The notes of any subclass may be issued in fully registered, certificated
form to individual owners of beneficial interests in the global notes of that
subclass or their nominees only if:
(1) MSAF advises the trustee in writing that DTC is no longer willing or
able to act as depositary with respect to the notes and the trustee does not
appoint a successor at MSAF's request within 90 days of DTC's notice;
(2) MSAF, at its option, elects to terminate the book-entry system through
DTC; or
(3) after the occurrence of an event of default with respect to any class
of notes, noteholders of a subclass within such class representing an aggregate
of not less than 51% of the aggregate outstanding principal amount of notes of
such subclass advise MSAF, the trustee and DTC through DTC participants in
writing that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in such noteholder's best interest.
If any of these events occurs, the trustee will notify the relevant
holders and will arrange for definitive notes to be issued in exchange for the
holders' book-entry interests.
The trustee or a paying agent will make distributions of interest,
principal and any premium on any definitive notes directly to holders of
definitive notes in whose names the definitive notes were registered at the
close of business on the last record date preceding such payment. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the registrar. A noteholder holding
definitive notes representing at least $1,000,000 of the principal balance of
any subclass of notes may apply to have distributions paid by wire transfer to
its account at a financial institution in New York, New York. The final payment
on any such definitive notes, however, will be made only upon presentation and
surrender of such definitive notes at the office or agency specified in the
notice of final distribution to noteholders.
Definitive notes will be freely transferable and exchangeable for
definitive notes of the same subclass at the office of the trustee or the
offices of the co-transfer agent and co-registrar in Luxembourg. No service
charge will be imposed for any registration of transfer or exchange, but
payment of a sum sufficient to cover any tax or other governmental charge may
be required.
You may exchange or replace a note that is mutilated, destroyed, lost or
stolen at the offices of the trustee or of the co-transfer agent and
co-registrar in Luxembourg upon presentation of the note or satisfactory
evidence of destruction, loss or theft. An indemnity satisfactory to the
trustee or co-transfer agent and co-registrar may be required at the expense of
the noteholder before a replacement note will be issued. The noteholder will
have to pay any tax or other governmental charge imposed in connection
co-transfer agent and with such exchange or replacement and any other expenses
(including the fees and expenses of the trustee and co-registrar) connected
therewith.
CUSIP, ISIN and Common Code Numbers
The notes have been accepted for clearance through DTC, Clearstream and
Euroclear. The CUSIP numbers, International Securities Identification Numbers
(ISIN) and the Common Code Numbers (CCN) are set forth in the table below.
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Subclass of Notes CUSIP ISIN CCN
----------------- ----- ---- ---
Subclass A-2.......... 61745WAM3 US61745WAM38 00,9188,363
Subclass A-3.......... 61745WAR2 US61745WAR25 10,915,953
Subclass A-4.......... 61745WAS0 US61745WAS08 10,915,937
Subclass A-5.......... 61745WAT8 US61745WAT80 10,915,961
Subclass B-1.......... 61745WAN1 US61745WAN11 00,9188,380
Subclass B-2.......... 61745WAU5 US61745WAU53 10,915,970
Subclass C-1.......... 61745WAP6 US61745WAP68 00,9188,436
Subclass C-2.......... 61745WAV3 US61745WAV37 10,915,945
Subclass D-1.......... 61745WAQ4 US61745WAQ42 00,9188,452
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TAXATION
U.S. Federal Income Tax Considerations
The following discussion is the opinion of Davis Polk & Wardwell.
This discussion does not discuss all of the tax consequences that may be
relevant in light of your particular circumstances. In particular, it does not
address purchasers subject to special rules, including:
o insurance companies,
o tax-exempt entities,
o dealers in securities,
o persons who hold the notes as part of an integrated investment
(including a straddle, hedging or conversion transaction) comprised
of the notes and one or more other positions for tax purposes and
o persons whose functional currency is not the U.S. dollar.
This discussion is based on the tax laws of the United States (including
the Internal Revenue Code of 1986, as amended, Treasury regulations, Revenue
Rulings, and judicial decisions). These laws may change, possibly with
retroactive effect.
Please consult your tax advisors with regard to the application of the
U.S. federal income tax laws to our notes, as well as any tax consequences
arising under the laws of any states, local or foreign taxing jurisdiction.
Taxation of U.S. Holders
This part of the discussion applies to you if you are a U.S. holder. For
these purposes, you are a U.S. holder if, for U.S. federal income tax purposes,
you are:
o a citizen or resident of the U.S.,
o a U.S. corporation or other entity subject to U.S. federal income
taxation as a corporation or
o an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source.
Payments of Interest. Payments of interest on a note generally will be
includible in income by you as ordinary income at the time such payments are
accrued or received in accordance with your regular method of accounting for
U.S. federal income tax purposes.
Market Discount. If you purchased a note for less than its principal
amount, the difference will generally be treated as "market discount" for U.S.
federal income tax purposes, subject to a statutory de minimis exception of
0.25% of the principal amount, multiplied by the remaining number of remaining
whole years to maturity at the time of the purchase. Any principal payment on,
or any gain realized on the sale, exchange, retirement or other disposition of
the note, including certain dispositions that would not otherwise give rise to
tax, will be included in your gross income and characterized as ordinary income
to the extent of the market discount that has accrued on the note but that you
have not previously included in income. You may be required to defer taking a
deduction for all or a portion of the interest expense on any indebtedness you
incur or continue to purchase a note until the note matures or you dispose of
it. You must generally accrue market discount on a straight-line basis over the
remaining term of the note. However, you can make an irrevocable election to
accrue market discount on a constant yield basis. You may also elect to include
market discount in income as it accrues, regardless of whether you have elected
to accrue on a constant yield basis or not. If you make this election, the
rules described above requiring the inclusion of market discount upon, and the
deferral of interest
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expense until, a disposition will not apply to you. If you make this election,
it will apply to all debt instruments you acquire on or after the first day of
the taxable year to which the election applies. This election may only be
revoked with the consent of the Internal Revenue Service.
Bond Premiums. If you purchased a note for greater than its principal
amount, the excess will be treated as "bond premium" for U.S. federal income
tax purposes. In general, you may elect to amortize bond premium over the
remaining term of the note using a constant yield method. The amount of bond
premium allocable to any accrual period is offset against the interest
allocable to the accrual period and any excess may be deducted, but only to the
extent of your prior inclusions on the note. Any excess that cannot be deducted
is carried forward to the next accrual period. If you elect to amortize bond
premium, you must reduce your basis in the note by the amount of bond premium
that is used to offset interest or that is deducted. An election to amortize
bond premium applies to all taxable debt instruments held at the beginning of
the first taxable year to which such election applies and any subsequently
acquired debt instruments. The election may be revoked only with the consent of
the Internal Revenue Service.
Sale, Exchange or Retirement of Notes. Except as noted below, upon the
sale, exchange or retirement of a note, you generally will recognize gain or
loss equal to the difference between the amount realized from such sale or
exchange (exclusive of any portion thereof reflecting interest accrued between
interest payment dates on the notes, which will be includible as ordinary
income in accordance with your method of accounting) and your tax basis in the
note. For these purposes, your basis in a note generally will equal your
purchase price for such note, decreased by any principal repayments. Subject to
the discussion on market discount above, if you hold your note as a capital
asset, any gain or loss will be U.S. source capital gain or loss. You should
consult your tax advisors regarding the U.S. federal income tax treatment of
capital gains (which may be taxed at lower rates than ordinary income if you
are an individual) and losses (the deductibility of which is subject to
limitations).
You will not recognize gain or loss on the exchange of restricted notes
for exchange notes. You will have an adjusted basis in the exchange notes equal
to the adjusted basis of your restricted notes immediately prior to the
exchange. Your holding period for the exchange notes will include the period
you held the restricted notes prior to the exchange.
Taxation of Non-U.S. Holders
If you are not a U.S. holder, the following U.S. federal income tax
consequences will apply to you.
Payments on the notes to you will generally not be subject to U.S. federal
withholding tax, provided that:
o you do not own, actually or constructively, 10% or more of the total
combined voting power of all classes of stock entitled to vote in
the MSDW subsidiary that owns the beneficial interest,;
o you are not a controlled foreign corporation related, directly or
indirectly, to the issuer through stock ownership,
o you are not a bank receiving interest on an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of
your trade or business, and
o you, or a securities clearing organization, bank or other financial
institution that holds your notes on your behalf, file a statement
to the effect that the beneficial owner of the note is not a U.S.
person and, under certain circumstances, provide certain other
information.
Notwithstanding the foregoing, if interest or other income received by you
with respect to the note is effectively connected with a trade or business
conducted by you in the U.S., although you would be exempt from the withholding
tax described in the preceding paragraph, you may be subject to U.S. federal
income tax on such income in the same manner as if you were a U.S. person. In
addition, if you are a corporation, you may be subject to a branch profits tax
equal to 30% (or a lower treaty rate) of your effectively connected earnings
and profits for the taxable year, subject to certain adjustments.
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You will not be subject to U.S. federal income tax on gain realized on the
sale, exchange or other disposition of a note, unless
o you are an individual who is present in the U.S. for 183 days or
more in the taxable year of the disposition and certain other
conditions are met, or
o such gain is effectively connected with the conduct by you of a
trade or business in the U.S.
Information Reporting and Backup Withholding
The trustee will be required to report annually to the IRS, and to each
noteholder of record, certain information, including the noteholder's name,
address and taxpayer identification number (either the noteholder's Social
Security number or its employer identification number), the aggregate amount of
principal and interest paid and the amount of tax withheld, if any. This
obligation, however, does not apply with respect to certain U.S. noteholders,
including corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts and individual retirement accounts.
In the event a U.S. noteholder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or under reports its tax liability, MSAF,
its agents or paying agents may be required to "backup" withhold a tax equal to
31 % of each payment of interest and principal on the notes. This backup
withholding is not an additional tax and may be credited against the
noteholder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
Under current Treasury regulations, information porting and backup
withholding will not apply to payments made by MSAF or any agent thereof to a
noteholder that is not a U.S. holder as long as:
o such noteholder provides a statement to the effect that the
beneficial owner of the note is not a U.S. person and, under certain
circumstances, provide certain other information, (this requirement
will be satisfied if you, or a securities clearing organization,
bank or other financial institution that holds your notes on your
behalf, file the statement referred to under "-- Taxation of
Non-U.S. Holders"); and
o MSAF or such agent does not have actual knowledge that the payee is
a U.S. person.
New Treasury regulations will modify the backup withholding and
information reporting procedures in certain respects for payments made after
December 31, 2000. Please consult your tax advisors regarding the application
of the backup withholding and information reporting rules.
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ERISA CONSIDERATIONS
ERISA and the Code impose certain requirements on employee benefit plans
and certain other retirement plans and arrangements, including individual
retirement accounts and annuities, that are subject to ERISA and/or the Code or
any entity which may be deemed to hold the assets of any such plan (all of
which are hereinafter referred to as "plans") and or persons who are
fiduciaries with respect to such plans. A person who exercises discretionary
authority or control with respect to the management or assets of a plan will be
considered a fiduciary of the plan under ERISA. In accordance with ERISA's
general fiduciary standards, before investing in a Note, a plan fiduciary
should determine whether such an investment is permitted under the governing
plan instruments and is appropriate for the plan in view of its overall
investment policy and the composition and diversification of its portfolio,
taking into account the limited liquidity of the notes. Other provisions of
ERISA and the Code prohibit certain transactions involving the assets of a plan
and persons who have certain specified relationships to the plan ("parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code). By virtue of its relationship with Morgan Stanley, MSAF
may be a party in interest or a disqualified person with respect to a plan
purchasing the notes. Any Plan that proposes to purchase notes must determine
that its purchase of notes will not give rise to a direct or indirect
Prohibited Transaction.
Certain statutory or administrative exemptions from the prohibited
transaction rules under ERISA and the Code may be available to a plan which is
purchasing the notes. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 84-14 (regarding transactions directed by
an independent qualified professional asset manager), PTCE 91-38 (regarding
investments by bank collective investment funds), PTCE 90-1 (regarding
investments by insurance company pooled separate accounts), PTCE 95-60
(regarding investments by insurance company general accounts) or PTCE 96-23
(regarding transactions directed by a qualified in-house asset manager).
Governmental plans and certain church plans (as defined under ERISA) are
not subject to the Prohibited Transaction rules. Such plans may, however, be
subject to federal, state or local laws or regulations which may affect their
investment in the notes. Any fiduciary of such a governmental or church plan
considering a purchase of the notes must determine the need for, and the
availability, if necessary, of any exemptive relief under any such laws or
regulations.
A plan fiduciary considering the purchase and holding of the notes should
consult with its tax and/or legal advisors regarding the consequences of such
purchase and holding. By its purchase and holding of a Note, each such
purchaser will be deemed to have represented and warranted that either (i) no
plan assets have been used to purchase such notes or (ii) one or more
prohibited transaction statutory or administrative exemptions applies such that
the use of such plan assets to purchase and hold such notes will not constitute
a non-exempt prohibited transaction.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account under the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in resales of
new notes received in exchange for restricted notes where the restricted notes
were acquired as a result of market-making activities or other trading
activities. MSAF has agreed that, starting on the expiration date and ending on
the close of business on the 180(th) day following the expiration date, it will
make this prospectus, as amended or supplemented, available to any
broker-dealer for use with any resale of new notes.
MSAF will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
under the exchange offer may be sold in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such new notes. Any broker-dealer that resells new notes that
were received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such new notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of new notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
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LEGAL MATTERS
Certain legal matters relating to the new notes will be passed upon for
MSAF by Davis Polk & Wardwell, New York, New York, counsel for MSAF group and
by Richards, Layton & Finger, Wilmington, Delaware, special Delaware counsel
for MSAF group.
In accordance with the rules of the Luxembourg Stock Exchange, MSAF states
that there has been no material adverse change in the financial condition of
MSAF since the date of its formation on October 30, 1997.
LISTING AND GENERAL INFORMATION
We will apply to list each subclass of notes on the Luxembourg Stock
Exchange, in accordance with its rules. In connection with the listing
application, the indenture, as well as legal notice relating to the issuance of
the notes, will be deposited prior to listing with the Chief Registrar of the
District Court of Luxembourg, where copies thereof may be obtained upon
request. Once the notes have been listed, you may trade the notes on the
Luxembourg Stock Exchange.
Copies of the notes, the asset purchase agreements, the amended and
restated custody and loan agreement, the cash management agreement, the amended
and restated servicing agreement, the financial advisory agreement, the amended
and restated administrative agency agreement, the reference agency agreement,
the swap agreement and swap guarantees, if any, the acquisition agreements, if
any, the appraisals and the reports to noteholders referred to under "Reports
to Noteholders" will be available, free of charge, at the office of the listing
agent in Luxembourg: Banque Internationale a Luxembourg, 69, route d'Esch,
L-1470 Luxembourg.
The equity in MSAF consists of one beneficial interest with a nominal
value $1.00.
Market data and certain industry forecasts used throughout this prospectus
were obtained from publicly available information and industry publications.
Industry publications generally state that the information contained in them
has been obtained from sources believed to be reliable, but that the accuracy
and completeness of such information is not guaranteed. Similarly, while we
believe that such information is reliable, we have not independently verified
it, and neither MSAF nor the initial purchaser makes any representation as to
its accuracy.
Various numbers and percentages set out in this prospectus have been
rounded and accordingly may not total exactly.
EXPERTS
The financial statements as of November 30, 1999 and 1998 and for the
periods ended November 30, 1999, 1998 and 1997, the schedule of net assets
acquired as of March 15, 2000 and the schedule of direct revenues and expenses
for the period from August 11, 1999 to November 30, 1999 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and have been so included in reliance
upon the reports of such firm given their authority as experts in accounting and
auditing.
The report on consolidated schedule of rental flight equipment and
overhaul reimbursements for the periods ended August 10, 1999 and December 31,
1998 and 1997 has been audited by PricewaterhouseCoopers LLP, independent
auditors, and has been so included in reliance on the report of such firm
given their authority as experts in accounting and auditing.
Valuations of the portfolio have been made by five expert aircraft
appraisers: Aircraft Information Services, Inc., BK Associates, Inc., Airclaims
Limited, Morten Beyer and Agnew and Aircraft Value Analysis Company. These
valuations are discussed in detail elsewhere in this prospectus and are
included in CD-ROM format in Exhibit A to this prospectus, in reliance upon the
authority of such firms as experts in giving such appraisals.
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<PAGE>
APPENDIX 1
MSAF Cash Flow Performance for the Period from March 15, 2000 to April 15,
2000.
Comparison of Actual to Date Cash Flows versus Base Case Cash Flows
<TABLE>
% of 1998 Lease Rentals under the
March 15, 2000 to April 15, 2000 Base Case
-------------------------------- ---------------------------------
Base
Actual Case Variance Actual Base Case Variance
------ ---- -------- ------ --------- --------
(All amounts in US dollars
millions unless otherwise stated)
<S> <C> <C> <C> <C> <C> <C>
CASH COLLECTIONS
[1] Lease Rentals............... 26.3 26.3 -- 100.0% 100.0% 0.0%
[2] -- Renegotiated Leases...... -- -- -- 0.0% 0.0% 0.0%
[3] -- Rental Resets............ -- -- -- 0.0% 0.0% 0.0%
[4] sum of [1]...[3] Contracted Lease Rentals.... 26.3 26.3 100.0% 100.0% 0.0%
[5] Movement in Current
Arrears Balance less Net
Stress-related Costs........ (1.7) -- (1.7) -6.4% 0.0% -6.4%
[6] -- Bad debts................ -- -- -- 0.0%
[7] -- Capitalised arrears...... -- -- -- 0.0%
[8] -- Security deposits
drawn down.................. -- -- -- 0.0%
[9] -- AOG...................... (0.4) -- (0.4) -1.5%
[10] -- Other Leasing Income..... (0.0) -- (0.0) -0.1%
[11] -- Repossession............. 0.0%
----- ----- ---- ----- ----- -----
[12] sum of [6]..[11] Sub-total................... (0.4) (1.2) (0.8) -1.5% -4.5% -1.5%
[13] [4]+[5]+[12] Net Lease Rentals........... 24.2 25.1 (0.9) 92.1% 95.5% -1.5%
[14] Interest Earned............. 0.2 0.1 0.1 0.9% 0.5% 0.4%
[15] Net Maintenance............. 1.9 -- 1.9 7.0% 0.0% 7.0%
----- ----- ---- ----- ----- -----
[16] sum of [13][15] Total Cash Collections...... 26.3 25.2 1.1 100.0% 96.0% 5.8%
===== ===== ==== ===== ===== =====
CASH EXPENSES
Aircraft Operating Expenses.
[17] -- Insurance................ (0.2) -0.8%
---- ----- -----
[18] -- Re-leasing and other
overheads................... (0.1) -0.4%
----- ----- -----
[19] [17] + [18] Sub-total................... (0.3) (0.2) (0.1) -1.1% -0.8% -0.3%
SG&A Expenses
[20] Aircraft Servicer Fees
-- Base Fee................. (0.2)
-- Rent Collected Fee....... (0.3)
-- Rent Contracted Fee...... (0.2)
-----
-- Incentive Fee............
----- ----- ---- ----- ----- -----
[21] [20] Sub-total................... (0.7) (0.8) 0.1 -2.7% -3.2% 0.5%
[22] Other Servicer Fees......... (0.8) (0.2) (0.6) -3.1% -0.8% -2.3%
----- ----- ---- ----- ----- -----
[23] [21]+[22] Sub-total................... (1.5) (1.0) (0.5) (5.8) -4.0% -1.6%
----- ----- ---- ----- ----- -----
[24] [19]+[23] Total Cash Expenses......... (1.8) (1.2) (0.5) -6.9% -4.8% -2.1%
===== ===== ==== ===== ===== =====
A-1-1
<PAGE>
% of 1998 Lease Rentals under the
March 15, 2000 to April 15, 2000 Base Case
-------------------------------- ---------------------------------
Base
Actual Case Variance Actual Base Case Variance
------ ---- -------- ------ --------- --------
(All amounts in US dollars
millions unless otherwise stated)
<S> <C> <C> <C> <C> <C> <C>
NET CASH
COLLECTIONS
[25] [16] Total Cash Collections...... 26.3 25.2 1.1 100.0% 96.0% 4.0%
[26] [24] Total Cash Expenses (1.8) (1.2) (0.6) -6.9% -4.8% -2.1%
[27] Interest Payments........... (11.3) (10.6) (0.7) -43.0% -40.4% -2.6%
[28] Swap Payments............... (0.6) (0.8) 0.2 -1.8% -2.6% 0.8%
Exceptional Items........... --
----- ----- ---- ----- ----- -----
[30] sum of [25]..[29] TOTAL....................... 12.6 12.8 (0.0) 48.3% 48.3% 0.0%
[31] PRINCIPAL PAYMENTS
subclass A-2................ 1.1 1.1 -- 4.4% 4.4% 0.0%
subclass A-3................ -- -- -- 0.0% 0.0% 0.0%
subclass A-4................ -- -- -- 0.0% 0.0% 0.0%
subclass A-5................ 10.9 10.9 -- 41.5% 41.5% 0.0%
subclass B-1................ 0.6 0.6 -- 2.2% 2.2% 0.0%
subclass B-2................ -- -- -- 0.0% 0.0% 0.0%
subclass C-1................ 0.0 0.0 -- 0.2% 0.2% 0.0%
subclass C-2................
subclass D-1................ -- --
----- ----- ---- ----- ----- -----
Total....................... 12.6 12.6 (0.0) 48.3% 48.3% 0.0%
===== ===== ==== ===== ===== =====
Debt Balances
subclass A-2................ 223.6 223.6
subclass A-3................ 580.0 580.0
subclass A-4................ 200.0 200.0
subclass A-5................ 389.1 389.1
subclass B-1................ 89.1 89.1
subclass B-2................ 75.0 75.0
subclass C-1................ 99.8 99.8
subclass C-2................ 55.0 55.0
subclass D-1................ 110.0 110.0
Total....................... 1,821.6 1,821.6
======= =======
</TABLE>
A-1-2
<PAGE>
Coverage Ratios
<TABLE>
Closing Actual 2000 Base Case
------- ------ --------------
<S> <C> <C> <C> <C>
Net Cash Collections.... 12.6 12.6
Add Back Interest and
Swap Payments........... 11.9 11.4
a Net Cash Collections
(excl. interest and
swap pymts)............. 24.5 24.0
b Swaps................... 0.6 0.8
c Class A Interest........ 8.4 7.8
d Class A Minimum......... 4.8 4.8
e Class B Interest........ 1.0 1.0
f Class B Minimum......... 0.5 0.5
g Class C Interest........ 1.0 1.0
h Class C Minimum......... -- --
i Class D Interest........ 0.8 0.8
j Class D Minimum......... -- --
k Class A Scheduled....... 0.1 0.1
l Class B Scheduled....... 0.0 0.0
m Class C Scheduled....... 0.0 0.1
n Class D Scheduled....... -- --
o Permitted Aircraft
Modifications -- --
p Class A Supplemental.... 7.1 7.1
----- -----
Total 24.5 24.0
----- -----
[1] Interest Coverage Ratio
Class A................. 0.94 0.91 =a/(b+c)
Class B................. 0.57 0.55 =a/(b+c+d+e)
Class C................. 0.51 0.49 =a/(b+c+d+e+f+g)
Class D................. 0.49 0.47 =a/(b+c+d+e+f+g+h+i)
[2] Debt Coverage Ratio
Class A................. 0.48 0.47 =a/(b+c+d+e+f+g+h+i+j+k)
Class B................. 0.48 0.46 =a/(b+c+d+e+f+g+h+i+j+k+l)
Class C................. 0.48 0.46 =a/(b+c+d+e+f+g+h+i+j+k+l+m)
Class D................. 0.48 0.46 =a/(b+c+d+e+f+g+h+i+j+k+l+m+n)
Loan-to-Value
Ratios(in $000)
Actual
2000 Base Case April 15, 2000 Base Case
March 15, 2000 2000 April 15, 2000
<S> <C> <C> <C>
[3] Assumed Portfolio Value 2,000.9 1,994.0 1,994.0
[4] Adjusted Portfolio Value
Liquidity Reserve
Amount
Of which--Cash 30.0 30.0 30.0
--Accrued Expenses 6.1 1.6
--Security Deposits 7.1 8.7 7.1
------- ------- -------
Subtotal 43.2 40.3 37.1
Letters of Credit 22.1 80.4 82.1
Total Liquidity Reserve 125.3 120.7 119.2
[5]Total Asset Value 2,126.2 2,114.8 2,113.2
Note Balances as at
February 15, 2000
Class A................. 1,404.7 66.1% 1,392.6 65.9% 1,392.6 65.9%
A-1-3
<PAGE>
Closing Actual 2000 Base Case
------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class B................. 164.7 73.8% 164.1 73.6% 164.1 73.7%
Class C................. 154.4 81.1% 154.8 80.9% 154.8 81.0%
Class D................. 110.0 86.3% 110.0 86.1% 110.0 86.2%
Total 1,834.3 1,821.6 1,821.6
</TABLE>
---------
(1) Interest Coverage Ratio is equal to Net Cash Collections, before interest
and swap payments, expressed as a ratio of the swap costs and interest
payable on each subclass of Notes plus the interest and minimum principal
payments payable on each subclass of notes that rank senior in priority of
payment to the relevant subclass of notes.
(2) Debt Service Ratio is equal to Net Cash Collections before interest and
swap payments, expressed as a ratio of the interest and minimum and
scheduled principal payments payable on each subclass of notes plus the
interest and minium and scheduled principal payments payable on each
subclass of notes that ranks equally with or senior to the relevant
subclass of Notes in the priority of payments.
(3) Assumed Portfolio Value represents the initial Appraised Value of each
aircraft in the Portfolio multiplied by the Depreciation Factor at
Calculation date divided by the Depreciation Factor at March 15, 2000.
(4) Adjusted Portfolio Value represents the Base Value of each aircraft in the
Portfolio as determined by the most recent appraisal multiplied by the
Depreciation Factor at Calculation date divided by the Depreciation Factor
at March 15, 2000.
The lower of the Assumed Portfolio Value or 105% of the Adjusted Portfolio
Value is used to calculate the principal repayment amounts to note orders.
(5) Total Asset Value is equal to Total Portfolio Value plus Liquidity Reserve
Amount minus Lessee Security Deposits.
A-1-4
<PAGE>
<TABLE>
<S> <C> <C>
Note: Report Line Name Description
----- ---------------- -----------
CASH COLLECTIONS
[1] Lease Rentals........................ Assumptions per the March 1998 Prospectus
[2] -- Renegotiated Leases............... Change in contracted rental cash flow caused by a renegotiated lease
[3] -- Rental Resets Re-leasing events where new lease rate deviated from the 1998 Base Case
[4] sum of [1].[3] Contracted Lease Rentals............. Current Contracted Lease Rentals due as at the latest Calculation Date
[5] Movement in Current Arrears Current contracted lease rentals not received as at the latest Calculation
Balance less Net Stress related Costs Date, excluding Bad debts
[6] -- Bad debts Arrears owed by former lessees and deemed irrecoverable.
[7] -- Capitalised arrears Current arrears that have been capitalised and restructured as a Note
Payable.
[8] -- Security deposits drawn down Security deposits received following a lessee default
[9] -- AOG Lost of rental due to an aircraft being off-lease and non-revenue earning
[10] -- Other Leasing Income Includes lease termination payments, rental guarantees and
late payments charges
[11] -- Repossession Legal and technical costs incurred in repossessing aircraft.
[12] sum of [6].[11] Sub-total
[13] [4]+[5]+[12] Net Lease Rentals.................... Contracted Lease Rentals less Movement in Current Arrears Balance and
Net Stress related costs
[14] Interest Earned Interest earned on monthly cash balances
[15] Net Maintenance Maintenance Revenue Reserve received less and reimbursements
to lessees.
[16] sum of [13].[15] Total Cash Collections............ Net Lease Rentals + Interest Earned + Net Maintenance
CASH EXPENSES
Aircraft Operating Expenses All operational costs related to the leasing of aircraft.
[17] -- Insurance Premium for contingent insurance policies
[18] -- Re-leasing and other Costs associated transferring an aircraft from one lessee to
another
[19] [17]+[18] Sub-total
SG&A Expenses
[20] Aircraft Servicer Fees Monthly and annual fees paid to Aircraft Servicer
-- Base Fee Fixed amount per month per aircraft
-- Rent Contracted Fee 1.00% of rental contracted for the month
-- Rent Collected Fee 1.25% of rental received for the month
-- Incentive Fee Annual fee paid to Servicer for performance above an
annually agreed target
[21] [20] Sub-total
[22] Other Servicer Fees Administrative Agent, trustee and professional fees paid to
other service providers.
[23] [21]+[22] Sub-total
[24] [19]+[23] Total Cash Expenses.................. Aircraft Operating Expenses + SG&A Expenses
NET CASH COLLECTIONS
[25] [16] Total Cash Collections line 16 above
[26] [24] Total Cash Expenses line 24 above
[27] Interest Payments Interest paid on all outstanding debt
[28] Swap payments Net swap payments (paid) /received
[29] Proceeds from Aircraft Sales Proceeds, net of fees and expenses, from the sale of
aircraft
[30] sum of [25].[29] Exceptional Items................. Includes adjustment for aircraft included in the 1998 Basecase but not
acquired by MSAF
TOTAL
[31]
</TABLE>
A-1-5
<PAGE>
APPENDIX 2
Extract from Cash Analysis of Financial Condition and Results
of Operations
Twelve Month Period from December 1, 1998 to November 30,
1999(1)
I Background and General Information
On March 3, 1998, Morgan Stanley Aircraft Finance ("MSAF"), a Delaware
business trust, issued $1,050 million of notes in five subclasses -- Subclass
A-1, Subclass A-2, Subclass B-1, Subclass C-1 and Subclass D-1 (the "notes").
The notes were issued in connection with MSAF's agreement to acquire 33
aircraft plus a spare engine with a total appraised value at September 30, 1997
of $1,115.5 million from International Lease Finance Corporation ("ILFC").
All but one of the 33 aircraft was acquired by MSAF. The undelivered
aircraft was a B737-400 with an appraised value of $28.8 million. Pursuant to
the indenture relating to the notes (the "Indenture"), MSAF decided not to
substitute this aircraft but to distribute to the Noteholders $27.1 million on
June 15, 1998. $26 million of this amount represents that portion of the
proceeds from the offering of the notes relating to this aircraft and $1.1
million represents swap breakage costs paid by ILFC. As a result, the overall
size of the aircraft fleet is now 32 aircraft plus a spare engine and the
appraised value of the fleet reduced from $1,115.5 million to $1,086.7 million
at September 30, 1997.
Applying the declining value assumption to the original September 30, 1997
fleet appraisal of $1,086.7 million, the total appraised value was assumed to
be $1,026.7 million at November 15, 1999. The fleet is appraised annually and
the most recent appraisal dated June 30, 1999 valued the portfolio at $978.1
million. See Section III -- "Other Financial Data" below for a discussion on
assumed aircraft values and annual appraisals.
As of February 1, 2000, 28 aircraft plus the engine were on-lease with 25
lessees in 18 countries as shown in Appendix A attached. Four aircraft were
non-revenue earning of which one was subject to a lease commencing in February,
2000 and two had signed Letters of Intent for lease to new lessees. The fourth
aircraft was available for lease.
The discussion and analysis that follows is based on the results of MSAF
and its subsidiaries as a single entity (collectively the "MSAF group").
MSAF group is a special purpose vehicle, which owns aircraft subject to
operating leases and one financing lease. MSAF group may also make additional
aircraft acquisitions and aircraft sales. MSAF group intends to acquire
additional commercial passenger or freight aircraft from various sellers and
will finance the acquisition of such aircraft by issuing additional notes. In
August 1999, MSAF group announced that it intended to acquire a portfolio of 29
aircraft -- see Section IV -- "Recent Developments" (1)This is an extract from
a report filed on Form 8-K/A with the Securities and Exchange Commission on
February 28, 2000. for more information. Any acquisition of additional aircraft
will be subject to certain confirmations with respect to the notes from rating
agencies and compliance with certain operating covenants of MSAF set out in the
Indenture.
MSAF group's cash receipts and disbursements are determined, in part, by
the overall economic condition of the operating leasing market. The operating
leasing market, in turn, is affected by various cyclical factors. These include
the level and volatility of interest rates, the availability of credit, fuel
costs and both general and regional economic conditions affecting lessee
operations and trading. Other factors to consider are manufacturer production
levels, passenger demand, retirement and obsolescence of aircraft models,
manufacturers exiting or entering the market or ceasing to produce aircraft
types or re-introduction into service of aircraft previously in storage. In
addition, state regulations and air traffic control infrastructure constraints
such as limitations on the number of landing slots can also impact the
operating leasing market.
---------
(1) This is an extract from a report filed on form 8-K with the Securities and
Exchange Commission on April 14, 2000.
A-2-1
<PAGE>
MSAF group's ability to compete against other lessors is determined, in
part, by the composition of its fleet in terms of mix, relative age and
popularity of aircraft type. In addition, operating restrictions imposed by the
Indenture, and the ability of other lessors, who may possess substantially
greater financial resources, to offer leases on more favorable terms than MSAF
group, may also impact MSAF group's ability to compete against other lessors.
For the purposes of this report, the "Twelve Month Period", referred to in
Section II -- "Comparison of Actual Cash Flows versus the Base Case for the
Twelve Month Period", shall comprise information from the monthly cash reports
dated December 15, 1998 through to November 15, 1999. The financial data in
these reports includes cash receipts from November 10, 1998 (first day of the
Collection Period for the December 1998 Report) up to November 8, 1999 (last
day of the Collection Period for the November 1999 Report). It also includes
payments made by MSAF group between November 17, 1998 and up to November 15,
1999 (the Note Payment Date for the November 1999 Report).
II Comparison of Actual Cash Flows versus the 1998 Base Case for the Twelve
Month Period
The February 20, 1998 Prospectus (the "Prospectus") and the November 4,
1998 Prospectus (the "Prospectus") for the notes contain assumptions in respect
of MSAF group's future cash flows and cash expenses (the "1998 Base Case"). For
the purpose of this report, "Net Cash Collections" is defined as Total Cash
Collections less Total Cash Expenses, Interest Payments and Swap Payments. A
discussion of the annual Cash Collections, Cash Expenses, Interest Payments and
Principal Payments is given below and should be read in conjunction with the
analysis in Appendix B.
CASH COLLECTIONS
"Total Cash Collections" include Net Lease Rentals (Contracted Lease
Rentals less Net Stress-related Costs), Movement in Current Arrears Balance,
Interest Earned and Net Maintenance. In the Twelve Month Period, MSAF group
generated approximately $119.1 million in Total Cash Collections, $3.4 million
less than the 1998 Base Case. This difference is due to a combination of the
factors set out below (the numbers in brackets refer to the line item number
shown in Appendix B).
[2] Renegotiated Leases
Renegotiated Leases refers to the loss in rental revenue caused by a
lessee negotiating a reduction in the lease rental. Typically, this can be a
permanent reduction over the remaining lease term in exchange for other
contractual concessions. In the Twelve Month Period, the amount of revenue loss
attributed to Renegotiated Leases was $1.4 million and relates to two
renegotiated leases. The $1.4 million loss in rental revenue is primarily due
to a 14% reduction from the 1998 Base Case rental on a B767-300ER on lease to
Air Pacific. The new rental was reset at the then prevailing market rate for
B767-300ERs in exchange for a lease extension.
[3] Rental Resets
Rental Resets is a measure of the loss in rental revenue when new lease
rates are lower than those assumed in the Base Case. In the Twelve Month
Period, six new leases were entered into with a weighted average decline of
10.4% versus the rental assumed in the 1998 Base Case resulting in a loss of
$2.0 million in rental revenue. See Section IV -- "Recent Developments" for a
discussion of current re-leasing events.
A-2-2
<PAGE>
Analysis of Rental Resets in Twelve Month Period
Aircraft Type % change from 1998 Base Case % of Appraised Value*
------------- ---------------------------- ---------------------
1 A310-300............ -28.2 2.35
2 A310-300............ -28.2 2.38
3 A320-100............ -9.2 4.22
4 B737-300............ -13.1 2.57
5 A320-200............ -15.3 3.09
6 B757-200ER.......... 18.5 3.48
Weighted Average** -10.4% 18.09%
---------
* Appraisal as of June 30, 1999
** Average weighted by Appraised Value as of June 30, 1999.
[4] Contracted Lease Rentals
Contracted Lease Rentals represents the current contracted lease rental
rollout which equates to the 1998 Base Case Lease Rentals less adjustments for
Renegotiated Leases and Rental Resets. For the Twelve Month Period, Contracted
Lease Rentals were $123.4 million, $3.4 million less than assumed in the 1998
Base Case. The difference is due to losses from renegotiated leases and rental
resets as discussed above.
[5] Movement in Current Arrears Balance
Current Arrears is the total contracted lease rentals outstanding from
current lessees at a given date and excludes any amounts classified as Bad
Debts. The current arrears balance at the start of the Twelve Month Period was
$3.2 million versus $3.1 million at the end, a positive movement of $0.1
million.
Analysis of Current Arrears Balances
% of Current Current Movement
Appraised Arrears Arrears in Current
Aircraft Type Country Value* 11/15/98 11/15/99 Arrears
------------- ------- --------- -------- -------- ----------
$M $M $M
1 A310-300..... Brazil 2.9 1.0 0.6 0.4
2 A321-100..... Turkey** 4.2 1.3 1.3
3 B737-300..... Brazil 2.1 0.3 1.0 (0.7)
4 B737-400..... Mexico 2.3 0.5 (0.5)
5 A321-100..... Turkey 4.2 0.6 (0.6)
6 B757-200..... Guyana** 3.5 0.5 0.5
7 B757-200..... U.K. 3.4 0.1 0.1
8 A310-300..... Oman 2.4 0.1 (0.1)
9 A320-200..... Ireland 3.2 0.3 (0.3)
---- --- --- ---
Total......... 28.1 3.2 3.1 0.1
==== === === ===
---------
* Appraised Value as of June 30, 1999
** Lessees which subsequently defaulted in Twelve Month Period, Onur Air and
Guyana Airways.
At November 15, 1998, 5 lessees in arrears owed $3.2 million, against
which, MSAF group held security deposits of $2.7 million. Two of the five
lessees (Onur Air and Guyana Airways) defaulted in 1999 and the aircraft were
repossessed. Arrears amounting to $2.2 million associated with these lessees at
the time of repossession were deemed irrecoverable and re-classified from
Current Arrears to Bad Debts. See the discussion on Bad Debts below.
A-2-3
<PAGE>
As at November 15, 1999, six lessees were in arrears, owing $3.1 million,
against which MSAF group held security deposits of $2.9 million. Since November
15, 1999 one of the 6 lessees (TAESA) has defaulted and the aircraft has been
repossessed. See Section IV -- "Recent Developments" for a discussion of lessee
defaults.
Net Stress-related Costs
Net Stress-related Costs is a combination of all the factors which can
cause actual lease rentals received to differ from the Contracted Lease
Rentals. The 1998 Base Case assumed net stress-related costs equal to 4.5% of
the 1998 Base Case Lease Rentals. For the Twelve Month Period, net
stress-related costs amounted to $8.8 million (7.0% of Contracted Lease
Rentals) compared to $5.7 million assumed in the 1998 Base Case, a variance of
$3.1 million that is due to the following six factors described in items [6] to
[11] below.
[6] Bad Debts and [8] Security Deposits Drawn Down
Bad Debts are arrears owed by lessees who have defaulted and which are
deemed irrecoverable. These arrears are partially offset by the draw down of
security deposits held and amounts subsequently recovered from the defaulted
lessee.
Analysis of Bad Debts for the Twelve Month Period
<TABLE>
Security
Bad Debts Bad Debts Deposits
Aircraft Type Lessee Country Rental Recovered Drawn Total
------------- ------ ------- ------ --------- -------- -----
$M $M $M $M
<S> <C> <C> <C> <C> <C> <C> <C>
1 B757-200 Transaero........ Russia 0.2* 0.2
2 B757-200 Guyana Airways... Guyana (1.3) 1.3 0.7 0.7
3 A321-100 Onur Air......... Turkey (1.6) 1.0 0.7 0.1
4 B747-300 VARIG............ Brazil (4.0) 0.4 1.1 (3.0)
---- ---- --- ---
Total............................................ (6.9) 2.9 2.5 (2.0)
==== === === ====
</TABLE>
---------
* $0.2 million was recovered from Transaero against amounts written off in
the previous period.
In the Twelve Month Period, $6.9 million was written off in respect of
lease rentals due from three former lessees, Guyana Airways, Onur Air, and
VARIG, against which MSAF group drew down security deposits totaling $2.5
million. In the Twelve Month Period, $2.9 million was recovered and applied to
rental due from four former lessees, Transaero, Guyana Airways, Onur Air and
VARIG.
[7] Capitalized Arrears
Capitalized arrears refer to current arrears that have been capitalized
and restructured into a note payable. As a result, arrears balances previously
shown as Current Arrears are re-categorized as capitalized arrears. In August
1999, the current arrears of Passaredo, a Brazilian carrier, equal to $3.5
million were capitalized (with interest of $0.2 million) into a note payable
and added to the lessee's Conditional Sale Agreement loan balance. The term of
the loan balance was also extended.
[9] Aircraft on Ground ("AOG")
AOG is defined as the Base Case lease rental lost when an aircraft is
off-lease and non-revenue earning.
A-2-4
<PAGE>
AOG Analysis
Aircraft Type Old Lessee New Lessee Lost Rentals # Days*
------------- ---------- ---------- ------------ -------
$M
1 B757-200ER Transaero. Flying Colours 1.0 10
2 B757-200ER Guyana.... National Airlines 1.0 75
3 A321-100 Onur Air.. Air Alfa None 17
B747-300 VARIG..... AOG 3.2 137**
---
Total......................................... 5.2
===
---------
*# Days is measured from date of lease termination to commencement date of new
lease
**# Days is measured from date of lease termination to November 30, 1999. A
Letter of Intent has been signed for this aircraft. It is scheduled to be
delivered to a new lessee in February, 2000.
The impact of AOG downtime amounted to $5.2 million. This was in respect
of three former lessees; Transaero, Guyana Airways and VARIG. Although the
ex-Transaero aircraft was off-lease for only 10 days, the new lessee paid a
reduced rental until April 1999 while the aircraft underwent modification work
and this loss of rental revenue is reflected in the AOG cost. No AOG costs were
incurred when the ex-Onur Air aircraft was re-leased to Air Alfa as the
downtime was less that 1 month. The ex-Guyana aircraft was AOG for 75 days
prior to its re-lease to National Airlines. The ex-VARIG aircraft was AOG and
non-revenue earning since July 1999, but is scheduled to be delivered to its
new lessee in February, 2000.
[10] Other Leasing Income
Other leasing income consists of miscellaneous income received in
connection with a lease other than contracted rentals, maintenance receipts and
security deposits, such as early termination payments or default interest. In
the Twelve Month Period, other leasing income amounted to $2.5 million. This
consists of one payment for $0.9 million received in respect of a rental
support agreement for a lessee credit and several miscellaneous amounts of less
than $0.5 million.
[11] Repossession Costs
Repossession costs cover legal and aircraft technical costs incurred as a
result of repossessing an aircraft. In the Twelve Month Period, repossession
costs amounted to $1.1 million, of which $1.0 million related to the
repossession of a B757-200ER from Guyana Airways in April 1999. An additional
$0.1 million in costs were incurred relating to legal, inspection and
consultancy fees in respect of the repossessions from Onur Air and from VARIG.
[13] Net Lease Rentals is Contracted Lease Rentals less any movement in Current
Arrears Balance and Net Stress-related Costs. In the Twelve Month Period, net
lease rentals amounted to $114.7 million, $6.4 million less than assumed in the
1998 Base Case. The variance was attributable to the combined effect of the six
factors outlined in items [2] and [3] and in items [6] to [11] above.
[14] Interest Earned
Interest earned relates to interest received on cash balances held in the
Collection and Expense Accounts. Cash held in the Collection Account consists
of the cash liquidity reserve amount of $25.0 million plus the intra-month cash
balances for all the rentals and maintenance payments collected prior to the
monthly payment date. The Expense Account contains cash set aside to pay for
expenses which are expected to be payable over the next 3 months. In the Twelve
Month Period, interest earned amounted to $1.8 million, $0.4 million more than
assumed in the 1998 Base Case. The difference is due to a combination of two
offsetting factors. The 1998 Base Case made no assumption as to the interest
earned on the intra-month cash balances in the Collection Account and Expense
Account and the average actual reinvestment rate for the Twelve Month Period
was 4.99% as compared to 5.75% assumed in the 1998 Base Case.
A-2-5
<PAGE>
[15] Net Maintenance
Net maintenance refers to maintenance reserve revenue received less any
maintenance reimbursements paid to lessees. In the Twelve Month Period, actual
maintenance reserve revenue received amounted to $17.8 million from 20 lessees
and maintenance expenditure amounted to $15.2 million, generating positive net
maintenance revenue of $2.6 million. The 1998 Base Case makes no assumptions
for net maintenance as it assumes that, over time, maintenance revenue will
equal maintenance expenditure. However, it is unlikely that in any particular
Note Payment Period, maintenance revenue will exactly equal maintenance
expenses.
CASH EXPENSES
"Total Cash Expenses" include Aircraft Operating Expenses and Selling,
General and Administrative ("SG&A") Expenses. In the Twelve Month Period, total
cash expenses were $8.6 million, $5.4 million lower than the Base Case, which
assumed total cash expenses of $14.0 million. The difference is due to a
combination of factors discussed below.
Aircraft Operating Expenses includes all operational costs related to the
leasing of an aircraft including costs of insurance, re-leasing and other
overhead costs. In the Twelve Month Period, Aircraft Operating Expenses
amounted to $0.6 million compared to $4.4 million per the 1998 Base Case, which
assumes these costs to be 3.5% of the 1998 Base Case Lease Rentals.
[17] Insurance
Insurance costs amounted to $0.4 million relating to the annual insurance
premium for contingent coverage for the portfolio.
[18] Re-leasing and other overhead costs
Re-leasing and other overhead costs consist of miscellaneous re-delivery
and leasing costs associated with re-leasing events. In the Twelve Month Period
these costs amounted to $0.2 million.
SG&A Expenses relate to fees paid to the Aircraft Servicer and to other
service providers.
[20] Aircraft Servicer Fees
The Aircraft Servicer Fees are defined as amounts paid to the Aircraft
Servicer, ILFC, in accordance with the terms of the Servicing Agreement. In the
Twelve Month Period, the total Aircraft Servicer fee paid was $5.7 million,
$0.7 million lower than assumed in the 1998 Base Case, reflecting lower actual
rentals achieved relative to Contracted Lease Rentals.
Aircraft Servicer Fees consist of:
$mm
---
Base Fee....................................... 2.9
Rent Collected Fee............................. 1.1
Rent Contracted Fee............................ 1.2
Incentive Fee 1997/98.......................... 0.5
Total Servicer Fee............................. 5.7
The Base Fee is a fixed amount per month per aircraft and changes only as
aircraft are acquired or sold. The Rent contracted fee is equal to 1% of all
rentals contracted. The Rent Contracted Fee is 1% of all rentals received. The
Incentive fee is 10% of all cash flow received above a targeted amount set at
the beginning of each financial year. The Incentive fee for the year ended
November 30, 1998, but paid in December 1998 was $0.5 million. No incentive fee
was paid to ILFC in December 1999 for the Twelve Month Period due to the lower
than expected revenues received.
A-2-6
<PAGE>
[22] Other Fees
Other Fees relate to fees and expenses paid to other Service providers
including the Administrative Agent, Financial Advisor, legal advisors,
accountants and Independent Trustees. In the Twelve Month Period, Other Fees
amounted to $2.3 million as compared to an assumed expense of $3.2 million in
the 1998 Base Case, a positive variance of $0.9 million. The variance is due to
lower than expected Administrative Agent fees and a reduction in the level of
accrued expenses. The Administrative Agent fee is equal to 1.5% of rentals
collected and was lower than assumed in the 1998 Base Case, reflecting lower
actual rentals achieved relative to Contracted Lease Rentals.
[27] Interest Payments and [28] Swap Payments
In the Twelve Month Period, interest payments to Noteholders amounted to
$58.5 million. This is $4.7 million lower than the 1998 Base Case, which
assumed interest costs for the Twelve Month Period to be $63.2 million. The
variance reflects the faster than expected amortization of the A-2 Note,
coupled with a lower than expected level of average interest rates. The 1998
Base Case assumed LIBOR to be 5.75% whereas the average monthly LIBOR rate was
5.6%. The reduced interest costs were offset by an increase in swap payments.
MSAF paid $8.7 million in swap costs, $4.9 million more than assumed in the
1998 Base Case.
[29] Exceptional Item
Exceptional items refer to cash flows that occur infrequently and are
outside the normal business activities of MSAF. There were no exceptional cash
flows in the Twelve Month Period.
[31] Principal Payments
In the Twelve Month Period, total principal payments to Noteholders
amounted to $43.3 million, $1.8 million more than assumed in the 1998 Base
Case, reflecting the application of the positive Net Cash Collections variance
of $1.8 million.
III Other Financial Data
[Intentionally omitted]
IV Recent Developments
[Intentionally omitted]
A-2-7
<PAGE>
PORTFOLIO DETAILS
APPENDIX A TO APPENDIX 2
All amounts in thousands of US dollars unless otherwise stated
Figures as of February 1, 2000
Country of Aircraft
Region(1) Current Lessee Current Lessee Type
--------- -------------- -------------- --------
1 Europe France Air Liberte MD-83
B737-
2 (Developed) France l'Aeropostale 300
3 Netherlands KLM engine
B737-
4 Netherlands Transavia 300
A320-
5 Ireland TransAer 200
B737-
6 Norway Braathens 500
Britannia B767-
7 UK Airways 200ER
Flying A320-
8 UK Colours(5) 200
B767-
9 UK Air2000 300ER
B757-
10 UK Flying Colours 200ER
Sub-total
Alaska B737-
11 North America USA Airlines 400
12 (Developed) USA TWA MD-83
13 USA TWA MD-82
National B757-
14 USA Airlines 200ER
Canadian A320-
15 Canada Airlines 200
Sub-total
16 Europe Hungary Malev F-70
and Middle
17 East Hungary Malev F-70
18 (Emerging) Hungary Malev F-70
Olympic B737-
19 Greece Airways 400
A321-
20 Turkey AirAlfa 100
Sub-total
B767-
21 Asia Korea Asiana 300
A300-
22 (Emerging) Taiwan China Airlines 600R
B737-
23 China China Hainan 300
Sub-total
Latin America
B.R.A.
Transportes A310-
24 (Emerging) Brazil Aereos 300
B737-
25 Brazil VASP 300
B757-
26 Mexico Aero Mexico 200ER
Sub-total
B767-
27 Other Fiji Air Pacific 300ER
B737-
28 Iceland Iceland Air 300
B737-
29 Malta Air Malta 300
Sub-total
AOG
Air Atlanta B747-
30 Other Iceland(6) Icelandic 300B
Pacific A310-
31 (Developed) Singapore(6) Regionair 300
Pacific A310-
32 (Developed) Singapore(6) Regionair 300
Available for Available for B737-
33 lease(7) lease 400
Total....................................................
[financial data -- to be continued]
A-2-8
<PAGE>
<TABLE>
[financial data -- continued]
30-Jun-99
Engine Serial Date of Adjusted Base % of % of
Region(1) Configuration Number Manufacture Value(2) Total Region
--------- ------------- ------- ----------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Europe JT8D-219 49,822 Dec-88 19,454 2.0%
2 (Developed) CFM56-3C1 23,788 May-87 19,330 2.0%
CF6- 704,279
3 80C2B6F un-95 5,425 0.5%
4 CFM56-3C1 27,635 May-95 28,072 2.9%
5 V2500-A1 414 May-93 31,182 3.2%
6 CFM56-3B1 25,165 Apr-93 19,849 2.0%
7 CF6-80A 23,807 Aug-87 30,952 3.2%
8 V2500-A1 393 Feb-93 30,426 3.1%
CF6-
9 80C2B6F 26,256 Apr-93 64,912 6.6%
RB211-535-
10 E4-37 24,367 Feb-89 32,859 3.4%
Sub-total 28.9%
11 North America CFM56-3C1 25,104 May-93 27,099 2.8%
12 (Developed) JT8D-219 49,824 Mar-89 20,726 2.1%
13 JT8D-217C 49,825 Mar-89 18,290 1.9%
RB211-535-
14 E4 24,260 Dec-88 34,083 3.4%
15 V2500-A1 279 Feb-92 30,175 3.1%
Sub-total 13.3%
TAYMK62
16 Europe 0-15 11,564 Dec-95 13,991 1.5%
and Middle TAYMK62
17 East 0-15 11,565 Feb-96 14,603 1.5%
TAYMK62
18 (Emerging) 0-15 11,569 Mar-96 14,969 1.5%
19 CFM56-3C1 25,371 Jan-92 25,729 2.6%
20 V2530-A5 597 May-96 41,248 4.2% 11.3%
Sub-total
CF6-
21 Asia 80C2B6F 24,798 Oct-90 54,775 5.6%
22 (Emerging) PW4158 555 Mar-90 47,140 4.8%
23 CFM56-3C1 26,295 Dec-93 25,741 2.7%
Sub-total 13.1%
Latin America
24 (Emerging) JT9D-7R4E1 437 Nov-86 28,322 2.9%
25 CFM56-3B2 24,299 Nov-88 20,454 2.1%
26 PW2037 26,272 Mar-94 42,545 4.3%
Sub-total 9.3%
27 Other CF6-80C2B4 26,260 Sep-94 67,167 6.9%
28 CFM56-3B2 23,811 Oct-87 20,299 2.1%
29 CFM56-3B2 25,161 Feb-92 25,123 2.5%
Sub-total 11.5%
AOG
30 Other CF6-80C2 24,106 Apr-88 54,382 5.6%
Pacific
31 (Developed) JT9D-7R4E1 409 Nov-85 23,009 2.3%
Pacific
32 (Developed) JT9D-7R4E1 410 Nov-85 23,276 2.4%
22,508 2.3% 2.6%
33 CFM56-3B2 24,234 Oct-88
Total............................................... 978,116 100.0% 100.0%
</TABLE>
---------
(1) Regions are defined according to MSCI designations.
(2) Adjusted Base Value is the Base Value of each aircraft as per the June 30,
1999 Appraisal.
(3) Total Number of Lessees = 25.
(4) Total Number of Countries = 18.
(5) Previously Caledonian Airways, now merged with Flying Colours.
(6) Currently AOG but subject to a Letter of Intent.
(7) Subject to a Letter of Intent since February 1, 2000.
A-2-8
<PAGE>
APPENDIX B TO APPENDIX 2
Comparison of Actual Cash Flows versus the Base Case for the Twelve Month Period
<TABLE>
% of 1998 Lease Rentals under the
1998 Base Case
------------------------ ---------------------------------
Base
Actual Case Variance Actual Base Case Variance
------ ---- -------- ------ --------- --------
(All amounts in US dollars
millions unless otherwise stated)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH COLLECTIONS
[1] Lease Rentals........................... 26.3 126.8 -- 100.0% 100.0% 0.0%
[2] -- Renegotiated Leases.................. -- -- (1.4) (1.1)% (1.1)%
[3] -- Rental Resets........................ -- -- (2.0) (1.6)% (1.6)%
----- --- ------ ----- ----
[4] sum of [1].[3] Contracted Lease Rentals................ 123.4 126.8 (3.4) 97.3% 100.0% (2.7)%
[5] Movement in Current Arrears Balance
less Net Stress-related Costs........... (1.7) -- 0.1 0.1% 0.1%
[6] -- Bad debts............................ (4.0) -- (3.2)%
[7] -- Capitalised arrears.................. (3.5) -- (2.7)%
[8] -- Security deposits drawn down......... 2.5 -- 1.9%
[9] -- AOG.................................. (5.2) -- (4.1)%
[10] -- Other Leasing Income................. 2.5 -- 2.0%
[11] -- Repossession......................... (1.1) (0.9)%
----- ----- --- ------ ----- -----
[12](13.5) sum of [6].[11] Sub-total.......................... (8.8) (5.6) (3.1) (7.0)% (4.5)% (2.5)%
[13] [4]+[5]+[12] Net Lease Rentals....................... 114.7 121.1 (6.4) 90.4% 95.5% (5.1)%
[14] Interest Earned......................... 1.8 1.4 0.4 1.4% 1.1% 0.3%
[15] Net Maintenance......................... 2.6 -- 2.6 2.1% 0.0% 2.1%
----- ----- --- ------ ----- -----
[16] [13][15] Total Cash Collections.................. 119.1 122.5 (3.4) 93.9% 96.6% (2.7)%
===== ===== ==== ====== ===== =====
CASH EXPENSES
Aircraft Operating Expenses.............
[17] -- Insurance............................ (0.4) -- (0.3)%
[18] -- Re-leasing and other overheads....... (0.2) (0.2)%
----- ----- --- ------ ----- -----
[19] [17] + [18] Sub-total............................... (0.6) 3.8 (0.5)% (3.5)% 3.0%
SG&A Expenses
[20] Aircraft Servicer Fees
-- Base Fee............................. (2.9) (2.3)%
-- Rent Collected Fee................... (1.1) (0.9)%
-- Rent Contracted Fee.................. (1.2) (0.9)%
-- Incentive Fee........................ (0.5) (0.4)%
----- ----- --- ------ ----- -----
[21] [20] Sub-total............................... (5.7) (6.4) 0.7 (4.5)% (5.1)% 0.6%
[22] Other Fees.............................. (2.3) (3.2) 0.9 (1.8)% (2.6)% 0.8%
----- ----- --- ------ ----- -----
[23] [21]+[22] Sub-total............................... (8.0) (9.6) 1.6 (6.3)% (7.7)% 1.4%
----- ----- --- ------ ----- -----
[24] [19]+[23] Total Cash Expenses..................... (8.6) (14.0) 5.4 (6.8)% (11.2)% 4.4%
===== ===== === ====== ===== =====
NET CASH COLLECTIONS
[25] [16] Total Cash Collections.................. 119.1 122.5 (3.4) 93.9% 96.6% (2.7)%
[26] [24] Total Cash Expenses (8.6) (14.0) 5.4 (6.8)% (11.2)% 4.4%
[27] Interest Payments....................... (58.5) (63.2) 4.7 (46.1)% (49.8)% 3.7%
[28] Swap Payments........................... (8.7) (3.8) (4.9) (6.8)% (3.0)% (3.8)%
[29] Exceptional Items....................... -- -- -- --
[30] sum of [25].[29] TOTAL................................... 43.3 41.5 1.8 34.2% 32.6% 1.6%
===== ===== === ====== ===== =====
[31] PRINCIPAL PAYMENTS
subclass A-1............................ -- --
A-2-10
<PAGE>
% of 1998 Lease Rentals under the
1998 Base Case
------------------------ ---------------------------------
Base
Actual Case Variance Actual Base Case Variance
------ ---- -------- ------ --------- --------
(All amounts in US dollars
millions unless otherwise stated)
<S> <C> <C> <C> <C> <C> <C> <C>
subclass A-2............................ 39.5 37.7 1.8 31.2% 29.6% 1.6%
subclass B-1............................ 3.8 3.8 0.0 3.0% 3.0% 0.0%
subclass C-1............................ 0.0 0.0 0.0 0.0% 0.0% 0.0%
subclass D-1............................ -- 0.0% 0.0% 0.0%
----- ----- --- ------ ---- ---
Total................................... 43.3 41.5 1.8 34.2% 32.6% 1.6%
===== ===== === ====== ===== =====
Debt Balances as at November 15, 1999
subclass A-1............................ 400.0 400.0
subclass A-2............................ 234.5 247.1
subclass B-1............................ 91.0 91.0
subclass C-1............................ 100.0 100.0
subclass D-1............................ 110.0 110.0
----- -----
935.5 948.1
===== =====
</TABLE>
A-2-11
<PAGE>
APPENDIX C TO APPENDIX 2
[Intentionally omitted]
A-2-12
<PAGE>
APPENDIX 3
Extract from Cash Analysis of Financial Condition and Results of Operations
Three Month Period from December 1999 to February 2000(1)
I. Background and General Information
Morgan Stanley Aircraft Finance ("MSAF"), a Delaware business trust, is a
special purpose vehicle which owns aircraft subject to operating leases. Under
the terms of its Indenture MSAF may acquire additional aircraft and sell
aircraft from the fleet. Any acquisition of additional aircraft will be subject
to certain confirmations with respect to the notes from rating agencies and
compliance with certain operating covenants of MSAF set out in the Indenture.
Initial Portfolio
On March 3, 1998, MSAF issued $1,050 million of notes in connection with
its acquisition of 33 aircraft plus an engine with a total appraised value at
September 30, 1997 of $1,115.5 million from International Lease Finance
Corporation ("ILFC"). All but one of the 33 aircraft was acquired by MSAF.
New Issuance
On March 15, 2000, MSAF refinanced the A-1 subclass notes of $400 million
as part of a total issuance of $1,310 million of New notes in five subclasses
(A-3, A-4, A-5, B-2 and C-2). In addition to the refinancing of the A-1
subclass, these notes were issued in association with MSAF's acquisition of 29
aircraft with a total appraised value of $1,047.8 million as of November 30,
1999 from a subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). MSAF
acquired all but one of the 29 aircraft on March 15, 2000. The remaining
aircraft, a B737-300, is subject to a financing that will terminate before
April 30, 2000 and is scheduled to deliver to MSAF at this time. MSDW acquired
two aircraft from an affiliate of GE Capital Corporation on March 19, 1999 and
27 aircraft from ILFC on August 6, 1999.
Combined Fleet
As a result, the overall size of the combined aircraft fleet is now 61
aircraft plus an engine with a total appraised value of $2,000.9 million as of
November 30, 1999. As of April 1, 2000, MSAF had 61 lease contracts in effect
with 42 lessees based in 25 countries and one aircraft was off-lease as shown
in Appendix A attached.
The discussion and analysis that follows in Section II is based on the
results of MSAF and its subsidiaries as a single entity (collectively the "MSAF
group") for the reporting periods from December 1999 to February 2000. This
relates to the Initial Portfolio and the 1998 Basecase against which the actual
performance is compared. This period was prior to the New Issuance and the
aircraft acquisition on March 15, 2000 and therefore relates to the Initial
Portfolio of 32 aircraft only. The discussion and analysis in Section IV -
"Recent Developments" relates to the combined fleet of 61 aircraft plus an
engine.
MSAF group's cash receipts and disbursements are determined, in part, by
the overall economic condition of the operating leasing market. The operating
leasing market, in turn, is affected by various cyclical factors. These include
the level and volatility of interest rates, the availability of credit, fuel
costs and both general and regional economic conditions affecting lessee
operations and trading. Other factors to consider are manufacturer production
levels, passenger demand, retirement and obsolescence of aircraft models,
manufacturers exiting or entering the market or ceasing to produce aircraft
types or re-introduction into service of aircraft previously in storage. In
addition, state regulations and air traffic control infrastructure constraints,
such as limitations on the number of landing slots, can also impact the
operating leasing market.
---------
1This is an extract from a report filed on form 8-K with the Securities
and Exchange Commission on April 14, 2000.
A-3-1
<PAGE>
MSAF group's ability to compete against other lessors is determined, in
part, by the composition of its fleet in terms of mix, relative age and
popularity of aircraft type. In addition, operating restrictions imposed by the
Indenture, and the ability of other lessors, who may possess substantially
greater financial resources, to offer leases on more favorable terms than MSAF
group, may also impact MSAF group's ability to compete against other lessors.
For the purposes of this report, the "First Quarter 2000", referred to in
Section II - "Comparison of Actual Cash Flows versus the 1998 Base Case for the
First Quarter 2000" shall comprise information from the monthly cash reports
dated December 15, 1999 through to February 15, 2000. The financial data in
these reports includes cash receipts from November 9, 1999 (first day of the
Collection Period for the December 1999 Report) up to February 9, 2000 (last
day of the Collection Period for the February 2000 Report). It also includes
payments made by MSAF group between November 16, 1999 and up to February 15,
2000 (the Note Payment Date for the February 2000 Report).
II. Comparison of Actual Cash Flows versus the 1998 Base Case for the First
Quarter 2000
The February 20, 1998 Prospectus (the "Prospectus") and the November 4,
1998 Prospectus (the "Prospectus") for the notes contain assumptions in respect
of MSAF group's future cash flows and cash expenses (the "1998 Base Case"). For
the purpose of this report, "Net Cash Collections" is defined as Total Cash
Collections less Total Cash Expenses, Interest Payments and Swap Payments. A
discussion of the quarterly Cash Collections, Cash Expenses, Interest Payments
and Principal Payments is given below and should be read in conjunction with
the analysis in Appendix B.
CASH COLLECTIONS
"Total Cash Collections" include Net Lease Rentals (Contracted Lease
Rentals less Net Stress-related Costs), Movement in Current Arrears Balance,
Interest Earned and Net Maintenance.
Total Cash Collections Actual Basecase Variance
------ -------- --------
$M $M $M
Lease Rentals....................... 32.0 32.0 --
-- Renegotiated Leases............. (0.3) -- (0.3)
-- Rental Resets................... (0.6) -- (0.6)
Contracted Lease Rentals............ 31.1 32.0 (0.9)
Movement in Current Arrears Balance. (0.3) -- (0.3)
Net Stress Related Costs............ (3.1) (1.4) (1.7)
Net Lease Rentals................... 27.7 30.6 (2.9)
Interest Earned..................... 0.5 0.4 0.1
Net Maintenance..................... (4.1) -- (4.1)
Total Cash Collections.............. 24.1 31.0 (6.9)
In the First Quarter 2000, MSAF group generated approximately $24.1
million in Total Cash Collections, $6.9 million less than assumed in the 1998
Base Case. This difference is due to a combination of the factors set out below
(the numbers in brackets refer to the line item number shown in Appendix B).
[2] Renegotiated Leases
Renegotiated Leases refers to the loss in rental revenue caused by a
lessee negotiating a reduction in the lease rental. Typically, this can be a
permanent reduction over the remaining lease term in exchange for other
contractual concessions. In the First Quarter 2000, the amount of revenue loss
attributed to Renegotiated Leases was $0.3 million and relates to three
renegotiated leases. The loss is primarily due to a 14% reduction from the 1998
Base Case rental on a B767-300ER on lease to Air Pacific. The new rental was
reset at the then prevailing market rate for B767-300ERs in exchange for a
lease extension.
A-3-2
<PAGE>
[3] Rental Resets
Rental Resets is a measure of the loss in rental revenue when new lease
rates are lower than those assumed in the 1998 Base Case. In the First Quarter
2000, no new leases were written, however, lost revenue attributable to lease
resets in previous quarters amounted to $0.6 million. See Section IV - "Recent
Developments" for a discussion of current re-leasing events.
[4] Contracted Lease Rentals
Contracted Lease Rentals represents the current contracted lease rental
rollout which equates to the 1998 Base Case Lease Rentals less adjustments for
Renegotiated Leases and Rental Resets. For the First Quarter 2000, Contracted
Lease Rentals were $31.1 million, $0.9 million less than assumed in the 1998
Base Case. The difference is due to losses from renegotiated leases and rental
resets as discussed above.
[5] Movement in Current Arrears Balance
Current Arrears is the total contracted lease rentals outstanding from
current lessees at a given date and excludes any amounts classified as Bad
Debts. The current arrears balance at the start of the First Quarter 2000 was
$3.1 million versus $3.4 million at the end of the First Quarter 2000, an
increase in arrears of $0.3 million.
Movement in
Current Current Current
Aircraft Type Country Arrears Arrears Arrears
------------- ------- ------- ------- -----------
A310-300...... Brazil 0.6 0.4 0.2
A321-100...... Turkey 0.6 0.9 (0.3)
B737-300...... Brazil 1.0 1.6 (0.6)
B737-400...... Mexico 0.5 -- 0.5
A310-300...... Oman 0.1 -- 0.1
A320-200...... Canada -- 0.2 (0.2)
A320-200...... Ireland 0.3 0.3 0.0
---------
* Re-classified as Bad Debts during the First Quarter 2000.
As at November 15, 1999, six lessees were in arrears, owing $3.1 million,
against which MSAF group held security deposits of $2.9 million. One of the six
lessees TAESA, based in Mexico, defaulted in the First Quarter 2000 and the
aircraft was repossessed. Rental arrears amounting to $0.5 million associated
with this lessee at the time of the repossession were deemed irrecoverable and
re-classified from Current Arrears to Bad Debts.
At February 15, 2000, five lessees in arrears owed $3.4 million, against
which MSAF group held security deposits of $2.2 million. See Section IV -
"Recent Developments" for information on the current level of arrears as of
April 1, 2000.
Net Stress-related Costs
Net Stress-related Costs is a combination of all the factors which can
cause actual lease rentals received to differ from the Contracted Lease
Rentals. The 1998 Base Case assumed net stress-related costs equal to 4.5% of
the 1998 Base Case Lease Rentals.
Net Stress Related Costs Actual Basecase Variance
------ -------- --------
$M $M $M
Bad Debts...................... (0.5) -- --
Security Deposits Drawndown.... 0.5 -- --
Capitalised Arrears............ -- -- --
A-3-3
<PAGE>
Net Stress Related Costs Actual Basecase Variance
------ -------- --------
$M $M $M
AOG............................ (4.2) -- --
Other Leasing Income........... 1.0 -- --
Repossession Costs............. 0.1 -- --
Net Stress Related Costs....... (3.1) (1.4) (1.7)
For the First Quarter 2000, net stress-related costs amounted to $3.1
million (9.7% of 1998 Base Case Lease Rentals) compared to $1.4 million assumed
in the 1998 Base Case, a variance of $1.7 million that is due to the following
six factors described in items [6] to [11] below.
[6] Bad Debts and [7] Security Deposits Drawn Down
Bad Debts are rental arrears owed by lessees who have defaulted
and which are deemed irrecoverable. These arrears are partially offset by the
draw down of security deposits held and amounts subsequently recovered from
the defaulted lessee.
Country Bad Debts Bad Debts
Aircraft Type Lessee Rental Recovered Deposits Drawn Security Total
------ ------- --------- -------------- -------- -----
$M $M $M
B737-400 TAESA Mexico (0.5) 0.0 0.5 0.0
Total (0.5) 0.0 0.5 0.0
In the First Quarter 2000, $0.5 million was written off in respect of
lease rentals due from a former lessee, TAESA, against which MSAF group drew
down security deposits totaling $0.5 million. See Section IV - "Recent
Developments" for information on the current level of Bad Debts as of April 1,
2000.
[8] Capitalized Arrears
Capitalized arrears refer to current arrears that have been capitalized
and restructured into a note payable. No arrears were capitalized in the First
Quarter 2000.
[9] Aircraft on Ground ("AOG")
AOG is defined as the Base Case lease rental lost when an aircraft is
off-lease and non-revenue earning.
Aircraft Type Old Lessee Lost New Lessee Rental
------------- ---------- --------------- ------
$M
1 B747-300 VARIG Air Atlanta Icelandic 2.4
2 A310-300 Oman Air Region Air 0.7
3 A310-300 Oman Air Region Air 0.6
4 B737-400 TAESA LOI 0.5
---
Total 4.2
---
The impact of AOG downtime amounted to $4.2 million during the First
Quarter 2000. This was in respect of four aircraft; one B747-300 previously on
lease to VARIG and terminated early, two A310-300s previously on lease to Oman
Air and terminated as scheduled and one B737-400 previously on lease to TAESA
and terminated early. See Section IV - "Recent Developments" below for
information on the current level of AOG costs as of April 1, 2000.
A-3-4
<PAGE>
[10] Other Leasing Income
Other leasing income consists of miscellaneous income received in
connection with a lease other than contracted rentals, maintenance receipts and
security deposits, such as early termination payments or default interest. In
the First Quarter 2000, other leasing income amounted to $1.0 million.
[11] Repossession Costs
Repossession costs consist of legal and aircraft technical costs incurred
as a result of repossessing an aircraft. In the First Quarter 2000,
repossession costs amounted to $0.1 million, which consists of consultancy fees
incurred during the repossession of the B747-300 previously on lease to VARIG.
[13] Net Lease Rentals
Net Lease Rentals is Contracted Lease Rentals less the movement in Current
Arrears Balance and Net Stress-related Costs. In the First Quarter 2000, net
lease rentals amounted to $27.7 million, $2.9 million less than assumed in the
1998 Base Case. The variance was attributable to the combined effect of lower
contracted lease rentals, the increase in current arrears and net
stress-related costs discussed above.
[14] Interest Earned
Interest earned relates to interest received on cash balances held in the
Collection and Expense Accounts. Cash held in the Collection Account in the
First Quarter 2000 consisted of the cash liquidity reserve amount of $25.0
million plus the intra-month cash balances for all the rentals and maintenance
payments collected prior to the monthly payment date. The Expense Account
contains cash set aside to pay for expenses which are expected to be payable
over the next three months.
The average mutual funds 30-day effective rate for the period was 5.73%,
slightly less than the 5.75% assumed in the 1998 Base Case. In the First
Quarter 2000, interest earned amounted to $0.5 million, $0.1 million more than
assumed in the 1998 Base Case. The difference is due primarily to interest
earned on the intra-month cash balances in the Collection Account and Expense
Account, albeit at a slightly lower than assumed interest rate. The 1998 Base
Case made no assumption as to interest earned on these balances.
[15] Net Maintenance
Net maintenance refers to maintenance reserve revenue received less any
maintenance reimbursements paid to lessees. In the First Quarter 2000, actual
maintenance reserve revenue received amounted to $2.8 million and maintenance
expenditure amounted to $6.9 million, generating negative net maintenance
revenue of $4.1 million. Maintenance expenditure included costs incurred in the
overhaul of a B757-200ER repossessed from Guyana Airways ($4.0 million), the
reimbursement from the airframe reserves of $0.5 million in respect of a
B767-300ER in accordance with a lease restructuring and the reimbursement from
the engine reserves in respect of a B737-400, previously on lease to TAESA
($1.4 million). The 1998 Base Case makes no assumptions for net maintenance as
it assumes that, over time, maintenance revenue will equal maintenance
expenditure. However, it is unlikely that in any particular Note Payment
Period, maintenance revenue will exactly equal maintenance expenditure.
CASH EXPENSES
"Total Cash Expenses" include Aircraft Operating Expenses and Selling,
General and Administrative ("SG&A") Expenses. In the First Quarter 2000, total
cash expenses were $1.9 million, $1.4 million lower than the 1998 Base Case,
which assumed total cash expenses of $3.3 million.
Total Cash Expenses Actual Basecase Variance
------------------- ------ -------- --------
$M $M $M
Aircraft Operating Expenses.... (0.3) (1.1) 0.8
A-3-5
<PAGE>
Total Cash Expenses Actual Basecase Variance
------------------- ------ -------- --------
$M $M $M
SG&A Expenses.................. (1.6) (2.2) 0.6
Total Cash Expenses............ (1.9) (3.3) 1.4
The difference is due to a combination of lower Aircraft Operating
Expenses and SG&A Expenses as discussed below. Aircraft Operating Expenses
include all operational costs related to the leasing of an aircraft including
costs of insurance, re-leasing and other overhead costs. In the First Quarter
2000, Aircraft Operating Expenses amounted to $0.3 million compared to $1.1
million per the 1998 Base Case, which assumes these costs to be 3.5% of the
1998 Base Case Lease Rentals.
[17] Insurance
No insurance costs were incurred in the First Quarter 2000.
[18] Re-leasing and other overhead costs
Re-leasing and other overhead costs consist of miscellaneous re-delivery
and leasing costs associated with re-leasing events. In the First Quarter 2000
these costs amounted to $0.3 million. SG&A Expenses relate to fees paid to the
Aircraft Servicer and to other service providers. In the First Quarter 2000,
SG&A Expenses were $1.6 million or $0.6 million lower than assumed in the 1998
Base Case. The variance is explained below.
[20] Aircraft Servicer Fees
The Aircraft Servicer Fees are defined as amounts paid to the Aircraft
Servicer, ILFC, in accordance with the terms of the Servicing Agreement. In the
First Quarter 2000, the total Aircraft Servicer fee paid was $1.1 million, $0.3
million lower than assumed in the 1998 Base Case, reflecting lower actual
rentals achieved relative to 1998 Base Case Lease Rentals.
Aircraft Servicer Fees consist of:
$M
--
Base Fee....................................... 0.5
Rent Collected Fee............................. 0.3
Rent Contracted Fee............................ 0.3
Incentive Fee 1998/99*......................... 0.0
Total Servicer Fee............................. 1.1
---------
*For financial year ended November 30, 1999
The Base Fee is a fixed amount per month per aircraft and changes only as
aircraft are acquired or sold. The Rent Contracted Fee is equal to 1% of all
rentals contracted. The Rent Collected Fee is equal to 1% of all rentals
received. The Incentive fee is 10% of all cash flow received above a targeted
amount set at the beginning of each financial year. No incentive fee was paid
to ILFC for the financial year ended November 1999.
[22] Other Servicer Fees
Other Servicer Fees relate to fees and expenses paid to other service
providers including the Administrative Agent, Financial Advisor, legal
advisors, accountants and Independent Trustees. In the First Quarter 2000,
Other Servicer Fees amounted to $0.5 million as compared to an assumed expense
of $0.8 million in the 1998 Base Case, a positive variance
A-3-6
<PAGE>
of $0.3 million. The variance is due primarily to lower than expected
Administrative Agent fees and other overhead costs. The Administrative Agent
fee is equal to 1.5% of rentals collected and declined in line with the reduced
rentals actually received.
[27] Interest Payments and [28] Swap Payments
In the First Quarter 2000, interest payments to Noteholders amounted to
$15.6 million. This is $0.1 million higher than the 1998 Base Case, which
assumed interest costs for the First Quarter 2000 to be $15.5 million. While
the total debt balance outstanding during the quarter was lower than expected
in the 1998 Base Case, interest payments rose due to an increase in the Libor
rate at year-end in 1999. The average Libor rate for the First Quarter 2000 was
5.88% versus an assumed Libor rate of 5.75%. The higher interest costs were
offset by a reduction in the amount of swap payments. MSAF paid $0.5 million in
swap costs, $0.3 million less than assumed in the 1998 Base Case.
[29] Exceptional Item
Exceptional items refer to cash flows that occur infrequently and are
outside the normal business activities of MSAF. There were no exceptional cash
flows in the First Quarter 2000.
[31] Principal Payments
In the First Quarter 2000, total principal payments to Noteholders
amounted to $6.1 million, $5.3 million less than assumed in the 1998 Base Case,
reflecting the lower Net Cash Collections available during this period, mainly
as a result of the lower than expected lease revenue performance, partially
offset by lower expenses.
III Other Financial Data
[Intentionally omitted]
IV Recent Developments
[Intentionally omitted]
A-3-7
<PAGE>
APPENDIX A TO APPENDIX 3
[Intentionally omitted]
A-3-8
<PAGE>
APPENDIX B TO APPENDIX 3
[Intentionally omitted]
A-3-9
<PAGE>
APPENDIX C TO APPENDIX 3
[Intentionally omitted]
A-3-10
<PAGE>
APPENDIX 4
MONTHLY LEASE RENTALS UNDER THE BASE CASE
Base Case
Lease
Month Rentals
----- ---------
(US$)
April 2000..........................................................26,299,918
May 2000............................................................18,159,742
June 2000...........................................................22,702,755
July 2000...........................................................16,973,964
August 2000.........................................................18,180,075
September 2000......................................................22,710,991
October 2000........................................................17,515,197
November 2000.......................................................18,107,622
December 2000.......................................................22,034,089
January 2001........................................................17,075,927
February 2001.......................................................18,330,805
March 2001..........................................................22,037,187
April 2001..........................................................17,542,045
May 2001............................................................17,944,760
June 2001...........................................................21,953,432
July 2001...........................................................17,395,741
August 2001.........................................................18,330,552
September 2001......................................................21,972,775
October 2001........................................................18,235,068
November 2001.......................................................18,193,373
December 2001.......................................................21,892,987
January 2002........................................................17,316,872
February 2002.......................................................18,242,523
March 2002..........................................................21,891,090
April 2002..........................................................18,134,870
May 2002............................................................18,301,447
June 2002...........................................................20,853,005
July 2002...........................................................17,913,605
August 2002.........................................................18,794,469
September 2002......................................................20,883,069
October 2002........................................................18,513,025
November 2002.......................................................18,508,469
December 2002.......................................................20,599,744
January 2003........................................................17,643,920
February 2003.......................................................18,422,727
March 2003..........................................................20,111,157
April 2003..........................................................18,893,938
May 2003............................................................18,112,813
June 2003...........................................................20,348,317
July 2003...........................................................18,249,207
August 2003.........................................................18,253,943
September 2003......................................................20,231,608
October 2003........................................................19,517,466
November 2003.......................................................18,493,358
December 2003.......................................................19,561,358
January 2004........................................................18,481,749
February 2004.......................................................18,469,498
March 2004..........................................................19,533,340
April 2004..........................................................19,677,006
May 2004............................................................18,504,306
June 2004...........................................................19,521,306
July 2004...........................................................18,430,517
August 2004.........................................................18,459,855
September 2004......................................................19,527,855
October 2004........................................................19,639,542
November 2004.......................................................18,280,958
December 2004.......................................................19,414,568
January 2005........................................................18,346,568
February 2005.......................................................18,346,568
March 2005..........................................................19,108,977
April 2005..........................................................19,548,058
May 2005............................................................18,472,563
June 2005...........................................................18,599,571
July 2005...........................................................18,599,571
August 2005.........................................................18,570,875
September 2005......................................................18,570,875
October 2005........................................................19,570,182
November 2005.......................................................18,537,872
December 2005.......................................................18,524,210
January 2006........................................................18,524,210
February 2006.......................................................18,524,210
March 2006..........................................................18,481,857
April 2006..........................................................19,292,858
May 2006............................................................18,407,089
June 2006...........................................................18,348,828
July 2006...........................................................18,327,189
August 2006.........................................................18,275,570
September 2006......................................................18,264,257
October 2006........................................................19,086,028
November 2006.......................................................18,222,843
December 2006.......................................................18,194,251
January 2007........................................................18,157,532
February 2007.......................................................18,157,532
March 2007..........................................................18,157,532
April 2007..........................................................18,941,919
May 2007............................................................18,097,911
June 2007...........................................................18,082,659
July 2007...........................................................18,082,659
August 2007.........................................................17,773,434
September 2007......................................................17,773,434
October 2007........................................................18,509,901
November 2007.......................................................17,762,088
December 2007.......................................................17,685,852
January 2008........................................................17,685,852
February 2008.......................................................17,641,560
March 2008..........................................................17,604,067
April 2008..........................................................17,456,460
May 2008............................................................17,368,338
June 2008...........................................................17,352,204
July 2008...........................................................17,335,388
August 2008.........................................................17,335,388
September 2008......................................................17,335,388
October 2008........................................................17,258,270
November 2008.......................................................17,162,540
December 2008.......................................................17,162,540
January 2009........................................................17,152,670
February 2009.......................................................17,142,842
March 2009..........................................................17,133,034
April 2009..........................................................17,133,034
May 2009............................................................17,069,632
June 2009...........................................................17,069,632
July 2009...........................................................17,012,965
August 2009.........................................................16,965,429
September 2009......................................................16,965,429
October 2009........................................................16,965,429
November 2009.......................................................16,894,311
December 2009.......................................................16,857,998
January 2010........................................................16,857,998
February 2010.......................................................16,857,998
March 2010..........................................................16,826,929
April 2010..........................................................16,664,711
May 2010............................................................16,664,711
June 2010...........................................................16,580,826
July 2010...........................................................22,716,139
August 2010.........................................................16,330,653
September 2010......................................................16,330,653
October 2010........................................................16,165,499
November 2010.......................................................15,972,159
December 2010.......................................................25,116,702
January 2011........................................................15,809,809
February 2011.......................................................15,809,809
March 2011..........................................................15,719,809
April 2011..........................................................15,640,874
May 2011............................................................15,584,748
June 2011...........................................................15,451,427
July 2011...........................................................15,410,251
August 2011.........................................................15,385,486
September 2011......................................................15,365,122
October 2011........................................................15,365,122
November 2011.......................................................15,294,127
December 2011.......................................................15,235,323
January 2012........................................................15,174,614
February 2012.......................................................15,174,614
March 2012..........................................................15,174,614
April 2012..........................................................20,638,135
May 2012............................................................14,870,783
June 2012...........................................................18,311,527
A-4-1
<PAGE>
Base Case
Lease
Month Rentals
----- ---------
(US$)
July 2012...........................................................14,710,999
August 2012.........................................................14,708,671
September 2012......................................................19,885,660
October 2012........................................................17,867,304
November 2012.......................................................14,229,433
December 2012.......................................................14,068,037
January 2013........................................................14,068,037
February 2013.......................................................13,987,507
March 2013..........................................................13,924,739
April 2013..........................................................17,084,281
May 2013............................................................21,997,135
June 2013...........................................................13,234,803
July 2013...........................................................13,186,455
August 2013.........................................................13,186,455
September 2013......................................................13,186,455
October 2013........................................................16,716,779
November 2013.......................................................16,192,838
December 2013.......................................................12,758,040
January 2014........................................................21,406,124
February 2014.......................................................17,554,276
March 2014..........................................................12,120,782
April 2014..........................................................18,270,505
May 2014............................................................11,756,471
June 2014...........................................................11,756,471
July 2014...........................................................11,641,183
August 2014.........................................................11,535,363
September 2014......................................................11,535,363
October 2014........................................................11,535,363
November 2014.......................................................11,396,514
December 2014.......................................................11,329,940
January 2015........................................................11,329,940
February 2015.......................................................11,329,940
March 2015..........................................................11,254,486
April 2015..........................................................18,207,074
May 2015............................................................17,111,705
June 2015...........................................................10,379,234
July 2015...........................................................10,379,234
August 2015.........................................................10,379,234
September 2015......................................................10,379,234
October 2015........................................................18,131,152
November 2015........................................................9,738,110
December 2015........................................................9,686,195
January 2016.........................................................9,686,195
February 2016........................................................9,686,195
March 2016...........................................................9,686,195
April 2016...........................................................9,634,807
May 2016.............................................................9,634,807
June 2016...........................................................26,972,818
July 2016............................................................8,610,359
August 2016..........................................................8,537,659
September 2016.......................................................8,494,670
October 2016........................................................24,494,266
November 2016........................................................7,834,803
December 2016........................................................7,718,814
January 2017........................................................11,299,052
February 2017........................................................7,529,178
March 2017..........................................................24,025,724
April 2017..........................................................19,820,868
May 2017.............................................................6,308,438
June 2017............................................................9,883,191
July 2017............................................................6,087,449
August 2017..........................................................6,082,582
September 2017.......................................................6,082,582
October 2017.........................................................5,925,310
November 2017........................................................5,925,310
December 2017........................................................5,839,716
January 2018.........................................................5,839,716
February 2018.......................................................11,592,746
March 2018...........................................................9,821,985
April 2018..........................................................18,282,691
May 2018.............................................................7,206,060
June 2018...........................................................12,209,340
July 2018............................................................4,054,017
August 2018.........................................................11,383,758
September 2018.......................................................3,699,201
October 2018.........................................................3,699,201
November 2018........................................................7,763,854
December 2018........................................................6,892,544
January 2019.........................................................3,282,827
February 2019........................................................3,241,548
March 2019...........................................................8,695,766
April 2019...........................................................2,934,047
May 2019............................................................17,918,100
June 2019............................................................2,400,637
July 2019............................................................2,400,637
August 2019..........................................................2,400,637
September 2019.......................................................5,169,376
October 2019........................................................11,007,345
November 2019........................................................5,574,365
December 2019........................................................5,206,064
January 2020.........................................................1,632,100
February 2020........................................................1,632,100
March 2020...........................................................1,632,100
April 2020..........................................................13,561,661
May 2020.............................................................1,246,451
June 2020............................................................4,719,329
July 2020............................................................1,783,087
August 2020..........................................................1,048,152
September 2020.......................................................1,048,152
October 2020.........................................................1,048,152
November 2020........................................................1,048,152
December 2020........................................................5,937,046
January 2021.........................................................2,501,666
February 2021........................................................2,484,770
March 2021...........................................................2,429,037
April 2021.............................................................506,143
May 2021...............................................................506,143
June 2021............................................................5,481,496
July 2021..............................................................309,573
August 2021..........................................................6,197,419
September 2021...............................................................0
A-4-2
<PAGE>
APPENDIX 5
ASSUMED PORTFOLIO VALUES
Assumed
Portfolio
Month Value
----- ---------
(US$
millions)
March 2000............................................................2,000.89
April 2000............................................................1,994.03
May 2000..............................................................1,987.14
June 2000.............................................................1,980.22
July 2000.............................................................1,973.27
August 2000...........................................................1,966.30
September 2000........................................................1,959.29
October 2000..........................................................1,952.26
November 2000.........................................................1,945.20
December 2000.........................................................1,938.11
January 2001..........................................................1,930.99
February 2001.........................................................1,923.84
March 2001............................................................1,916.67
April 2001............................................................1,909.46
May 2001..............................................................1,902.23
June 2001.............................................................1,894.97
July 2001.............................................................1,887.67
August 2001...........................................................1,880.35
September 2001........................................................1,873.00
October 2001..........................................................1,865.62
November 2001.........................................................1,858.21
December 2001.........................................................1,850.77
January 2002..........................................................1,843.30
February 2002.........................................................1,835.80
March 2002............................................................1,828.28
April 2002............................................................1,820.72
May 2002..............................................................1,813.13
June 2002.............................................................1,805.51
July 2002.............................................................1,797.86
August 2002...........................................................1,790.18
September 2002........................................................1,782.47
October 2002..........................................................1,774.73
November 2002.........................................................1,766.96
December 2002.........................................................1,759.16
January 2003..........................................................1,751.33
February 2003.........................................................1,743.47
March 2003............................................................1,735.58
April 2003............................................................1,727.66
May 2003..............................................................1,719.70
June 2003.............................................................1,711.72
July 2003.............................................................1,703.70
August 2003...........................................................1,695.66
September 2003........................................................1,687.58
October 2003..........................................................1,679.47
November 2003.........................................................1,671.33
December 2003.........................................................1,663.15
January 2004..........................................................1,654.95
February 2004.........................................................1,646.71
March 2004............................................................1,638.45
April 2004............................................................1,630.15
May 2004..............................................................1,621.82
June 2004.............................................................1,613.45
July 2004.............................................................1,605.06
August 2004...........................................................1,596.63
September 2004........................................................1,588.17
October 2004..........................................................1,579.68
November 2004.........................................................1,571.15
December 2004.........................................................1,562.60
January 2005..........................................................1,554.01
February 2005.........................................................1,545.39
March 2005............................................................1,536.73
April 2005............................................................1,528.04
May 2005..............................................................1,519.32
June 2005.............................................................1,510.57
July 2005.............................................................1,501.79
August 2005...........................................................1,492.97
September 2005........................................................1,484.11
October 2005..........................................................1,475.23
November 2005.........................................................1,466.31
December 2005.........................................................1,457.35
January 2006..........................................................1,448.37
February 2006.........................................................1,439.35
March 2006............................................................1,430.29
April 2006............................................................1,421.21
May 2006..............................................................1,412.09
June 2006.............................................................1,402.93
July 2006.............................................................1,393.74
August 2006...........................................................1,384.52
September 2006........................................................1,375.26
October 2006..........................................................1,365.97
November 2006.........................................................1,356.64
December 2006.........................................................1,347.28
January 2007..........................................................1,337.88
February 2007.........................................................1,328.45
March 2007............................................................1,318.98
April 2007............................................................1,309.48
May 2007..............................................................1,299.95
June 2007.............................................................1,290.38
July 2007.............................................................1,280.77
August 2007...........................................................1,271.13
September 2007........................................................1,250.08
October 2007..........................................................1,240.58
November 2007.........................................................1,231.04
December 2007.........................................................1,221.47
January 2008..........................................................1,211.87
February 2008.........................................................1,202.23
March 2008............................................................1,192.55
April 2008............................................................1,182.84
May 2008..............................................................1,173.09
June 2008.............................................................1,163.31
July 2008.............................................................1,153.50
August 2008...........................................................1,143.64
September 2008........................................................1,133.76
October 2008..........................................................1,123.83
November 2008.........................................................1,113.87
December 2008.........................................................1,103.88
January 2009..........................................................1,093.85
February 2009.........................................................1,083.78
March 2009............................................................1,073.67
April 2009............................................................1,063.53
May 2009..............................................................1,053.36
June 2009.............................................................1,043.14
July 2009.............................................................1,032.89
August 2009...........................................................1,022.61
September 2009........................................................1,012.28
October 2009..........................................................1,001.92
November 2009...........................................................991.52
December 2009...........................................................981.09
January 2010............................................................970.62
February 2010...........................................................960.11
March 2010..............................................................949.56
April 2010..............................................................938.98
May 2010................................................................928.36
June 2010...............................................................917.70
July 2010...............................................................907.11
August 2010.............................................................896.67
September 2010..........................................................886.20
October 2010............................................................875.68
November 2010...........................................................865.13
December 2010...........................................................854.83
January 2011............................................................844.64
February 2011...........................................................834.42
March 2011..............................................................824.16
April 2011..............................................................813.86
May 2011................................................................803.52
June 2011...............................................................793.15
July 2011...............................................................782.74
August 2011.............................................................772.30
September 2011..........................................................761.82
October 2011............................................................751.30
November 2011...........................................................740.75
December 2011...........................................................730.16
January 2012............................................................719.53
February 2012...........................................................708.86
March 2012..............................................................698.16
April 2012..............................................................687.54
May 2012................................................................677.03
A-5-1
<PAGE>
Assumed
Portfolio
Month Value
----- ---------
(US$
millions)
June 2012...............................................................666.56
July 2012...............................................................656.14
August 2012.............................................................645.68
September 2012..........................................................635.36
October 2012............................................................625.16
November 2012...........................................................615.02
December 2012...........................................................604.84
January 2013............................................................594.63
February 2013...........................................................584.38
March 2013..............................................................574.09
April 2013..............................................................563.85
May 2013................................................................553.86
June 2013...............................................................544.03
July 2013...............................................................534.18
August 2013.............................................................524.29
September 2013..........................................................514.36
October 2013............................................................504.41
November 2013...........................................................494.66
December 2013...........................................................484.97
January 2014............................................................475.59
February 2014...........................................................466.37
March 2014..............................................................457.25
April 2014..............................................................448.25
May 2014................................................................439.37
June 2014...............................................................430.45
July 2014...............................................................421.51
August 2014.............................................................412.54
September 2014..........................................................403.53
October 2014............................................................394.49
November 2014...........................................................385.43
December 2014...........................................................376.33
January 2015............................................................367.20
February 2015...........................................................358.04
March 2015..............................................................348.85
April 2015..............................................................339.89
May 2015................................................................331.16
June 2015...............................................................322.53
July 2015...............................................................313.87
August 2015.............................................................305.18
September 2015..........................................................296.47
October 2015............................................................287.85
November 2015...........................................................279.46
December 2015...........................................................271.05
January 2016............................................................262.60
February 2016...........................................................254.13
March 2016..............................................................245.63
April 2016..............................................................237.09
May 2016................................................................228.53
June 2016...............................................................220.19
July 2016...............................................................212.42
August 2016.............................................................204.62
September 2016..........................................................196.80
October 2016............................................................189.44
November 2016...........................................................182.34
December 2016...........................................................175.21
January 2017............................................................168.06
February 2017...........................................................161.06
March 2017..............................................................154.62
April 2017..............................................................148.72
May 2017................................................................143.06
June 2017...............................................................137.46
July 2017...............................................................131.94
August 2017.............................................................126.40
September 2017..........................................................120.84
October 2017............................................................115.26
November 2017...........................................................109.66
December 2017...........................................................104.04
January 2018.............................................................98.41
February 2018............................................................92.88
March 2018...............................................................87.61
April 2018...............................................................82.73
May 2018.................................................................78.22
June 2018................................................................74.05
July 2018................................................................69.93
August 2018..............................................................65.92
September 2018...........................................................62.12
October 2018.............................................................58.31
November 2018............................................................54.59
December 2018............................................................50.98
January 2019.............................................................47.49
February 2019............................................................43.99
March 2019...............................................................40.60
April 2019...............................................................37.35
May 2019.................................................................34.59
June 2019................................................................32.03
July 2019................................................................29.46
August 2019..............................................................26.88
September 2019...........................................................24.29
October 2019.............................................................22.23
November 2019............................................................20.27
December 2019............................................................18.44
January 2020.............................................................16.71
February 2020............................................................14.98
March 2020...............................................................13.25
April 2020...............................................................11.79
May 2020.................................................................10.61
June 2020.................................................................9.58
July 2020.................................................................8.58
August 2020...............................................................7.59
September 2020............................................................6.60
October 2020..............................................................5.60
November 2020.............................................................4.60
December 2020.............................................................3.69
January 2021..............................................................2.99
February 2021.............................................................2.30
March 2021................................................................1.72
April 2021................................................................1.20
May 2021..................................................................0.68
June 2021.................................................................0.35
July 2021.................................................................0.07
August 2021..................................................................0
A-5-2
<PAGE>
APPENDIX 6
CLASS A CLASS PERCENTAGES
Class A Class A Class A
Payment Date Minimum Scheduled Supplemental
Occurring in Percentage Percentage Percentage
------------ ---------- ---------- ------------
March 2000........70.20% 70.20% 59.67%
April 2000........70.20% 70.19% 59.67%
May 2000..........70.20% 70.17% 59.67%
June 2000.........70.19% 70.16% 59.66%
July 2000.........70.19% 70.15% 59.66%
August 2000.......70.19% 70.13% 59.65%
September 2000....70.18% 70.12% 59.63%
October 2000......70.18% 70.10% 59.62%
November 2000.....70.17% 70.09% 59.61%
December 2000.....70.17% 70.08% 59.59%
January 2001......70.17% 70.06% 59.57%
February 2001.....70.17% 70.05% 59.54%
March 2001........70.16% 70.03% 59.52%
April 2001........70.16% 70.02% 59.49%
May 2001..........70.15% 70.00% 59.46%
June 2001.........70.15% 69.99% 59.43%
July 2001.........70.15% 69.98% 59.40%
August 2001.......70.15% 69.96% 59.36%
September 2001....70.14% 69.95% 59.32%
October 2001......70.14% 69.93% 59.28%
November 2001.....70.13% 69.92% 59.24%
December 2001.....70.13% 69.91% 59.19%
January 2002......70.12% 69.89% 59.14%
February 2002.....70.12% 69.88% 59.09%
March 2002........70.12% 69.86% 59.04%
April 2002........70.12% 69.85% 58.99%
May 2002..........70.11% 69.84% 58.93%
June 2002.........70.11% 69.82% 58.87%
July 2002.........70.10% 69.81% 58.81%
August 2002.......70.10% 69.79% 58.74%
September 2002....70.10% 69.78% 58.67%
October 2002......70.10% 69.77% 58.60%
November 2002.....70.09% 69.75% 58.53%
December 2002.....70.09% 69.74% 58.46%
January 2003......70.08% 69.72% 58.38%
February 2003.....70.08% 69.71% 58.30%
March 2003........70.08% 69.70% 58.22%
April 2003........70.08% 69.68% 58.14%
May 2003..........70.07% 69.67% 58.05%
June 2003.........70.07% 69.65% 57.96%
July 2003.........70.06% 69.64% 57.87%
August 2003.......70.06% 69.63% 57.78%
September 2003....70.05% 69.61% 57.68%
October 2003......70.05% 69.60% 57.58%
November 2003.....70.05% 69.58% 57.48%
December 2003.....70.05% 69.57% 57.38%
January 2004......70.04% 69.56% 57.27%
February 2004.....70.04% 69.54% 57.16%
March 2004........70.03% 69.53% 57.05%
April 2004........70.03% 69.51% 56.94%
May 2004..........70.03% 69.50% 56.82%
June 2004.........70.03% 69.49% 56.71%
July 2004.........70.02% 69.47% 56.58%
August 2004.......70.02% 69.46% 56.46%
September 2004....70.01% 69.44% 56.34%
October 2004......70.01% 69.43% 56.21%
November 2004.....70.00% 69.42% 56.08%
December 2004.....70.00% 69.40% 55.94%
January 2005......70.00% 69.39% 55.81%
February 2005.....70.00% 69.37% 55.67%
March 2005........69.99% 69.36% 55.53%
April 2005........69.99% 69.34% 55.39%
May 2005..........69.98% 69.33% 55.24%
June 2005.........69.98% 69.32% 55.09%
July 2005.........69.98% 69.30% 54.94%
August 2005.......69.98% 69.29% 54.79%
September 2005....69.97% 69.27% 54.63%
October 2005......69.97% 69.26% 54.48%
November 2005.....69.96% 69.25% 54.32%
December 2005.....69.96% 69.23% 54.15%
January 2006......69.96% 69.22% 53.99%
February 2006.....69.96% 69.20% 53.82%
March 2006........69.95% 69.19% 53.65%
April 2006........69.95% 69.18% 53.48%
May 2006..........69.94% 69.16% 53.30%
June 2006.........69.94% 69.16% 53.12%
July 2006.........69.93% 69.13% 52.94%
August 2006.......69.93% 69.13% 52.76%
September 2006....69.93% 69.11% 52.57%
October 2006......69.93% 69.10% 52.39%
November 2006.....69.92% 69.08% 52.20%
December 2006.....69.92% 69.07% 52.00%
January 2007......69.91% 69.05% 51.81%
February 2007.....69.91% 69.04% 51.61%
March 2007........69.91% 69.02% 51.41%
April 2007........69.91% 69.01% 51.20%
May 2007..........69.90% 68.99% 51.00%
June 2007.........69.90% 68.99% 50.79%
July 2007.........69.89% 68.97% 50.58%
August 2007.......69.89% 68.96% 50.37%
September 2007....69.89% 68.94% 50.15%
October 2007......69.89% 68.93% 49.93%
November 2007.....69.88% 68.92% 49.71%
December 2007.....69.88% 68.90% 49.49%
A-6-1
<PAGE>
Class A Class A Class A
Payment Date Minimum Scheduled Supplemental
Occurring in Percentage Percentage Percentage
------------ ---------- ---------- ------------
January 2008......69.87% 68.89% 49.26%
February 2008.....69.87% 68.87% 49.03%
March 2008........69.86% 68.86% 48.80%
April 2008........69.86% 68.85% 48.57%
May 2008..........69.86% 68.83% 48.33%
June 2008.........69.86% 68.82% 48.09%
July 2008.........69.85% 68.80% 47.85%
August ...........69.85% 68.78% 47.61%
September 2008....69.84% 68.78% 47.36%
October 2008......69.84% 68.76% 47.11%
November 2008.....69.84% 68.75% 46.86%
December 2008.....69.84% 68.73% 46.60%
January 2009......69.83% 68.72% 46.35%
February 2009.....69.83% 68.71% 46.09%
March 2009........69.82% 68.70% 45.83%
April 2009........69.82% 68.69% 45.56%
May 2009..........69.82% 68.67% 45.30%
June 2009.........69.82% 68.66% 45.03%
July 2009.........69.81% 68.64% 44.75%
August 2009.......69.81% 68.63% 44.48%
September 2009....69.80% 68.61% 44.20%
October 2009......69.80% 68.60% 43.92%
November 2009.....69.79% 68.59% 43.64%
December 2009.....69.79% 68.57% 43.35%
January 2010......69.79% 68.57% 43.07%
February 2010.....69.79% 68.54% 42.78%
March 2010........69.78% 68.54% 42.48%
April 2010........69.78% 68.52% 42.19%
May 2010..........69.77% 68.51% 41.89%
June 2010.........69.77% 68.49% 41.59%
July 2010.........69.77% 68.48% 41.29%
August 2010.......69.77% 68.46% 40.98%
September 2010....69.76% 68.45% 40.67%
October 2010......69.76% 68.43% 40.36%
November 2010.....69.75% 68.43% 40.05%
December 2010.....69.75% 68.41% 39.73%
January 2011......69.75% 68.40% 39.41%
February 2011.....69.75% 68.38% 39.09%
March 2011........69.74% 68.37% 38.77%
April 2011........69.74% 68.36% 38.44%
May 2011..........69.73% 68.34% 38.11%
June 2011.........69.73% 68.33% 37.78%
July 2011.........69.72% 68.31% 37.45%
August 2011.......69.72% 68.30% 37.11%
September 2011....69.72% 68.29% 36.77%
October 2011......69.72% 68.27% 36.43%
November 2011.....69.71% 68.26% 36.08%
December 2011.....69.71% 68.24% 35.74%
January 2012......69.70% 68.24% 35.39%
February 2012.....69.70% 68.21% 35.03%
March 2012........69.70% 68.21% 34.68%
April 2012........69.70% 68.19% 34.32%
May 2012..........69.69% 68.18% 33.96%
June 2012.........69.69% 68.17% 33.60%
July 2012.........69.69% 68.15% 33.23%
August 2012.......69.69% 68.14% 32.86%
September 2012....69.69% 68.10% 32.49%
October 2012......69.69% 68.09% 32.12%
November 2012.....69.69% 68.07% 31.74%
December 2012.....69.69% 68.07% 31.36%
January 2013......69.69% 68.05% 30.98%
February 2013.....69.69% 68.05% 30.60%
March 2013........69.69% 68.04% 30.21%
April 2013........69.67% 68.02% 29.82%
May 2013..........69.67% 68.01% 29.43%
June 2013.........69.67% 67.99% 29.04%
July 2013.........69.67% 67.98% 28.64%
August 2013.......69.67% 67.96% 28.24%
September 2013....69.67% 67.95% 27.84%
October 2013......69.67% 67.93% 27.44%
November 2013.....69.67% 67.91% 27.03%
December 2013.....69.67% 67.89% 26.62%
January 2014......69.66% 67.86% 26.20%
February 2014.....69.66% 67.84% 25.79%
March 2014........69.66% 67.81% 25.37%
April 2014........69.65% 67.78% 24.95%
May 2014..........69.65% 67.75% 24.53%
June 2014.........69.64% 67.72% 24.10%
July 2014.........69.64% 67.68% 23.67%
August 2014.......69.63% 67.64% 23.24%
September 2014....69.62% 67.59% 22.81%
October 2014......69.61% 67.55% 22.37%
November 2014.....69.60% 67.50% 21.93%
December 2014.....69.59% 67.44% 21.49%
January 2015......69.58% 67.39% 21.05%
February 2015.....69.56% 67.33% 20.60%
March 2015........69.54% 67.27% 20.15%
April 2015........69.53% 67.20% 19.70%
May 2015..........69.51% 67.12% 19.24%
June 2015.........69.48% 67.04% 18.79%
July 2015.........69.46% 66.96% 18.33%
August 2015.......69.43% 66.87% 17.86%
September 2015....69.40% 66.78% 17.40%
October 2015......69.37% 66.68% 16.93%
November 2015.....69.34% 66.59% 16.46%
December 2015.....69.30% 66.47% 15.99%
January 2016......69.26% 66.36% 15.51%
February 2016.....69.22% 66.24% 15.03%
A-6-2
<PAGE>
Class A Class A Class A
Payment Date Minimum Scheduled Supplemental
Occurring in Percentage Percentage Percentage
------------ ---------- ---------- ------------
March 2016........69.17% 66.11% 14.55%
April 2016........69.12% 65.98% 14.07%
May 2016..........69.07% 65.83% 13.58%
June 2016.........69.01% 65.69% 13.09%
July 2016.........68.95% 65.53% 12.60%
August 2016.......68.89% 65.38% 12.11%
September 2016....68.82% 65.21% 11.61%
October 2016......68.74% 65.03% 11.11%
November 2016.....68.66% 64.86% 10.61%
December 2016.....68.59% 64.66% 10.10%
January 2017......68.50% 64.46% 9.59%
February 2017.....68.40% 64.26% 9.08%
March 2017........68.31% 64.04% 8.57%
April 2017........68.20% 63.82% 8.05%
May 2017..........68.09% 63.59% 7.54%
June 2017.........67.98% 63.34% 7.02%
July 2017.........67.86% 63.10% 6.49%
August 2017.......67.72% 62.84% 5.97%
September 2017....67.59% 62.57% 5.44%
October 2017......67.45% 62.29% 4.90%
November 2017.....67.30% 62.00% 4.37%
December 2017.....67.15% 61.70% 3.83%
January 2018......66.98% 61.39% 3.29%
February 2018.....66.81% 61.08% 2.75%
March 2018........66.63% 60.74% 2.21%
April 2018........66.45% 60.39% 1.66%
May 2018..........66.25% 60.05% 1.11%
June 2018.........66.05% 59.68% 0.56%
July 2018.........65.83% 59.31% 0.00%
August 2018.......65.60% 58.92%
September 2018....65.37% 58.52%
October 2018......65.13% 58.11%
November 2018.....64.88% 57.68%
December 2018.....64.61% 57.24%
January 2019......64.34% 56.79%
February 2019.....64.06% 56.34%
March 2019........63.76% 55.86%
April 2019........63.46% 55.37%
May 2019..........63.13% 54.87%
June 2019.........62.80% 54.35%
July 2019.........62.46% 53.82%
August 2019.......62.10% 53.28%
September 2019....59.58% 50.56%
October 2019......57.06% 47.84%
November 2019.....54.54% 45.13%
December 2019.....52.02% 42.41%
January 2020......49.50% 39.69%
February 2020.....46.98% 36.98%
March 2020........44.46% 34.26%
April 2020........41.94% 31.54%
May 2020..........39.42% 28.82%
June 2020.........36.90% 26.11%
July 2020.........34.38% 23.39%
August 2020.......31.86% 20.67%
September 2020....29.34% 17.96%
October 2020......26.82% 15.24%
November 2020.....24.30% 12.52%
December 2020.....21.78% 9.81%
January 2021......19.26% 7.09%
February 2021.....16.74% 4.37%
March 2021........14.22% 0.00%
April 2021........11.70%
May 2021..........9.18%
June 2021.........6.66%
July 2021.........4.13%
August 2021.......0.00%
A-6-3
<PAGE>
APPENDIX 7
CLASS B CLASS PERCENTAGES
Class B Class B Class B
Payment Date Minimum Scheduled Supplemental
Occurring in Percentage Percentage Percentage
------------ ---------- ---------- ------------
March 2000........8.23% 8.23% 8.23%
April 2000........8.23% 8.23% 8.23%
May 2000..........8.24% 8.23% 8.23%
June 2000.........8.24% 8.23% 8.23%
July 2000.........8.24% 8.23% 8.23%
August 2000.......8.24% 8.23% 8.23%
September 2000....8.24% 8.23% 8.22%
October 2000......8.25% 8.23% 8.22%
November 2000.....8.25% 8.23% 8.22%
December 2000.....8.25% 8.23% 8.21%
January 2001......8.25% 8.24% 8.21%
February 2001.....8.25% 8.24% 8.20%
March 2001........8.26% 8.24% 8.20%
April 2001........8.26% 8.24% 8.19%
May 2001..........8.26% 8.24% 8.19%
June 2001.........8.26% 8.24% 8.18%
July 2001.........8.27% 8.24% 8.17%
August 2001.......8.27% 8.24% 8.17%
September 2001....8.27% 8.24% 8.16%
October 2001......8.27% 8.24% 8.15%
November 2001.....8.27% 8.24% 8.14%
December 2001.....8.28% 8.24% 8.13%
January 2002......8.28% 8.24% 8.12%
February 2002.....8.28% 8.24% 8.11%
March 2002........8.28% 8.24% 8.10%
April 2002........8.28% 8.24% 8.09%
May 2002..........8.29% 8.24% 8.08%
June 2002.........8.29% 8.24% 8.06%
July 2002.........8.29% 8.24% 8.05%
August 2002.......8.29% 8.24% 8.04%
September 2002....8.29% 8.24% 8.02%
October 2002......8.30% 8.24% 8.01%
November 2002.....8.30% 8.24% 7.99%
December 2002.....8.30% 8.24% 7.98%
January 2003......8.30% 8.24% 7.96%
February 2003.....8.30% 8.24% 7.94%
March 2003........8.30% 8.24% 7.93%
April 2003........8.31% 8.24% 7.91%
May 2003..........8.31% 8.24% 7.89%
June 2003.........8.31% 8.24% 7.87%
July 2003.........8.31% 8.24% 7.85%
August 2003.......8.31% 8.24% 7.83%
September 2003....8.32% 8.24% 7.81%
October 2003......8.32% 8.24% 7.79%
November 2003.....8.32% 8.24% 7.77%
December 2003.....8.32% 8.24% 7.75%
January 2004......8.32% 8.24% 7.73%
February 2004.....8.32% 8.24% 7.71%
March 2004........8.33% 8.24% 7.68%
April 2004........8.33% 8.24% 7.66%
May 2004..........8.33% 8.24% 7.64%
June 2004.........8.33% 8.24% 7.61%
July 2004.........8.33% 8.24% 7.59%
August 2004.......8.33% 8.24% 7.56%
September 2004....8.34% 8.24% 7.53%
October 2004......8.34% 8.24% 7.51%
November 2004.....8.34% 8.24% 7.48%
December 2004.....8.34% 8.23% 7.45%
January 2005......8.34% 8.23% 7.42%
February 2005.....8.34% 8.23% 7.39%
March 2005........8.34% 8.23% 7.36%
April 2005........8.34% 8.23% 7.33%
May 2005..........8.34% 8.23% 7.30%
June 2005.........8.35% 8.23% 7.27%
July 2005.........8.35% 8.22% 7.24%
August 2005.......8.35% 8.22% 7.21%
September 2005....8.35% 8.22% 7.18%
October 2005......8.35% 8.22% 7.14%
November 2005.....8.35% 8.22% 7.11%
December 2005.....8.35% 8.21% 7.08%
January 2006......8.35% 8.21% 7.04%
February 2006.....8.35% 8.21% 7.01%
March 2006........8.35% 8.21% 6.97%
April 2006........8.35% 8.20% 6.94%
May 2006..........8.35% 8.20% 6.90%
June 2006.........8.35% 8.20% 6.86%
July 2006.........8.35% 8.19% 6.82%
August 2006.......8.35% 8.19% 6.79%
September 2006....8.35% 8.19% 6.75%
October 2006......8.35% 8.18% 6.71%
November 2006.....8.35% 8.18% 6.67%
December 2006.....8.35% 8.17% 6.63%
January 2007......8.35% 8.17% 6.59%
February 2007.....8.35% 8.16% 6.55%
March 2007........8.35% 8.16% 6.50%
April 2007........8.34% 8.15% 6.46%
May 2007..........8.34% 8.15% 6.42%
June 2007.........8.34% 8.14% 6.38%
July 2007.........8.34% 8.14% 6.33%
August 2007.......8.34% 8.13% 6.29%
September 2007....8.34% 8.13% 6.24%
October 2007......8.33% 8.12% 6.20%
November 2007.....8.33% 8.11% 6.15%
December 2007.....8.33% 8.11% 6.10%
A-7-1
<PAGE>
Class B Class B Class B
Payment Date Minimum Scheduled Supplemental
Occurring in Percentage Percentage Percentage
------------ ---------- ---------- ------------
January 2008......8.33% 8.10% 6.06%
February 2008.....8.32% 8.09% 6.01%
March 2008........8.32% 8.08% 5.96%
April 2008........8.32% 8.08% 5.91%
May 2008..........8.31% 8.07% 5.86%
June 2008.........8.31% 8.06% 5.81%
July 2008.........8.31% 8.05% 5.76%
August 2008.......8.30% 8.04% 5.71%
September 2008....8.30% 8.03% 5.66%
October 2008......8.30% 8.02% 5.61%
November 2008.....8.29% 8.01% 5.56%
December 2008.....8.29% 8.00% 5.50%
January 2009......8.28% 7.99% 5.45%
February 2009.....8.28% 7.98% 5.40%
March 2009........8.27% 7.97% 5.34%
April 2009........8.26% 7.96% 5.29%
May 2009..........8.26% 7.94% 5.23%
June 2009.........8.25% 7.93% 5.17%
July 2009.........8.25% 7.92% 5.12%
August 2009.......8.24% 7.90% 5.06%
September 2009....8.23% 7.89% 5.00%
October 2009......8.22% 7.88% 4.94%
November 2009.....8.22% 7.86% 4.88%
December 2009.....8.21% 7.85% 4.83%
January 2010......8.20% 7.83% 4.77%
February 2010.....8.19% 7.81% 4.71%
March 2010........8.18% 7.80% 4.64%
April 2010........8.17% 7.78% 4.58%
May 2010..........8.16% 7.76% 4.52%
June 2010.........8.15% 7.75% 4.46%
July 2010.........8.14% 7.73% 4.40%
August 2010.......8.13% 7.71% 4.33%
September 2010....8.12% 7.69% 4.27%
October 2010......8.11% 7.67% 4.20%
November 2010.....8.10% 7.65% 4.14%
December 2010.....8.09% 7.63% 4.07%
January 2011......8.08% 7.61% 4.00%
February 2011.....8.06% 7.59% 3.94%
March 2011........8.05% 7.56% 3.87%
April 2011........8.04% 7.54% 3.80%
May 2011..........8.02% 7.52% 3.73%
June 2011.........8.01% 7.49% 3.67%
July 2011.........7.99% 7.47% 3.60%
August 2011.......7.98% 7.44% 3.53%
September 2011....7.96% 7.41% 3.46%
October 2011......7.95% 7.39% 3.38%
November 2011.....7.93% 7.36% 3.31%
December 2011.....7.91% 7.33% 3.24%
January 2012......7.89% 7.30% 3.17%
February 2012.....7.88% 7.27% 3.09%
March 2012........7.86% 7.24% 3.02%
April 2012........7.84% 7.21% 2.95%
May 2012..........7.82% 7.18% 2.87%
June 2012.........7.80% 7.15% 2.79%
July 2012.........7.78% 7.12% 2.72%
August 2012.......7.76% 7.08% 2.64%
September 2012....7.73% 7.05% 2.57%
October 2012......7.71% 7.01% 2.49%
November 2012.....7.69% 6.98% 2.41%
December 2012.....7.67% 6.94% 2.33%
January 2013......7.64% 6.90% 2.25%
February 2013.....7.62% 6.87% 2.17%
March 2013........7.59% 6.75% 2.09%
April 2013........7.57% 6.79% 2.01%
May 2013..........7.54% 6.75% 1.93%
June 2013.........7.51% 6.71% 1.85%
July 2013.........7.48% 6.66% 1.76%
August 2013.......7.46% 6.62% 1.68%
September 2013....7.43% 6.58% 1.60%
October 2013......7.40% 6.53% 1.51%
November 2013.....7.37% 6.48% 1.43%
December 2013.....7.33% 6.44% 1.34%
January 2014......7.30% 6.39% 1.26%
February 2014.....7.27% 6.34% 1.17%
March 2014........7.24% 6.29% 1.08%
April 2014........7.20% 6.24% 1.00%
May 2014..........7.17% 6.19% 0.91%
June 2014.........7.13% 6.14% 0.82%
July 2014.........7.10% 6.08% 0.73%
August 2014.......7.06% 6.03% 0.64%
September 2014....7.02% 5.97% 0.55%
October 2014......6.98% 5.91% 0.46%
November 2014.....6.94% 5.86% 0.37%
December 2014.....6.90% 5.80% 0.28%
January 2015......6.86% 5.74% 0.19%
February 2015.....6.82% 5.68% 0.09%
March 2015........6.77% 5.61% 0.00%
April 2015........6.73% 5.55%
May 2015..........6.68% 5.49%
June 2015.........6.64% 5.42%
July 2015.........6.59% 5.35%
August 2015.......6.54% 5.29%
September 2015....6.50% 5.22%
October 2015......6.45% 5.15%
November 2015.....6.40% 5.07%
December 2015.....6.34% 5.00%
January 2016......6.29% 4.93%
February 2016.....6.24% 4.85%
A-7-2
<PAGE>
Class B Class B Class B
Payment Date Minimum Scheduled Supplemental
Occurring in Percentage Percentage Percentage
------------ ---------- ---------- ------------
March 2016........6.18% 4.77%
April 2016........6.13% 4.69%
May 2016..........6.07% 4.62%
June 2016.........6.01% 4.53%
July 2016.........5.95% 4.45%
August 2016.......5.89% 4.37%
September 2016....5.83% 4.28%
October 2016......5.77% 4.20%
November 2016.....5.71% 4.11%
December 2016.....5.64% 4.02%
January 2017......5.58% 3.93%
February 2017.....5.51% 3.84%
March 2017........5.44% 3.74%
April 2017........5.37% 3.65%
May 2017..........5.30% 3.55%
June 2017.........5.23% 3.45%
July 2017.........5.16% 3.35%
August 2017.......5.08% 3.25%
September 2017....5.01% 3.15%
October 2017......4.93% 3.04%
November 2017.....4.85% 2.94%
December 2017.....4.77% 2.83%
January 2018......4.69% 2.72%
February 2018.....4.61% 2.61%
March 2018........4.53% 2.49%
April 2018........4.44% 2.38%
May 2018..........4.36% 2.26%
June 2018.........4.27% 2.14%
July 2018.........4.18% 2.02%
August 2018.......4.09% 1.90%
September 2018....4.00% 1.78%
October 2018......3.90% 1.65%
November 2018.....3.81% 1.53%
December 2018.....3.71% 1.40%
January 2019......3.61% 1.27%
February 2019.....3.51% 1.13%
March 2019........3.41% 1.00%
April 2019........3.31% 0.86%
May 2019..........3.20% 0.72%
June 2019.........3.10% 0.58%
July 2019.........2.99% 0.44%
August 2019.......2.88% 0.30%
September 2019....2.77% 0.15%
October 2019......2.65% 0.00%
November 2019.....2.54%
December 2019.....2.42%
January 2020......2.30%
February 2020.....2.18%
March 2020........2.06%
April 2020........1.94%
May 2020..........1.81%
June 2020.........1.68%
July 2020.........1.55%
August 2020.......1.42%
September 2020....1.29%
October 2020......1.15%
November 2020.....1.02%
December 2020.....0.88%
January 2021......0.74%
February 2021.....0.59%
March 2021........0.45%
April 2021........0.30%
May 2021..........0.15%
June 2021.........0.00%
A-7-3
<PAGE>
APPENDIX 8
CLASS C TARGET PRINCIPAL BALANCES
Class C Minimum Class C Scheduled
Payment Date Target Principal Target Principal
Occurring in Balance Balance
------------ ---------------- ------------------
(US$) (US$)
March 2000............154,880,000 154,880,000
April 2000............154,880,000 154,880,000
May 2000..............154,880,000 154,780,000
June 2000.............154,880,000 154,720,000
July 2000.............154,880,000 154,650,000
August 2000...........154,880,000 154,580,000
September 2000........154,880,000 154,500,000
October 2000..........154,880,000 154,410,000
November 2000.........154,880,000 154,310,000
December 2000.........154,880,000 154,210,000
January 2001..........154,880,000 154,100,000
February 2001.........154,880,000 153,980,000
March 2001............154,880,000 153,850,000
April 2001............154,880,000 153,720,000
May 2001..............154,880,000 153,580,000
June 2001.............154,880,000 153,430,000
July 2001.............154,880,000 153,270,000
August 2001...........154,880,000 153,110,000
September 2001........154,880,000 152,940,000
October 2001..........154,880,000 152,760,000
November 2001.........154,870,012 152,570,000
December 2001.........154,850,036 152,380,000
January 2002..........154,830,060 152,180,000
February 2002.........154,790,108 151,970,000
March 2002............154,760,144 151,750,000
April 2002............154,710,204 151,530,000
May 2002..............154,660,264 151,300,000
June 2002.............154,600,336 151,054,500
July 2002.............154,530,420 150,804,500
August 2002...........154,460,504 150,554,500
September 2002........154,380,600 150,294,500
October 2002..........154,290,708 150,024,500
November 2002.........154,190,828 149,744,500
December 2002.........154,090,948 149,464,500
January 2003..........153,981,080 149,169,000
February 2003.........153,861,224 148,869,000
March 2003............153,731,380 148,559,000
April 2003............153,601,536 148,233,500
May 2003..............153,461,704 147,913,500
June 2003.............153,311,884 147,583,500
July 2003.............153,152,076 147,238,000
August 2003...........152,992,268 146,898,000
September 2003........152,822,472 146,532,500
October 2003..........152,642,688 146,172,500
November 2003.........152,452,916 145,797,000
December 2003.........152,263,144 145,421,500
January 2004..........152,063,384 145,031,500
February 2004.........151,853,636 144,636,000
March 2004............151,633,900 144,230,500
April 2004............151,414,164 143,815,000
May 2004..............151,184,440 143,399,500
June 2004.............150,939,228 142,964,000
July 2004.............150,689,528 142,528,500
August 2004...........150,439,828 142,087,500
September 2004........150,180,140 141,632,000
October 2004..........149,910,464 141,171,000
November 2004.........149,630,800 140,695,500
December 2004.........149,351,136 140,224,500
January 2005..........149,055,984 139,733,500
February 2005.........148,756,344 139,232,500
March 2005............148,446,716 138,731,500
April 2005............148,121,600 138,220,500
May 2005..............147,801,984 137,699,500
June 2005.............147,472,380 137,173,000
July 2005.............147,127,288 136,626,500
August 2005...........146,787,696 136,080,000
September 2005........146,422,628 135,523,500
October 2005..........146,063,060 134,967,000
November 2005.........145,688,004 134,390,500
December 2005.........145,312,948 133,808,500
January 2006..........144,923,416 133,216,500
February 2006.........144,528,384 132,614,500
March 2006............144,123,364 132,002,500
April 2006............143,708,356 131,390,500
May 2006..............143,293,348 130,763,000
June 2006.............142,858,364 130,125,500
July 2006.............142,423,380 129,478,000
August 2006...........141,982,896 128,825,000
September 2006........141,527,936 128,152,000
October 2006..........141,067,476 127,479,000
November 2006.........140,592,540 126,796,000
December 2006.........140,122,092 126,107,500
January 2007..........139,631,668 125,399,000
February 2007.........139,131,256 124,690,500
March 2007............138,630,844 123,966,500
April 2007............138,120,444 123,232,500
May 2007..............137,600,056 122,498,500
June 2007.............137,074,168 121,749,000
July 2007.............136,528,304 120,979,500
August 2007...........135,982,440 120,204,500
September 2007........135,426,588 119,429,500
October 2007..........134,870,736 118,634,500
A-8-1
<PAGE>
Class C Minimum Class C Scheduled
Payment Date Target Principal Target Principal
Occurring in Balance Balance
------------ ---------------- ------------------
(US$) (US$)
November 2007.........134,294,908 117,834,000
December 2007.........133,713,580 117,018,000
January 2008..........133,122,264 116,192,000
February 2008.........132,520,960 115,356,000
March 2008............131,909,668 114,514,500
April 2008............131,298,376 113,663,000
May 2008..............130,671,596 112,796,000
June 2008.............130,034,828 111,913,500
July 2008.............129,388,072 111,021,000
August 2008...........128,735,816 110,123,000
September 2008........128,063,584 109,215,000
October 2008..........127,391,352 108,291,500
November 2008.........126,709,132 107,358,000
December 2008.........126,021,412 106,413,500
January 2009..........125,313,716 105,454,500
February 2009.........124,606,020 104,484,500
March 2009............123,882,836 103,504,500
April 2009............123,149,664 102,519,000
May 2009..............122,416,492 101,508,000
June 2009.............121,667,832 100,491,500
July 2009.............120,899,196 99,465,000
August 2009...........120,125,060 98,423,000
September 2009........119,350,924 97,365,500
October 2009..........118,556,812 96,302,500
November 2009.........117,757,200 95,224,000
December 2009.........116,942,100 94,135,500
January 2010..........116,117,012 93,026,000
February 2010.........115,281,936 91,901,000
March 2010............114,441,360 90,776,000
April 2010............113,590,796 89,635,500
May 2010..............112,724,744 88,474,000
June 2010.............111,843,204 87,302,500
July 2010.............110,951,676 86,110,000
August 2010...........110,054,648 84,912,000
September 2010........109,147,632 83,704,000
October 2010..........108,225,128 82,475,000
November 2010.........107,292,636 81,230,500
December 2010.........106,349,144 79,975,000
January 2011..........105,391,176 78,699,500
February 2011.........104,422,208 77,413,000
March 2011............103,443,252 76,111,000
April 2011............102,458,796 74,803,500
May 2011..............101,448,864 73,465,000
June 2011.............100,433,432 72,121,000
July 2011.............99,408,012 70,761,500
August 2011...........98,367,104 69,381,000
September 2011........97,310,708 67,985,000
October 2011..........96,248,812 66,578,000
November 2011.........95,171,428 65,145,500
December 2011.........94,084,056 63,707,500
January 2012..........92,975,696 62,243,000
February 2012.........91,851,848 60,773,000
March 2012............90,728,000 59,277,500
April 2012............89,588,664 57,771,000
May 2012..............88,428,340 56,243,500
June 2012.............87,258,028 54,695,000
July 2012.............86,066,728 53,131,000
August 2012...........84,869,928 51,556,000
September 2012........83,663,140 49,950,000
October 2012..........82,435,364 48,333,000
November 2012.........81,192,100 46,700,500
December 2012.........79,937,836 45,051,500
January 2013..........78,663,596 43,371,500
February 2013.........77,378,356 41,686,000
March 2013............76,077,628 39,974,000
April 2013............74,771,400 39,501,000
May 2013..............73,434,196 39,017,000
June 2013.............72,091,492 38,522,000
July 2013.............70,733,300 38,016,000
August 2013...........69,354,120 37,499,000
September 2013........67,959,452 36,965,500
October 2013..........66,553,784 36,421,000
November 2013.........65,122,640 35,860,000
December 2013.........63,685,996 35,293,500
January 2014..........62,222,864 34,705,000
February 2014.........60,754,232 34,105,500
March 2014............59,260,124 33,495,000
April 2014............57,755,016 32,868,000
May 2014..............56,228,920 32,230,000
June 2014.............54,681,836 31,575,500
July 2014.............53,119,264 30,904,500
August 2014...........51,545,692 30,217,000
September 2014........49,941,144 29,518,500
October 2014..........48,325,596 28,803,500
November 2014.........46,694,560 28,072,000
December 2014.........45,047,024 27,324,000
January 2015..........43,368,512 26,559,500
February 2015.........41,684,500 25,778,500
March 2015............39,974,000 24,975,500
April 2015............39,501,000 24,161,500
May 2015..............39,017,000 23,331,000
June 2015.............38,522,000 22,478,500
July 2015.............38,016,000 21,609,500
August 2015...........37,499,000 20,724,000
September 2015........36,965,500 19,816,500
October 2015..........36,421,000 18,892,500
November 2015.........35,860,000 17,952,000
December 2015.........35,293,500 16,989,500
A-8-2
<PAGE>
Class C Minimum Class C Scheduled
Payment Date Target Principal Target Principal
Occurring in Balance Balance
------------ ---------------- ------------------
(US$) (US$)
January 2016..........34,705,000 16,005,000
February 2016.........34,105,500 15,004,000
March 2016............33,495,000 13,975,500
April 2016............32,868,000 12,936,000
May 2016..............32,230,000 11,869,000
June 2016.............31,575,500 10,785,500
July 2016.............30,904,500 9,674,500
August 2016...........30,217,000 8,547,000
September 2016........29,518,500 7,397,500
October 2016..........28,803,500 0
November 2016.........28,072,000
December 2016.........27,324,000
January 2017..........26,559,500
February 2017.........25,778,500
March 2017............24,975,500
April 2017............24,161,500
May 2017..............23,331,000
June 2017.............22,478,500
July 2017.............21,609,500
August 2017...........20,724,000
September 2017........19,816,500
October 2017..........18,892,500
November 2017.........17,952,000
December 2017.........16,989,500
January 2018..........16,005,000
February 2018.........15,004,000
March 2018............13,975,500
April 2018............12,936,000
May 2018..............11,869,000
June 2018.............10,785,500
July 2018.............9,674,500
August 2018...........8,547,000
September 2018........7,397,500
October 2018..........0
A-8-3
<PAGE>
APPENDIX 9
CLASS D TARGET PRINCIPAL BALANCES
Class D Minimum Class D Scheduled
Payment Date Target Principal Target Principal
Occurring in Balance Balance
------------ ---------------- -----------------
(US$) (US$)
March 2000............110,000,000 110,000,000
April 2000............110,000,000 110,000,000
May 2000..............110,000,000 110,000,000
June 2000.............110,000,000 110,000,000
July 2000.............110,000,000 110,000,000
August 2000...........110,000,000 110,000,000
September 2000........110,000,000 110,000,000
October 2000..........110,000,000 110,000,000
November 2000.........110,000,000 110,000,000
December 2000.........110,000,000 109,989,000
January 2001..........110,000,000 109,989,000
February 2001.........110,000,000 109,978,000
March 2001............110,000,000 109,956,000
April 2001............110,000,000 109,945,000
May 2001..............110,000,000 109,923,000
June 2001.............110,000,000 109,890,000
July 2001.............110,000,000 109,868,000
August 2001...........110,000,000 109,824,000
September 2001........110,000,000 109,791,000
October 2001..........110,000,000 109,747,000
November 2001.........110,000,000 109,692,000
December 2001.........110,000,000 109,637,000
January 2002..........110,000,000 109,582,000
February 2002.........110,000,000 109,516,000
March 2002............110,000,000 109,439,000
April 2002............110,000,000 109,362,000
May 2002..............110,000,000 109,285,000
June 2002.............110,000,000 109,197,000
July 2002.............110,000,000 109,098,000
August 2002...........110,000,000 108,999,000
September 2002........110,000,000 108,889,000
October 2002..........110,000,000 108,768,000
November 2002.........110,000,000 108,647,000
December 2002.........109,989,000 108,526,000
January 2003..........109,989,000 108,383,000
February 2003.........109,978,000 108,240,000
March 2003............109,956,000 108,097,000
April 2003............109,945,000 107,943,000
May 2003..............109,923,000 107,778,000
June 2003.............109,890,000 107,602,000
July 2003.............109,868,000 107,426,000
August 2003...........109,824,000 107,239,000
September 2003........109,791,000 107,052,000
October 2003..........109,747,000 106,843,000
November 2003.........109,692,000 106,634,000
December 2003.........109,637,000 106,425,000
January 2004..........109,582,000 106,194,000
February 2004.........109,516,000 105,963,000
March 2004............109,439,000 105,721,000
April 2004............109,362,000 105,468,000
May 2004..............109,285,000 105,215,000
June 2004.............109,197,000 104,951,000
July 2004.............109,098,000 104,676,000
August 2004...........108,999,000 104,390,000
September 2004........108,889,000 104,104,000
October 2004..........108,768,000 103,796,000
November 2004.........108,647,000 103,488,000
December 2004.........108,526,000 103,180,000
January 2005..........108,383,000 102,850,000
February 2005.........108,240,000 102,509,000
March 2005............108,097,000 102,168,000
April 2005............107,943,000 101,816,000
May 2005..............107,778,000 101,453,000
June 2005.............107,602,000 101,079,000
July 2005.............107,426,000 100,705,000
August 2005...........107,239,000 100,309,000
September 2005........107,052,000 99,913,000
October 2005..........106,843,000 99,506,000
November 2005.........106,634,000 99,088,000
December 2005.........106,425,000 98,659,000
January 2006..........106,194,000 98,219,000
February 2006.........105,963,000 97,768,000
March 2006............105,721,000 97,306,000
April 2006............105,468,000 96,844,000
May 2006..............105,215,000 96,371,000
June 2006.............104,951,000 95,876,000
July 2006.............104,676,000 95,381,000
August 2006...........104,390,000 94,875,000
September 2006........104,104,000 94,358,000
October 2006..........103,796,000 93,830,000
November 2006.........103,488,000 93,291,000
December 2006.........103,180,000 92,741,000
January 2007..........102,850,000 92,180,000
February 2007.........102,509,000 91,619,000
March 2007............102,168,000 91,036,000
April 2007............101,816,000 90,442,000
May 2007..............101,453,000 89,848,000
June 2007.............101,079,000 89,232,000
July 2007.............100,705,000 88,616,000
August 2007...........100,309,000 87,978,000
September 2007........99,913,000 87,340,000
October 2007..........99,506,000 86,680,000
November 2007.........99,088,000 86,020,000
December 2007.........98,659,000 85,338,000
A-9-1
<PAGE>
Class D Minimum Class D Scheduled
Payment Date Target Principal Target Principal
Occurring in Balance Balance
------------ ---------------- -----------------
(US$) (US$)
January 2008..........98,219,000 84,656,000
February 2008.........97,768,000 83,952,000
March 2008............97,306,000 83,248,000
April 2008............96,844,000 82,522,000
May 2008..............96,371,000 81,796,000
June 2008.............95,876,000 81,048,000
July 2008.............95,381,000 80,300,000
August 2008...........94,875,000 79,530,000
September 2008........94,358,000 78,749,000
October 2008..........93,830,000 77,968,000
November 2008.........93,291,000 77,165,000
December 2008.........92,741,000 76,351,000
January 2009..........92,180,000 75,526,000
February 2009.........91,619,000 74,690,000
March 2009............91,036,000 73,843,000
April 2009............90,442,000 72,985,000
May 2009..............89,848,000 72,116,000
June 2009.............89,232,000 71,236,000
July 2009.............88,616,000 70,345,000
August 2009...........87,978,000 69,432,000
September 2009........87,340,000 68,519,000
October 2009..........86,680,000 67,584,000
November 2009.........86,020,000 66,649,000
December 2009.........85,338,000 65,692,000
January 2010..........84,656,000 64,724,000
February 2010.........83,952,000 63,745,000
March 2010............83,248,000 62,755,000
April 2010............82,522,000 61,754,000
May 2010..............81,796,000 60,742,000
June 2010.............81,048,000 59,708,000
July 2010.............80,300,000 58,674,000
August 2010...........79,530,000 57,618,000
September 2010........78,749,000 56,551,000
October 2010..........77,968,000 55,473,000
November 2010.........77,165,000 54,384,000
December 2010.........76,351,000 53,284,000
January 2011..........75,526,000 52,173,000
February 2011.........74,690,000 51,040,000
March 2011............73,843,000 49,896,000
April 2011............72,985,000 48,741,000
May 2011..............72,116,000 47,575,000
June 2011.............71,236,000 46,398,000
July 2011.............70,345,000 45,210,000
August 2011...........69,432,000 44,000,000
September 2011........68,519,000 42,790,000
October 2011..........67,584,000 41,558,000
November 2011.........66,649,000 40,304,000
December 2011.........65,692,000 39,050,000
January 2012..........64,724,000 37,785,000
February 2012.........63,745,000 36,498,000
March 2012............62,755,000 35,200,000
April 2012............61,754,000 33,891,000
May 2012..............60,742,000 32,571,000
June 2012.............59,708,000 31,229,000
July 2012.............58,674,000 29,876,000
August 2012...........57,618,000 28,600,000
September 2012........56,551,000 27,401,000
October 2012..........55,473,000 26,081,000
November 2012.........54,384,000 24,684,000
December 2012.........53,284,000 23,177,000
January 2013..........52,173,000 21,626,000
February 2013.........51,040,000 20,042,000
March 2013............49,896,000 18,590,000
April 2013............48,741,000 17,116,000
May 2013..............47,575,000 15,631,000
June 2013.............46,398,000 14,124,000
July 2013.............45,210,000 12,617,000
August 2013...........44,000,000 11,088,000
September 2013........42,790,000 9,548,000
October 2013..........41,558,000 7,986,000
November 2013.........40,304,000 6,424,000
December 2013.........39,050,000 4,840,000
January 2014..........37,785,000 3,234,000
February 2014.........36,498,000 1,628,000
March 2014............35,200,000 0
April 2014............33,891,000
May 2014..............32,571,000
June 2014.............31,229,000
July 2014.............29,876,000
August 2014...........28,600,000
September 2014........27,401,000
October 2014..........26,081,000
November 2014.........24,684,000
December 2014.........23,177,000
January 2015..........21,626,000
February 2015.........20,042,000
March 2015............18,590,000
April 2015............17,116,000
May 2015..............15,631,000
June 2015.............14,124,000
July 2015.............12,617,000
August 2015...........11,088,000
September 2015........9,548,000
October 2015..........7,986,000
November 2015.........6,424,000
December 2015.........4,840,000
January 2016..........3,234,000
February 2016.........1,628,000
March 2016............0
A-9-2
<PAGE>
APPENDIX 10
POOL FACTORS
<TABLE>
Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Payment Date Occurring in A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 2000............... 74.28% 100.00% 100.00% 100.00% 92.12% 100.00% 99.88% 100.00% 100.00%
April 2000............... 73.31% 100.00% 100.00% 97.77% 91.78% 100.00% 99.83% 100.00% 100.00%
May 2000................. 72.52% 100.00% 100.00% 96.92% 91.44% 100.00% 99.78% 100.00% 100.00%
June 2000................ 71.05% 100.00% 100.00% 95.51% 91.10% 100.00% 99.72% 100.00% 100.00%
July 2000................ 70.05% 100.00% 100.00% 94.89% 90.76% 100.00% 99.65% 100.00% 100.00%
August 2000.............. 69.26% 100.00% 100.00% 93.96% 90.42% 100.00% 99.58% 100.00% 100.00%
September 2000........... 67.77% 100.00% 100.00% 92.61% 90.07% 99.99% 99.50% 100.00% 100.00%
October 2000............. 67.77% 100.00% 100.00% 92.01% 89.72% 99.99% 99.41% 100.00% 100.00%
November 2000............ 65.99% 100.00% 100.00% 91.22% 89.28% 99.98% 99.31% 100.00% 100.00%
December 2000............ 64.82% 100.00% 100.00% 90.01% 88.93% 99.98% 99.21% 100.00% 99.99%
January 2001............. 63.53% 100.00% 100.00% 89.50% 88.58% 99.97% 99.10% 100.00% 99.99%
February 2001............ 62.54% 100.00% 100.00% 88.70% 88.23% 99.96% 99.98% 100.00% 99.98%
March 2001............... 61.39% 100.00% 100.00% 87.53% 87.87% 99.95% 98.85% 100.00% 99.96%
April 2001............... 60.34% 100.00% 100.00% 87.03% 87.52% 99.94% 98.72% 100.00% 99.95%
May 2001................. 59.29% 100.00% 100.00% 86.33% 87.16% 99.93% 98.58% 100.00% 99.93%
June 2001................ 58.00% 100.00% 100.00% 85.25% 86.71% 99.92% 98.43% 100.00% 99.90%
July 2001................ 56.93% 100.00% 100.00% 84.77% 86.35% 99.90% 98.27% 100.00% 99.88%
August 2001.............. 55.85% 100.00% 100.00% 84.06% 85.99% 99.88% 98.11% 100.00% 99.84%
September 2001........... 54.56% 100.00% 100.00% 83.01% 85.63% 99.86% 97.94% 100.00% 99.81%
October 2001............. 53.50% 100.00% 100.00% 83.47% 85.17% 99.84% 97.76% 100.00% 99.77%
November 2001............ 52.41% 100.00% 100.00% 81.85% 84.81% 99.82% 97.57% 100.00% 99.72%
December 2001............ 51.10% 100.00% 100.00% 80.84% 84.45% 99.79% 97.38% 100.00% 99.67%
January 2002............. 50.05% 100.00% 100.00% 80.39% 83.99% 99.76% 97.18% 100.00% 99.62%
February 2002............ 48.95% 100.00% 100.00% 79.75% 83.62% 99.73% 96.97% 100.00% 99.56%
March 2002............... 47.51% 100.00% 100.00% 78.67% 83.25% 99.70% 96.75% 100.00% 99.49%
April 2002............... 46.54% 100.00% 100.00% 77.58% 82.79% 99.66% 96.53% 100.00% 99.42%
May 2002................. 45.42% 100.00% 100.00% 76.98% 82.42% 99.63% 96.30% 100.00% 99.35%
June 2002................ 44.13% 100.00% 100.00% 76.20% 81.95% 99.59% 96.06% 99.99% 99.27%
July 2002................ 43.02% 100.00% 100.00% 75.63% 81.58% 99.54% 95.81% 99.99% 99.18%
August 2002.............. 41.93% 100.00% 100.00% 75.00% 81.11% 99.50% 95.56% 99.99% 99.09%
September 2002........... 40.60% 100.00% 100.00% 74.23% 80.74% 99.45% 95.30% 99.99% 98.99%
October 2002............. 39.51% 100.00% 100.00% 73.62% 80.27% 99.40% 95.03% 99.99% 98.88%
November 2002............ 38.40% 100.00% 100.00% 73.01% 79.89% 99.34% 94.75% 99.99% 98.77%
December 2002............ 37.98% 100.00% 100.00% 72.27% 79.42% 99.29% 94.47% 99.99% 98.66%
January 2003............. 35.98% 100.00% 100.00% 71.74% 78.95% 99.23% 94.18% 99.98% 98.53%
February 2003............ 34.85% 100.00% 100.00% 71.14% 78.57% 99.16% 93.88% 99.98% 98.40%
March 2003............... 33.58% 100.00% 100.00% 70.55% 78.09% 99.10% 93.57% 99.98% 98.27%
April 2003............... 32.51% 100.00% 100.00% 69.93% 77.62% 99.03% 93.25% 99.97% 98.13%
May 2003................. 31.34% 100.00% 100.00% 69.38% 77.15% 98.95% 92.93% 99.97% 97.98%
June 2003................ 30.19% 100.00% 100.00% 68.65% 76.68% 98.88% 92.60% 99.97% 97.82%
July 2003................ 29.02% 100.00% 100.00% 68.09% 76.20% 98.80% 92.26% 99.96% 97.66%
August 2003.............. 27.84% 100.00% 100.00% 67.54% 75.81% 98.71% 91.92% 99.96% 97.49%
September 2003........... 26.68% 100.00% 100.00% 66.82% 75.34% 98.63% 91.56% 99.95% 97.32%
October 2003............. 25.52% 100.00% 100.00% 66.16% 74.77% 98.54% 91.20% 99.95% 97.13%
November 2003............ 24.35% 100.00% 100.00% 65.59% 74.30% 98.44% 90.83% 99.94% 96.94%
December 2003............ 23.16% 100.00% 100.00% 64.92% 73.82% 98.34% 90.46% 99.93% 96.75%
January 2004............. 21.16% 100.00% 100.00% 64.63% 71.52% 98.24% 90.07% 99.93% 96.54%
February 2004............ 20.05% 100.00% 100.00% 64.13% 71.06% 98.14% 89.68% 99.92% 96.33%
March 2004............... 18.90% 100.00% 100.00% 63.65% 70.60% 98.03% 89.28% 99.91% 96.11%
April 2004............... 17.84% 100.00% 100.00% 62.98% 70.06% 97.91% 88.87% 99.90% 95.88%
May 2004................. 16.73% 100.00% 100.00% 62.69% 69.59% 97.79% 88.46% 99.89% 95.65%
June 2004................ 15.66% 100.00% 100.00% 62.01% 69.05% 97.67% 88.03% 99.88% 95.41%
July 2004................ 14.55% 100.00% 100.00% 61.41% 68.59% 97.55% 87.60% 99.87% 95.16%
August 2004.............. 13.47% 100.00% 100.00% 60.83% 68.05% 97.42% 87.17% 99.85% 94.90%
September 2004........... 12.37% 100.00% 100.00% 60.14% 67.59% 97.28% 86.72% 99.84% 94.64%
A-10-1
<PAGE>
Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Payment Date Occurring in A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
October 2004............. 11.29% 100.00% 100.00% 59.43% 67.05% 97.14% 86.27% 99.82% 94.36%
November 2004............ 10.21% 100.00% 100.00% 58.85% 66.51% 97.00% 85.80% 99.81% 94.08%
December 2004............ 9.12% 100.00% 100.00% 58.16% 65.97% 96.85% 85.34% 99.79% 93.80%
January 2005............. 8.02% 100.00% 100.00% 57.57% 65.43% 96.70% 84.86% 99.77% 93.50%
February 2005............ 6.90% 100.00% 100.00% 56.98% 64.96% 96.54% 84.37% 99.75% 93.19%
March 2005............... 5.75% 100.00% 100.00% 56.31% 64.35% 96.38% 83.88% 99.73% 92.88%
April 2005............... 4.65% 100.00% 100.00% 55.69% 63.81% 96.22% 83.38% 99.71% 92.56%
May 2005................. 3.52% 100.00% 100.00% 55.14% 63.27% 96.05% 82.87% 99.69% 92.23%
June 2005................ 2.41% 100.00% 100.00% 54.60% 62.73% 95.87% 82.36% 99.66% 91.89%
July 2005................ 1.28% 100.00% 100.00% 54.04% 62.19% 95.69% 81.83% 99.63% 91.55%
August 2005.............. 0.18% 100.00% 100.00% 53.57% 61.58% 95.51% 81.30% 99.60% 91.19%
September 2005........... 0.00% 100.00% 100.00% 52.23% 61.05% 95.32% 80.76% 99.57% 90.83%
October 2005............. 100.00% 100.00% 50.35% 60.44% 95.12% 80.22% 99.54% 90.46%
November 2005............ 100.00% 100.00% 48.72% 59.83% 94.92% 79.66% 99.51% 90.08%
December 2005............ 100.00% 100.00% 47.05% 59.30% 94.72% 79.10% 99.47% 89.69%
January 2006............. 100.00% 100.00% 45.41% 58.69% 94.51% 78.53% 99.43% 89.29%
February 2006............ 100.00% 100.00% 43.77% 58.09% 94.29% 77.95% 99.39% 88.88%
March 2006............... 100.00% 100.00% 42.83% 57.49% 94.07% 77.36% 99.35% 88.46%
April 2006............... 100.00% 100.00% 40.99% 56.89% 93.84% 76.77% 99.31% 88.04%
May 2006................. 100.00% 100.00% 39.67% 56.29% 93.61% 76.17% 99.26% 87.61%
June 2006................ 100.00% 100.00% 38.06% 55.62% 93.38% 75.56% 99.21% 87.16%
July 2006................ 100.00% 100.00% 36.41% 55.02% 93.13% 74.94% 99.16% 86.71%
August 2006.............. 100.00% 100.00% 34.80% 54.36% 92.88% 74.32% 99.10% 86.23%
September 2006........... 100.00% 100.00% 33.18% 53.77% 92.63% 73.68% 99.04% 85.78%
October 2006............. 100.00% 100.00% 31.34% 53.11% 92.37% 73.04% 98.98% 85.30%
November 2006............ 100.00% 100.00% 29.73% 52.46% 92.11% 72.39% 98.92% 84.81%
December 2006............ 100.00% 100.00% 28.08% 51.81% 91.84% 71.74% 98.85% 84.31%
January 2007............. 100.00% 100.00% 26.44% 51.16% 91.56% 71.07% 98.78% 83.80%
February 2007............ 100.00% 100.00% 24.79% 50.51% 91.28% 70.40% 98.71% 83.29%
March 2007............... 100.00% 100.00% 23.43% 49.86% 90.99% 69.72% 98.63% 82.76%
April 2007............... 100.00% 100.00% 21.60% 49.16% 90.70% 69.03% 98.55% 82.22%
May 2007................. 100.00% 100.00% 19.91% 48.52% 90.40% 68.34% 98.47% 81.68%
June 2007................ 100.00% 100.00% 18.26% 47.82% 90.09% 67.64% 98.38% 81.12%
July 2007................ 100.00% 100.00% 16.58% 47.12% 89.78% 66.92% 98.29% 80.56%
August 2007.............. 100.00% 100.00% 14.99% 46.43% 89.46% 66.20% 98.19% 79.98%
September 2007........... 100.00% 100.00% 13.38% 45.74% 89.14% 65.48% 98.09% 79.40%
October 2007............. 100.00% 100.00% 11.57% 45.06% 88.81% 64.74% 97.99% 78.80%
November 2007............ 100.00% 100.00% 9.95% 44.38% 88.47% 64.00% 97.88% 78.20%
December 2007............ 100.00% 100.00% 8.34% 43.64% 88.13% 63.25% 97.76% 77.58%
January 2008............. 100.00% 100.00% 6.71% 42.97% 87.78% 62.49% 97.64% 76.96%
February 2008............ 100.00% 100.00% 5.09% 42.24% 87.42% 61.72% 97.52% 76.32%
March 2008............... 100.00% 100.00% 4.21% 41.52% 87.06% 60.95% 97.39% 75.68%
April 2008............... 100.00% 100.00% 2.62% 40.80% 86.69% 60.17% 97.26% 75.02%
May 2008................. 100.00% 100.00% 1.03% 40.09% 86.31% 59.38% 97.12% 74.36%
June 2008................ 100.00% 100.00% 0.00% 39.38% 85.93% 58.58% 96.97% 73.68%
July 2008................ 97.38% 100.00% 38.62% 85.54% 57.77% 96.82% 73.00%
August 2008.............. 95.49% 100.00% 37.92% 85.15% 56.96% 96.66% 72.30%
September 2008........... 93.80% 100.00% 37.18% 84.74% 56.14% 96.50% 71.59%
October 2008............. 92.23% 100.00% 36.44% 84.34% 55.31% 96.33% 70.88%
November 2008............ 90.75% 100.00% 35.70% 83.92% 54.57% 96.16% 70.15%
December 2008............ 89.33% 100.00% 34.92% 83.50% 53.63% 95.97% 69.41%
January 2009............. 87.96% 100.00% 34.20% 83.07% 52.77% 95.79% 68.66%
February 2009............ 86.63% 100.00% 33.43% 82.63% 51.91% 95.59% 67.90%
March 2009............... 85.33% 100.00% 32.72% 82.19% 51.04% 95.39% 67.13%
April 2009............... 84.07% 100.00% 31.97% 81.74% 50.17% 95.18% 66.35%
May 2009................. 82.83% 100.00% 31.22% 81.28% 49.28% 94.96% 65.56%
June 2009................ 81.62% 100.00% 30.43% 80.81% 48.39% 94.73% 64.76%
July 2009................ 80.43% 100.00% 29.70% 80.34% 47.49% 94.50% 63.95%
August 2009.............. 79.26% 100.00% 28.93% 79.86% 46.58% 94.26% 63.12%
A-10-2
<PAGE>
Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Payment Date Occurring in A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
September 2009........... 78.10% 100.00% 28.17% 79.37% 45.66% 94.01% 62.29%
October 2009............. 76.97% 100.00% 27.42% 78.88% 44.74% 93.75% 61.44%
November 2009............ 75.84% 100.00% 26.67% 78.38% 43.81% 93.48% 60.59%
December 2009............ 74.74% 100.00% 25.89% 77.87% 42.87% 93.21% 59.72%
January 2010............. 73.64% 100.00% 25.16% 77.35% 41.92% 92.92% 58.84%
February 2010............ 72.56% 100.00% 24.40% 76.83% 40.96% 92.62% 57.95%
March 2010............... 71.49% 100.00% 23.65% 76.29% 40.00% 92.32% 57.05%
April 2010............... 70.43% 100.00% 22.86% 75.75% 39.03% 92.01% 56.14%
May 2010................. 69.38% 100.00% 22.13% 75.31% 38.05% 91.68% 55.22%
June 2010................ 58.34% 100.00% 21.37% 74.65% 37.05% 91.35% 54.28%
July 2010................ 67.31% 100.00% 20.61% 74.09% 36.06% 91.00% 53.34%
August 2010.............. 66.29% 100.00% 19.87% 73.52% 35.06% 90.64% 52.38%
September 2010........... 65.28% 100.00% 19.14% 72.94% 34.05% 90.28% 51.41%
October 2010............. 64.27% 100.00% 18.38% 72.35% 33.03% 89.90% 50.43%
November 2010............ 63.27% 100.00% 17.64% 71.76% 32.00% 89.51% 49.44%
December 2010............ 62.28% 100.00% 16.92% 71.12% 30.97% 89.10% 48.44%
January 2011............. 61.30% 100.00% 16.22% 70.54% 29.92% 88.69% 47.43%
February 2011............ 60.33% 100.00% 15.49% 69.93% 28.87% 88.26% 46.40%
March 2011............... 59.36% 100.00% 14.81% 69.30% 27.81% 87.82% 45.36%
April 2011............... 58.39% 100.00% 14.08% 68.66% 26.75% 87.37% 44.31%
May 2011................. 57.44% 100.00% 13.39% 68.02% 25.67% 86.90% 43.25%
June 2011................ 56.49% 100.00% 12.71% 67.37% 24.59% 86.42% 42.18%
July 2011................ 55.54% 100.00% 12.02% 66.71% 23.50% 85.93% 41.10%
August 2011.............. 54.60% 100.00% 11.34% 66.04% 22.40% 85.42% 40.00%
September 2011........... 53.67% 100.00% 10.67% 65.36% 21.29% 84.90% 38.90%
October 2011............. 52.74% 100.00% 9.99% 64.68% 20.18% 84.36% 37.78%
November 2011............ 51.81% 100.00% 9.32% 63.99% 19.05% 83.81% 36.64%
December 2011............ 50.89% 100.00% 8.66% 63.28% 17.92% 83.25% 35.50%
January 2012............. 49.98% 100.00% 8.03% 62.57% 16.78% 82.66% 34.35%
February 2012............ 49.07% 100.00% 7.37% 61.85% 15.64% 82.06% 33.18%
March 2012............... 48.16% 100.00% 6.74% 61.13% 14.48% 81.45% 32.00%
April 2012............... 47.26% 100.00% 6.12% 60.39% 13.32% 80.82% 30.81%
May 2012................. 46.37% 100.00% 5.49% 59.64% 12.15% 80.17% 29.61%
June 2012................ 45.47% 100.00% 4.92% 58.89% 10.97% 79.50% 28.39%
July 2012................ 44.58% 100.00% 4.33% 58.13% 9.78% 78.82% 27.16%
August 2012.............. 43.70% 100.00% 3.73% 57.35% 8.59% 78.12% 26.00%
September 2012........... 42.82% 97.82% 3.18% 56.57% 7.38% 77.40% 24.91%
October 2012............. 41.94% 95.78% 2.62% 55.78% 6.17% 76.66% 23.71%
November 2012............ 41.06% 93.80% 2.06% 54.98% 4.95% 75.91% 22.44%
December 2012............ 40.19% 91.85% 1.54% 54.18% 3.73% 75.13% 21.07%
January 2013............. 39.33% 89.93% 1.02% 53.36% 2.49% 74.33% 19.66%
February 2013............ 38.46% 88.02% 0.51% 52.53% 1.25% 73.52% 18.22%
March 2013............... 37.60% 86.13% 0.00% 51.70% 0.00% 72.68% 16.90%
April 2013............... 36.75% 84.26% 50.85% 71.82% 15.56%
May 2013................. 35.89% 82.40% 50.00% 70.94% 14.21%
June 2013................ 35.04% 80.54% 49.14% 70.04% 12.84%
July 2013................ 34.19% 78.70% 48.26% 69.12% 11.47%
August 2013.............. 33.35% 76.86% 47.38% 68.18% 10.08%
September 2013........... 32.51% 75.03% 46.49% 67.21% 8.68%
October 2013............. 31.67% 73.21% 45.59% 66.22% 7.26%
November 2013............ 30.83% 71.40% 44.68% 65.20% 5.84%
December 2013............ 30.00% 69.59% 43.76% 64.17% 4.40%
January 2014............. 29.17% 67.78% 42.83% 63.10% 2.94%
February 2014............ 28.34% 65.99% 41.89% 62.01% 1.48%
March 2014............... 27.52% 64.19% 40.94% 60.90% 0.00%
April 2014............... 26.69% 62.40% 39.99% 59.76%
May 2014................. 25.87% 60.62% 39.02% 58.60%
June 2014................ 25.06% 58.84% 38.04% 57.41%
July 2014................ 24.24% 57.07% 37.05% 56.19%
A-10-3
<PAGE>
Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Payment Date Occurring in A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
August 2014.............. 23.43% 55.29% 36.05% 54.94%
September 2014........... 22.62% 53.53% 35.05% 53.67%
October 2014............. 21.81% 51.76% 34.03% 52.37%
November 2014............ 21.00% 50.00% 33.00% 51.04%
December 2014............ 20.20% 48.24% 31.96% 49.68%
January 2015............. 19.40% 46.49% 30.91% 48.29%
February 2015............ 18.60% 44.74% 29.86% 46.87%
March 2015............... 17.80% 42.99% 28.79% 45.41%
April 2015............... 17.01% 41.24% 27.71% 43.93%
May 2015................. 16.21% 39.50% 26.62% 42.42%
June 2015................ 15.42% 37.76% 25.52% 40.87%
July 2015................ 14.64% 36.02% 24.41% 39.29%
August 2015.............. 13.85% 34.28% 23.29% 37.68%
September 2015........... 13.06% 32.55% 22.16% 36.03%
October 2015............. 12.28% 30.82% 21.02% 34.35%
November 2015............ 11.50% 29.09% 19.87% 32.64%
December 2015............ 10.72% 27.36% 18.71% 30.89%
January 2016............. 9.94% 25.64% 17.54% 29.10%
February 2016............ 9.17% 23.92% 16.36% 27.28%
March 2016............... 8.39% 22.20% 15.16% 25.41%
April 2016............... 7.62% 20.48% 13.96% 23.52%
May 2016................. 6.85% 18.76% 12.75% 21.58%
June 2016................ 6.09% 17.05% 11.52% 19.61%
July 2016................ 5.32% 15.34% 10.28% 17.59%
August 2016.............. 4.55% 13.62% 9.04% 15.54%
September 2016........... 3.79% 11.92% 7.78% 13.45%
October 2016............. 3.03% 10.21% 6.51% 0.00%
November 2016............ 2.27% 8.50% 5.23%
December 2016............ 1.51% 6.80% 3.94%
January 2017............. 0.75% 5.10% 2.64%
February 2017............ 0.00% 3.40% 1.32%
March 2017............... 1.70% 0.00%
April 2017............... 0.00%
</TABLE>
A-10-4
<PAGE>
APPENDIX 11
EXTENDED POOL FACTORS
<TABLE>
Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Payment Date Occurring in A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 2000............... 82.68% 100.00% 100.00% 100.00% 96.07% 100.00% 100.00% 100.00% 100.00%
April 2000............... 81.92% 100.00% 100.00% 100.00% 95.75% 100.00% 100.00% 100.00% 100.00%
May 2000................. 81.15% 100.00% 100.00% 100.00% 95.42% 100.00% 100.00% 100.00% 100.00%
June 2000................ 80.38% 100.00% 100.00% 100.00% 95.10% 100.00% 100.00% 100.00% 100.00%
July 2000................ 79.61% 100.00% 100.00% 100.00% 94.77% 100.00% 100.00% 100.00% 100.00%
August 2000.............. 78.80% 100.00% 100.00% 100.00% 94.45% 100.00% 100.00% 100.00% 100.00%
September 2000........... 78.02% 100.00% 100.00% 100.00% 94.12% 100.00% 100.00% 100.00% 100.00%
October 2000............. 77.21% 100.00% 100.00% 100.00% 93.79% 100.00% 100.00% 100.00% 100.00%
November 2000............ 76.43% 100.00% 100.00% 100.00% 93.46% 100.00% 100.00% 100.00% 100.00%
December 2000............ 75.61% 100.00% 100.00% 100.00% 93.12% 100.00% 100.00% 100.00% 100.00%
January 2001............. 74.79% 100.00% 100.00% 100.00% 92.79% 100.00% 100.00% 100.00% 100.00%
February 2001............ 73.97% 100.00% 100.00% 100.00% 92.46% 100.00% 100.00% 100.00% 100.00%
March 2001............... 73.15% 100.00% 100.00% 100.00% 92.12% 100.00% 100.00% 100.00% 100.00%
April 2001............... 72.32% 100.00% 100.00% 97.77% 91.78% 100.00% 100.00% 100.00% 100.00%
May 2001................. 71.49% 100.00% 100.00% 96.92% 91.44% 100.00% 100.00% 100.00% 100.00%
June 2001................ 70.66% 100.00% 100.00% 95.51% 91.10% 100.00% 100.00% 100.00% 100.00%
July 2001................ 69.80% 100.00% 100.00% 94.89% 90.76% 100.00% 100.00% 100.00% 100.00%
August 2001.............. 68.96% 100.00% 100.00% 93.96% 90.42% 100.00% 100.00% 100.00% 100.00%
September 2001........... 68.09% 100.00% 100.00% 92.61% 90.07% 99.99% 100.00% 100.00% 100.00%
October 2001............. 67.22% 100.00% 100.00% 92.01% 89.72% 99.99% 100.00% 100.00% 100.00%
November 2001............ 66.35% 100.00% 100.00% 91.22% 89.28% 99.98% 99.99% 100.00% 100.00%
December 2001............ 65.47% 100.00% 100.00% 90.01% 88.93% 99.98% 99.97% 100.00% 100.00%
January 2002............. 64.60% 100.00% 100.00% 89.50% 88.58% 99.97% 99.95% 100.00% 100.00%
February 2002............ 63.72% 100.00% 100.00% 88.70% 88.23% 99.96% 99.91% 100.00% 100.00%
March 2002............... 62.84% 100.00% 100.00% 87.53% 87.87% 99.95% 99.88% 100.00% 100.00%
April 2002............... 61.92% 100.00% 100.00% 87.03% 87.52% 99.94% 99.83% 100.00% 100.00%
May 2002................. 61.04% 100.00% 100.00% 86.33% 87.16% 99.93% 99.78% 100.00% 100.00%
June 2002................ 60.12% 100.00% 100.00% 85.25% 86.71% 99.92% 99.72% 100.00% 100.00%
July 2002................ 59.20% 100.00% 100.00% 84.77% 86.35% 99.90% 99.65% 100.00% 100.00%
August 2002.............. 58.28% 100.00% 100.00% 84.06% 85.99% 99.88% 99.58% 100.00% 100.00%
September 2002........... 57.36% 100.00% 100.00% 83.01% 85.63% 99.86% 99.50% 100.00% 100.00%
October 2002............. 56.44% 100.00% 100.00% 82.47% 85.17% 99.84% 99.41% 100.00% 100.00%
November 2002............ 55.48% 100.00% 100.00% 81.85% 84.81% 99.82% 99.31% 100.00% 100.00%
December 2002............ 54.55% 100.00% 100.00% 80.84% 84.45% 99.79% 99.21% 100.00% 99.99%
January 2003............. 53.60% 100.00% 100.00% 80.39% 83.99% 99.76% 99.10% 100.00% 99.99%
February 2003............ 52.64% 100.00% 100.00% 79.75% 83.62% 99.73% 98.98% 100.00% 99.98%
March 2003............... 51.68% 100.00% 100.00% 78.67% 83.25% 99.70% 98.85% 100.00% 99.96%
April 2003............... 50.71% 100.00% 100.00% 77.58% 82.79% 99.66% 98.72% 100.00% 99.95%
May 2003................. 49.75% 100.00% 100.00% 76.98% 82.42% 99.63% 98.58% 100.00% 99.93%
June 2003................ 48.78% 100.00% 100.00% 76.20% 81.95% 99.59% 98.43% 100.00% 99.90%
July 2003................ 47.79% 100.00% 100.00% 75.63% 81.58% 99.54% 98.27% 100.00% 99.88%
August 2003.............. 46.79% 100.00% 100.00% 75.00% 81.11% 99.50% 98.11% 100.00% 99.84%
September 2003........... 45.79% 100.00% 100.00% 74.23% 80.74% 99.45% 97.94% 100.00% 99.81%
October 2003............. 44.79% 100.00% 100.00% 73.62% 80.27% 99.40% 97.76% 100.00% 99.77%
November 2003............ 43.79% 100.00% 100.00% 73.01% 79.89% 99.34% 97.57% 100.00% 99.72%
December 2003............ 42.79% 100.00% 100.00% 72.27% 79.42% 99.29% 97.38% 100.00% 99.67%
January 2004............. 37.79% 100.00% 100.00% 71.74% 78.95% 99.23% 97.18% 100.00% 99.62%
February 2004............ 36.80% 100.00% 100.00% 71.14% 78.57% 99.16% 96.97% 100.00% 99.56%
March 2004............... 35.83% 100.00% 100.00% 70.55% 78.09% 99.10% 96.75% 100.00% 99.49%
April 2004............... 34.84% 100.00% 100.00% 69.93% 77.62% 99.03% 96.53% 100.00% 99.42%
May 2004................. 33.82% 100.00% 100.00% 69.38% 77.15% 98.95% 96.30% 100.00% 99.35%
June 2004................ 32.83% 100.00% 100.00% 68.65% 76.68% 98.88% 96.06% 99.99% 99.27%
July 2004................ 31.81% 100.00% 100.00% 68.09% 76.20% 98.80% 95.81% 99.99% 99.18%
August 2004.............. 30.81% 100.00% 100.00% 67.54% 75.81% 98.71% 95.56% 99.99% 99.09%
September 2004........... 29.79% 100.00% 100.00% 66.82% 75.34% 98.63% 95.30% 99.99% 98.99%
A-11-1
<PAGE>
Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Payment Date Occurring in A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
October 2004............. 28.74% 100.00% 100.00% 66.16% 74.77% 98.54% 95.03% 99.99% 98.88%
November 2004............ 27.71% 100.00% 100.00% 65.59% 74.30% 98.44% 94.75% 99.99% 98.77%
December 2004............ 26.69% 100.00% 100.00% 64.92% 73.82% 98.34% 94.47% 99.99% 98.66%
January 2005............. 25.64% 100.00% 100.00% 64.63% 71.52% 98.24% 94.18% 99.98% 98.53%
February 2005............ 24.59% 100.00% 100.00% 64.13% 71.06% 98.14% 93.88% 99.98% 98.40%
March 2005............... 23.54% 100.00% 100.00% 63.65% 70.60% 98.03% 93.57% 99.98% 98.27%
April 2005............... 22.49% 100.00% 100.00% 62.98% 70.06% 97.91% 93.25% 99.97% 98.13%
May 2005................. 21.41% 100.00% 100.00% 62.69% 69.59% 97.79% 92.93% 99.97% 97.98%
June 2005................ 20.36% 100.00% 100.00% 62.01% 69.05% 97.67% 92.60% 99.97% 97.82%
July 2005................ 19.28% 100.00% 100.00% 61.41% 68.59% 97.55% 92.26% 99.96% 97.66%
August 2005.............. 18.21% 100.00% 100.00% 60.83% 68.05% 97.42% 91.92% 99.96% 97.49%
September 2005........... 17.13% 100.00% 100.00% 60.14% 67.59% 97.28% 91.56% 99.95% 97.32%
October 2005............. 16.03% 100.00% 100.00% 59.43% 67.05% 97.14% 91.20% 99.95% 97.13%
November 2005............ 14.93% 100.00% 100.00% 58.85% 66.51% 97.00% 90.83% 99.94% 96.94%
December 2005............ 13.86% 100.00% 100.00% 58.16% 65.97% 96.85% 90.46% 99.93% 96.75%
January 2006............. 12.74% 100.00% 100.00% 57.57% 65.43% 96.70% 90.07% 99.93% 96.54%
February 2006............ 11.64% 100.00% 100.00% 56.98% 64.96% 96.54% 89.68% 99.92% 96.33%
March 2006............... 10.54% 100.00% 100.00% 56.31% 64.35% 96.38% 89.28% 99.91% 96.11%
April 2006............... 9.42% 100.00% 100.00% 55.69% 63.81% 96.22% 88.87% 99.90% 95.88%
May 2006................. 8.30% 100.00% 100.00% 55.14% 63.27% 96.05% 88.46% 99.89% 95.65%
June 2006................ 7.18% 100.00% 100.00% 54.60% 62.73% 95.87% 88.03% 99.88% 95.41%
July 2006................ 6.06% 100.00% 100.00% 54.04% 62.19% 95.69% 87.60% 99.87% 95.16%
August 2006.............. 4.92% 100.00% 100.00% 53.57% 61.58% 95.51% 87.17% 99.85% 94.90%
September 2006........... 3.78% 100.00% 100.00% 52.23% 61.05% 95.32% 86.72% 99.84% 94.64%
October 2006............. 2.65% 100.00% 100.00% 50.35% 60.44% 95.12% 86.27% 99.82% 94.36%
November 2006............ 1.51% 100.00% 100.00% 48.72% 59.83% 94.92% 85.80% 99.81% 94.08%
December 2006............ 0.35% 100.00% 100.00% 47.05% 59.30% 94.72% 85.34% 99.79% 93.80%
January 2007............. 0.00% 100.00% 100.00% 45.41% 58.69% 94.51% 84.86% 99.77% 93.50%
February 2007............ 100.00% 100.00% 43.77% 58.09% 94.29% 84.37% 99.75% 93.19%
March 2007............... 100.00% 100.00% 42.83% 57.49% 94.07% 83.88% 99.73% 92.88%
April 2007............... 100.00% 100.00% 40.99% 56.89% 93.84% 83.38% 99.71% 92.56%
May 2007................. 100.00% 100.00% 39.67% 56.29% 93.61% 82.87% 99.69% 92.23%
June 2007................ 100.00% 100.00% 38.06% 55.62% 93.38% 82.36% 99.66% 91.89%
July 2007................ 100.00% 100.00% 36.41% 55.02% 93.13% 81.83% 99.63% 91.55%
August 2007.............. 100.00% 100.00% 34.80% 54.36% 92.88% 81.30% 99.60% 91.19%
September 2007........... 100.00% 100.00% 33.18% 53.77% 92.63% 80.76% 99.57% 90.83%
October 2007............. 100.00% 100.00% 31.34% 53.11% 92.37% 80.22% 99.54% 90.46%
November 2007............ 100.00% 100.00% 29.73% 52.46% 92.11% 79.66% 99.51% 90.08%
December 2007............ 100.00% 100.00% 28.08% 51.81% 91.84% 79.10% 99.47% 89.69%
January 2008............. 100.00% 100.00% 26.44% 51.16% 91.56% 78.53% 99.43% 89.29%
February 2008............ 100.00% 100.00% 24.79% 50.51% 91.28% 77.95% 99.39% 88.88%
March 2008............... 100.00% 100.00% 23.43% 49.86% 90.99% 77.36% 99.35% 88.46%
April 2008............... 100.00% 100.00% 21.60% 49.16% 90.70% 76.77% 99.31% 88.04%
May 2008................. 100.00% 100.00% 19.91% 48.52% 90.40% 76.17% 99.26% 87.61%
June 2008................ 100.00% 100.00% 18.26% 47.82% 90.09% 75.56% 99.21% 87.16%
July 2008................ 100.00% 100.00% 16.58% 47.12% 89.78% 74.94% 99.16% 86.71%
August 2008.............. 100.00% 100.00% 14.99% 46.43% 89.46% 74.32% 99.10% 86.25%
September 2008........... 100.00% 100.00% 13.38% 45.74% 89.14% 73.68% 99.04% 85.78%
October 2008............. 100.00% 100.00% 11.57% 45.06% 88.81% 73.04% 98.98% 85.30%
November 2008............ 100.00% 100.00% 9.95% 44.38% 88.47% 72.39% 98.92% 84.81%
December 2008............ 100.00% 100.00% 8.34% 43.64% 88.13% 71.74% 98.85% 84.31%
January 2009............. 100.00% 100.00% 6.71% 42.97% 87.78% 71.07% 98.78% 83.80%
February 2009............ 100.00% 100.00% 5.09% 42.24% 87.42% 70.40% 98.71% 83.29%
March 2009............... 100.00% 100.00% 4.21% 41.52% 87.06% 69.72% 98.63% 82.76%
April 2009............... 100.00% 100.00% 2.62% 40.80% 86.69% 69.03% 98.55% 82.22%
May 2009................. 100.00% 100.00% 1.03% 40.09% 86.31% 68.34% 98.47% 81.68%
June 2009................ 100.00% 100.00% 0.00% 39.38% 85.93% 67.64% 98.38% 81.12%
July 2009................ 97.38% 100.00% 38.62% 85.54% 66.92% 98.29% 80.56%
August 2009.............. 95.49% 100.00% 37.92% 85.15% 66.20% 98.19% 79.98%
A-11-2
<PAGE>
Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Payment Date Occurring in A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
September 2009........... 93.80% 100.00% 37.18% 84.74% 65.48% 98.09% 79.40%
October 2009............. 92.23% 100.00% 36.44% 84.34% 64.74% 97.99% 78.80%
November 2009............ 90.75% 100.00% 35.70% 83.92% 64.00% 97.88% 78.20%
December 2009............ 89.33% 100.00% 34.92% 83.50% 63.25% 97.76% 77.58%
January 2010............. 87.96% 100.00% 34.20% 83.07% 62.49% 97.64% 76.96%
February 2010............ 86.63% 100.00% 33.43% 82.63% 61.72% 97.52% 76.32%
March 2010............... 85.33% 100.00% 32.72% 82.19% 60.95% 97.39% 75.68%
April 2010............... 84.07% 100.00% 31.97% 81.74% 60.17% 97.26% 75.02%
May 2010................. 82.83% 100.00% 31.22% 81.28% 59.38% 97.12% 74.36%
June 2010................ 81.62% 100.00% 30.43% 80.81% 58.58% 96.97% 73.68%
July 2010................ 80.43% 100.00% 29.70% 80.34% 57.77% 96.82% 73.00%
August 2010.............. 79.26% 100.00% 28.93% 79.86% 56.96% 96.66% 72.30%
September 2010........... 78.10% 100.00% 28.17% 79.37% 56.14% 96.50% 71.59%
October 2010............. 76.97% 100.00% 27.42% 78.88% 55.31% 96.33% 70.88%
November 2010............ 75.84% 100.00% 26.67% 78.38% 54.47% 96.16% 70.15%
December 2010............ 74.74% 100.00% 25.89% 77.87% 53.63% 95.97% 69.41%
January 2011............. 73.64% 100.00% 25.16% 77.35% 52.77% 95.79% 68.66%
February 2011............ 72.56% 100.00% 24.40% 76.83% 51.91% 95.59% 67.90%
March 2011............... 71.49% 100.00% 23.65% 76.29% 51.04% 95.39% 67.13%
April 2011............... 70.43% 100.00% 22.86% 75.75% 50.17% 95.18% 66.35%
May 2011................. 69.38% 100.00% 22.13% 75.21% 49.28% 94.96% 65.56%
June 2011................ 68.34% 100.00% 21.37% 74.65% 48.39% 94.73% 64.76%
July 2011................ 67.31% 100.00% 20.61% 74.09% 47.49% 94.50% 63.95%
August 2011.............. 66.29% 100.00% 19.87% 73.52% 46.58% 94.26% 63.12%
September 2011........... 65.28% 100.00% 19.14% 72.94% 45.66% 94.01% 62.29%
October 2011............. 64.27% 100.00% 18.38% 72.35% 44.74% 93.75% 61.44%
November 2011............ 63.27% 100.00% 17.64% 71.76% 43.81% 93.48% 60.59%
December 2011............ 62.28% 100.00% 16.92% 71.15% 42.87% 93.21% 59.72%
January 2012............. 61.30% 100.00% 16.22% 70.54% 41.92% 92.92% 58.84%
February 2012............ 60.33% 100.00% 15.49% 69.93% 40.96% 92.62% 57.95%
March 2012............... 59.36% 100.00% 14.81% 69.30% 40.00% 92.32% 57.05%
April 2012............... 58.39% 100.00% 14.08% 68.66% 39.03% 92.01% 56.14%
May 2012................. 57.44% 100.00% 13.39% 68.02% 38.05% 91.68% 55.22%
June 2012................ 56.49% 100.00% 12.71% 67.37% 37.06% 91.35% 54.28%
July 2012................ 55.54% 100.00% 12.02% 66.71% 36.06% 91.00% 53.34%
August 2012.............. 54.60% 100.00% 11.34% 66.04% 35.06% 90.64% 52.38%
September 2012........... 53.67% 100.00% 10.67% 65.36% 34.05% 90.28% 51.41%
October 2012............. 52.74% 100.00% 9.99% 64.68% 33.03% 89.90% 50.43%
November 2012............ 51.81% 100.00% 9.32% 63.99% 32.00% 89.51% 49.44%
December 2012............ 50.89% 100.00% 8.66% 63.28% 30.97% 89.10% 48.44%
January 2013............. 49.98% 100.00% 8.03% 62.57% 29.92% 88.69% 47.43%
February 2013............ 49.07% 100.00% 7.37% 61.85% 28.87% 88.26% 46.40%
March 2013............... 48.16% 100.00% 6.74% 61.13% 27.81% 87.82% 45.36%
April 2013............... 47.26% 100.00% 6.12% 60.39% 26.75% 87.37% 44.31%
May 2013................. 46.37% 100.00% 5.49% 59.64% 25.67% 86.90% 43.25%
June 2013................ 45.47% 100.00% 4.92% 58.89% 24.59% 86.42% 42.18%
July 2013................ 44.58% 100.00% 4.33% 58.13% 23.50% 85.93% 41.10%
August 2013.............. 43.70% 100.00% 3.73% 57.35% 22.40% 85.42% 40.00%
September 2013........... 42.82% 97.82% 3.18% 56.57% 21.29% 84.90% 38.90%
October 2013............. 41.94% 95.78% 2.62% 55.78% 20.18% 84.36% 37.78%
November 2013............ 41.06% 93.80% 2.06% 54.98% 19.05% 83.81% 36.64%
December 2013............ 40.19% 91.85% 1.54% 54.18% 17.92% 83.25% 35.50%
January 2014............. 39.33% 89.93% 1.02% 53.36% 16.78% 82.66% 34.35%
February 2014............ 38.46% 88.02% 0.51% 52.53% 15.64% 82.06% 33.18%
March 2014............... 37.60% 86.13% 0.00% 51.70% 14.48% 81.45% 32.00%
April 2014............... 36.75% 84.26% 50.85% 13.32% 80.82% 30.81%
May 2014................. 35.89% 82.40% 50.00% 12.15% 80.17% 29.61%
June 2014................ 35.04% 80.54% 49.14% 10.97% 79.50% 28.39%
July 2014................ 34.19% 78.70% 48.26% 9.78% 78.82% 27.16%
A-11-3
<PAGE>
Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass Subclass
Payment Date Occurring in A-2 A-3 A-4 A-5 B-1 B-2 C-1 C-2 D-1
------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
August 2014.............. 33.35% 76.86% 47.38% 8.59% 78.12% 26.00%
September 2014........... 32.51% 75.03% 46.49% 7.38% 77.40% 24.91%
October 2014............. 31.67% 73.21% 45.59% 6.17% 76.66% 23.71%
November 2014............ 30.83% 71.40% 44.68% 4.95% 75.91% 22.44%
December 2014............ 30.00% 69.59% 43.76% 3.73% 75.13% 21.07%
January 2015............. 29.17% 67.78% 42.83% 2.49% 74.33% 19.66%
February 2015............ 28.34% 65.99% 41.89% 1.25% 73.52% 18.22%
March 2015............... 27.52% 64.19% 40.94% 0.00% 72.68% 16.90%
April 2015............... 26.69% 62.40% 39.99% 71.82% 15.56%
May 2015................. 25.87% 60.62% 39.02% 70.94% 14.21%
June 2015................ 25.06% 58.84% 38.04% 70.04% 12.84%
July 2015................ 24.24% 57.07% 37.05% 69.12% 11.47%
August 2015.............. 23.43% 55.29% 36.05% 68.18% 10.08%
September 2015........... 22.62% 53.53% 35.05% 67.21% 8.68%
October 2015............. 21.81% 51.76% 34.03% 66.22% 7.26%
November 2015............ 21.00% 50.00% 33.00% 65.20% 5.84%
December 2015............ 20.20% 48.24% 31.96% 64.17% 4.40%
January 2016............. 19.40% 46.49% 30.91% 63.10% 2.94%
February 2016............ 18.60% 44.74% 29.86% 62.01% 1.48%
March 2016............... 17.80% 42.99% 28.79% 60.90% 0.00%
April 2016............... 17.01% 41.24% 27.71% 59.76%
May 2016................. 16.21% 39.50% 26.62% 58.60%
June 2016................ 15.42% 37.76% 25.52% 57.41%
July 2016................ 14.64% 36.02% 24.41% 56.19%
August 2016.............. 13.85% 34.28% 23.29% 54.94%
September 2016........... 13.06% 32.55% 22.16% 53.67%
October 2016............. 12.28% 30.82% 21.02% 52.37%
November 2016............ 11.50% 29.09% 19.87% 51.04%
December 2016............ 10.72% 27.36% 18.71% 49.68%
January 2017............. 9.94% 25.64% 17.54% 48.29%
February 2017............ 9.17% 23.92% 16.36% 46.87%
March 2017............... 8.39% 22.20% 15.16% 45.41%
April 2017............... 7.62% 20.48% 13.96% 43.93%
May 2017................. 6.85% 18.76% 12.75% 42.42%
June 2017................ 6.09% 17.05% 11.52% 40.87%
July 2017................ 5.32% 15.34% 10.28% 39.29%
August 2017.............. 4.55% 13.62% 9.04% 37.68%
September 2017........... 3.79% 11.92% 7.78% 36.03%
October 2017............. 3.03% 10.21% 6.51% 34.35%
November 2017............ 2.27% 8.50% 5.23% 32.64%
December 2017............ 1.51% 6.80% 3.94% 30.89%
January 2018............. 0.75% 5.10% 2.64% 29.10%
February 2018............ 0.00% 3.40% 1.32% 27.28%
March 2018............... 1.70% 0.00% 25.41%
April 2018............... 0.00% 23.52%
May 2018................. 21.58%
June 2018................ 19.61%
July 2018................ 17.59%
August 2018.............. 15.54%
September 2018........... 13.45%
October 2018............. 0.00%
</TABLE>
A-11-4
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Historical Financial Statements Related to the Purchase of Aircraft from
a Subsidiary of MSDW
Page
----
Independent Auditors' Report................................................ F-2
Schedule of Net Assets Acquired as of March 15, 2000 and notes thereto...... F-3
Independent Auditors' Report................................................ F-5
Schedules of Direct Revenues and Expenses (Related to 27 Aircraft
Purchased from a Subsidiary of MSDW) for the periods from
August 11, 1999 to November 30, 1999 and January 1, 1999 to
August 10, 1999 and the years ended December 31, 1998 and 1997
and the notes thereto .................................................... F-6
Report of Independent Accountants........................................... F-8
Consolidated Schedule of Rental of Flight Equipment and Overhaul
Reimbursements (Related to 27 Aircraft Sold to a Subsidiary of MSDW) for
the seven month and ten day period ended August 10, 1999 and
the years ended December 31, 1998 and 1997 and the notes thereto.......... F-9
Schedules of Direct Revenues and Expenses (Related to 27 Aircraft
Purchased from a Subsidiary of MSDW) for the three months ended
February 29, 2000 and February 28, 1999 and the notes thereto
(unaudited) ............................................................. F-11
Historical Financial Statements of Morgan Stanley Aircraft Finance and
Subsidiaries
Independent Auditors' Report................................................F-13
Consolidated Financial Statements for the fiscal years ended
November 30, 1999 and 1998 and the period from October 30, 1997
(date of formation) to November 30, 1997 and notes thereto................F-14
Interim Condensed Consolidated Financial Statements for the three
months ended February 29, 2000 and February 28, 1999 and notes
thereto (unaudited) ......................................................F-28
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Morgan Stanley Aircraft Finance and Subsidiaries
We have audited the accompanying Schedule of Net Assets Acquired of Morgan
Stanley Aircraft Finance and Subsidiaries (the "Group"), a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. (the "Company"), as of March 15,
2000 (the "Schedule"). A subsidiary of the Company had previously purchased the
portfolio of aircraft from International Lease Finance Corporation, Los
Angeles, California as described in Note 1 to the Schedule. This Schedule is
the responsibility of the Group's management. Our responsibility is to express
an opinion on the Schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the Schedule
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Schedule. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
schedule of net assets acquired. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Schedule was prepared for the purpose of complying with
Rule 3-05 of Regulation S-X of the Securities and Exchange Commission as
described in Note 1 to the Schedule.
In our opinion, such Schedule of Net Assets Acquired presents fairly, in
all material respects, the net assets acquired by the Group at March 15, 2000
in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
New York, New York
May 18, 2000
F-2
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
SCHEDULE OF NET ASSETS ACQUIRED
As of March 15, 2000
(Dollars in thousands)
Assets Acquired:
Aircraft under operating leases, at cost ........ $996,112
--------
Total assets acquired.................................. $996,112
========
Liabilities Assumed:
Liability for maintenance........................ $ 49,707
Other liabilities................................ 10,588
Deferred rental income........................... 8,524
--------
Total liabilities assumed.............................. 68,819
--------
Net assets acquired.................................... $927,293
========
See notes to the Schedule of Net Assets Acquired.
F-3
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE SCHEDULE OF NET ASSETS ACQUIRED
Note 1 - Basis of Presentation
On March 15, 2000, Morgan Stanley Aircraft Finance and Subsidiaries ("MSAF
Group") acquired a portfolio of 26 aircraft (the "Aircraft") from a subsidiary
of Morgan Stanley Dean Witter & Co. ("MSDW"). MSDW had previously acquired the
Aircraft from International Lease Finance Corporation ("ILFC") on August 10,
1999. The staff of the Securities and Exchange Commission has deemed the
purchase of the Aircraft by MSAF Group to be an acquisition of a business as
defined in Rule 3-05 of Regulation S-X.
The Schedule of Net Assets Acquired has been prepared to comply with Rule
11-01 of Regulation S-X of the Securities and Exchange Commission. MSAF Group is
unable to obtain the necessary historical financial data from ILFC, as the
Aircraft are not a separate business to ILFC but rather individual aircraft from
its portfolio of aircraft owned and leased to third parties. In addition,
information related to the historical cost of the Aircraft is considered to be
confidential information by ILFC.
Note 2 - Aircraft Under Operating Leases
Aircraft under operating leases are stated at the cost paid by MSAF Group
to a subsidiary of MSDW to acquire the Aircraft. Such amount was equal to the
subsidiary of MSDW's book value as of March 15, 2000 (i.e. the purchase price
paid to ILFC on August 10, 1999 less accumulated depreciation through March 15,
2000).
Note 3 - Liabilities Assumed
The liabilities assumed by MSAF Group, consisting of security deposits,
unearned rental income, maintenance liabilities and liabilities associated with
certain interest rate swaps, were acquired from the subsidiary of MSDW and are
stated at the book value of such subsidiary as of March 15, 2000.
Note 4 - Additional Aircraft Purchase
On May 1, 2000, MSAF Group acquired one additional aircraft from a
subsidiary of MSDW. This aircraft was previously purchased by MSDW from ILFC in
August 1999, but is not included in the accompanying Schedule of Net Assets
Acquired. The book value of this aircraft was approximately $20.5 million at
the date of purchase.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees
Morgan Stanley Aircraft Finance and Subsidiaries
We have audited the accompanying Schedule of Direct Revenues and Expenses
(Related to 27 aircraft purchased from a subsidiary of Morgan Stanley Dean
Witter & Co. ("MSDW")) of Morgan Stanley Aircraft Finance and Subsidiaries (the
"Group"), a wholly owned subsidiary of MSDW, for the period from August 11, 1999
through November 30, 1999 (the "Schedule"). MSDW had previously purchased the
Aircraft from International Lease Finance Corporation, Los Angeles, California
as described in Note 1 to this Schedule. This Schedule is the responsibility of
Group's management. Our responsibility is to express an opinion on the Schedule
based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the Schedule
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Schedule. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Schedule. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Schedule was prepared for the purpose of complying with
Rule 3-05 of Regulation S-X of the Securities and Exchange Commission as
described in Note 1 to the Schedule.
As described in Note 1, the Schedule was prepared on the basis of cash
receipts and cash disbursements, which is a comprehensive basis of accounting
other than accounting principles generally accepted in the United States of
America.
In our opinion, such Schedule presents fairly, in all material respects,
the direct revenues and expenses of Group for the period from August 11, 1999
through November 30, 1999 on the basis of accounting described in Note 1.
/s/ Deloitte & Touche LLP
New York, New York
May 18, 2000
F-5
<PAGE>
<TABLE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
SCHEDULES OF DIRECT REVENUES AND EXPENSES
(RELATED TO 27 AIRCRAFT PURCHASED FROM A SUBSIDIARY OF MSDW)
Period From Year Ended
Period from August 11, January 1, 1999 Eleven December 31, Year Ended
1999 to to August 10, 1999 Months Ended 1998 December 31, 1997
November 30, 1999 (predecessor) November 30, 1999(1) (predecessor) (predecessor)
---------------------- ------------------ ----------------- ------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Direct revenues
Lease income................. $29,415 $76,603 $106,018 $127,012 $147,219
======= ======= ======== ======== ========
Direct Expenses
Maintenance and other
aircraft related costs....... $ 5 $ 6,091 $ 6,096 $ 5,833 $ 3,212
Service provider and other
fees......................... 1,106 - 1,106 - -
------- ------- -------- -------- --------
Total direct expenses........ $ 1,111 $ 6,091 $ 7,202 $ 5,833 $ 3,212
======= ======= ======== ======== ========
</TABLE>
(1) For informational purposes only.
See notes to the Schedules of Direct Revenues and Expenses.
F-6
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE SCHEDULES OF DIRECT REVENUES AND EXPENSES
(RELATED TO 27 AIRCRAFT PURCHASED FROM A SUBSIDIARY OF MSDW)
Note 1 - Basis of Presentation
On March 15, 2000, Morgan Stanley Aircraft Finance ("MSAF Group") acquired
a portfolio of 26 aircraft from a subsidiary of Morgan Stanley Dean Witter &
Co. ("MSDW"). In May 2000, MSAF Group acquired one additional aircraft from a
subsidiary of MSDW. MSDW had previously acquired all 27 of these aircraft (the
"Aircraft") from International Lease Finance Corporation ("ILFC") on August 10,
1999. The staff of the Securities and Exchange Commission has deemed the
purchase of the Aircraft by MSAF Group to be an acquisition of a business as
defined in Rule 3-05 of Regulation S-X. The accompanying Schedules presents the
historic direct revenues and direct expenses generated by the Aircraft prior to
their acquisition by MSAF Group.
The Schedules of Direct Revenues and Expenses (Related to 27 Aircraft
Purchased from a Subsidiary of MSDW) have been prepared to comply with Rule
11-01 of Regulation S-X of the Securities and Exchange Commission. MSAF Group is
unable to prepare full financial statements of the Aircraft acquired since the
necessary historical financial data could not be obtained from ILFC. The
Aircraft are not a separate business to ILFC but rather individual aircraft from
its portfolio of aircraft owned and leased to third parties. Consequently, there
is no practical method of separating the operating expenses, financing and other
costs for the Aircraft. In addition, information related to the historical cost
of the Aircraft is considered to be confidential information by ILFC.
The Schedules of Direct Revenues and Expenses (Related to 27 Aircraft
Purchased from a Subsidiary of MSDW) presents the information indicated on the
basis of cash receipts and cash disbursements, which is a comprehensive basis
of accounting other than accounting principles generally accepted in the United
States of America. The Schedules are not intended to be a complete presentation
of the revenue and expenses related to the Aircraft.
Note 2 - Lease Revenues
The Aircraft are leased to certain third parties under operating leases.
In certain cases, leases provide for additional rent based on usage. For
purposes of the accompanying Schedules, all rentals are reported on the basis
of cash received.
Note 3 - Service Provider and Other Fees
Under the terms of a servicing agreement (the "Agreement"), ILFC is
performing certain aircraft related activities with respect to the Aircraft,
including marketing the Aircraft for lease or sale and monitoring lessee
compliance with lease terms. From August 11, 1999 to November 30, 1999, MSDW
paid certain fees to ILFC in accordance with the terms of the Agreement. Prior
to August 10, 1999, the Aircraft were owned by ILFC and such aircraft related
activities were performed internally. Accordingly, service provider and other
fees are only included in the accompanying Schedules for the period between
August 11, 1999 and November 30, 1999.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and the Board of Directors
International Lease Finance Corporation
We have audited the accompanying Consolidated Schedule of Rental of Flight
Equipment and Overhaul Reimbursements (Related to 27 Aircraft Sold to
Subsidiaries of Morgan Stanley Dean Witter & Co.) of International Lease
Finance Corporation and Subsidiaries for the seven month and ten day period
ended August 10, 1999 and the years ended December 31, 1998 and 1997 (the
"Schedule"). This Schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this Schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the Schedule
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Schedule. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall Schedule presentation. We
believe that our audit provides a reasonable basis for our opinion.
As described in Note 1, the Schedule was prepared on the basis of cash
receipts and cash disbursements, which is a comprehensive basis of accounting
other than accounting principles generally accepted in the United States of
America.
In our opinion, the Schedule referred to above presents fairly, in all
material respects, the rental of flight equipment and overhaul reimbursements
arising from cash transactions (related to 27 Aircraft Sold to Subsidiaries of
Morgan Stanley Dean Witter & Co.) of International Lease Finance Corporation
and Subsidiaries for the seven month and ten day period ended August 10, 1999
and for the years ended December 31, 1998 and 1997, on the basis of accounting
described in Note 1.
/s/ PricewaterhouseCoopers LLP
Los Angeles, CA
April 24, 2000
F-8
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF RENTAL OF FLIGHT EQUIPMENT AND
OVERHAUL REIMBURSEMENTS
(RELATED TO 27 AIRCRAFT SOLD TO SUBSIDIARES OF
MORGAN STANLEY DEAN WITTER & CO.)
<TABLE>
For the Seven
Month and For the Years
Ten Day Period Ended Ended December 31
August 10, 1999 1998 1997
-------------------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Rental of flight equipment.................. $76,603 $127,012 $147,219
======= ======== ========
Overhaul reimbursements paid to lessees..... $ 6,091 $ 5,833 $ 3,212
======= ======== ========
</TABLE>
See accompanying notes to the consolidated schedule.
F-9
<PAGE>
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF RENTAL OF FLIGHT EQUIPMENT
AND OVERHAUL REIMBURSEMENTS
(RELATED TO 27 AIRCRAFT SOLD TO SUBSIDIARIES OF
MORGAN STANLEY DEAN WITTER & CO.)
Note 1 - Basis of Presentation
On August 10, 1999 International Lease Finance Corporation ("ILFC") sold 1
aircraft to MSA IV and 26 aircraft to MSA V. MSA IV and V are indirectly wholly
owned subsidiaries of Morgan Stanley Dean Witter & Co. MSA IV and V are
hereinafter referred to as "Subsidiaries of Morgan Stanley Dean Witter & Co."
The Consolidated Schedule of Rental of Flight Equipment and Overhaul
Reimbursements (Related to 27 Aircraft Sold to Subsidiaries of Morgan Stanley
Dean Witter & Co.) has been prepared to assist Morgan Stanley Aircraft Finance,
a third party, obtain information on the purchase of a business in compliance
with Rule 11-01 of Regulation S-X of the Securities and Exchange Commission. All
information presented relates only to the aircraft sold to Subsidiaries of
Morgan Stanley Dean Witter & Co., International Lease Finance Corporation
("ILFC") is unable to prepare full financial statements of the aircraft sold to
the subsidiaries of Morgan Stanley Dean Witter & Co. since the aircraft sold are
not a separate business to ILFC but rather individual aircraft from its
portfolio of aircraft owned and leased to third parties. Consequently, there is
no practical method of separating the operating expenses, financing and other
costs for these aircraft. In addition, information related to the historical
cost of the aircraft is considered to be confidential information by ILFC.
The Consolidated Schedule of Rental of Flight Equipment Overhaul Rent and
Overhaul Reimbursements (Related to 27 Aircraft Sold to Subsidiaries of Morgan
Stanley Dean Witter & Co.) presents the information indicated on the basis of
cash receipts and cash disbursements, which is a comprehensive basis of
accounting other than accounting principles generally accepted in the United
States of America, and is consolidated from the various operating subsidiaries
of ILFC. There were no inter-company items to be eliminated. The Schedule is
not intended to be a complete presentation of ILFC's revenue and expenses
related to the 27 aircraft sold. Proration of cash rental payments received and
payment of those amounts to the purchasers during the settlement of the sale of
the 27 aircraft has not been reflected in the amounts reported.
Note 2 - Rental of Flight Equipment
ILFC, as lessor, leases flight equipment principally under operating
leases. In certain cases, leases provide for additional rent based on useage.
For purposes of this schedule, all rentals are reported on the basis of cash
received.
F-10
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
SCHEDULES OF DIRECT REVENUES AND EXPENSES
(RELATED TO 27 AIRCRAFT PURCHASED FROM A SUBSIDIARY OF MSDW)(UNAUDITED)
Three Months Three Months
Ended Ended
February 29, 2000 February 28, 1999
----------------- -----------------
(Dollars in thousands)
Direct revenues
Lease income.......................... $31,276 $28,372
======= =======
Direct Expenses
Maintenance and other aircraft
related costs....................... $ 2 $ 4,412
Service provider and other fees....... 1,196 --
------- -------
Total direct expenses................. $ 1,198 $ 4,412
======= =======
See notes to the Schedules of Direct Revenues and Expenses.
F-11
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE SCHEDULES OF DIRECT REVENUES AND EXPENSES
(RELATED TO 27 AIRCRAFT PURCHASED FROM A SUBSIDIARY OF
MORGAN STANLEY DEAN WITTER & CO.)(UNAUDITED)
Note 1 - Basis of Presentation
On March 15, 2000, Morgan Stanley Aircraft Finance ("MSAF group") acquired
a portfolio of 26 aircraft from a subsidiary of Morgan Stanley Dean Witter &
Co. ("MSDW"). In May 2000, MSAF group acquired one additional aircraft from a
subsidiary of MSDW. MSDW had previously acquired all 27 of these aircraft (the
"Aircraft") from International Lease Finance Corporation ("ILFC") on August 10,
1999. The staff of the Securities and Exchange Commission has deemed the
purchase of the Aircraft by MSAF group to be an acquisition of a business as
defined in Rule 3-05 of Regulation S-X. The accompanying Schedules presents the
historic direct revenues and direct expenses generated by the Aircraft prior to
their acquisition by MSAF group.
The Schedules of Direct Revenues and Expenses (Related to 27 Aircraft
Purchased from a Subsidiary of MSDW) have been prepared to comply with Rule
11-01 of Regulation S-X of the Securities and Exchange Commission. MSAF group is
unable to prepare full financial statements of the Aircraft acquired since the
necessary historical financial data could not be obtained from ILFC. The
Aircraft are not a separate business to ILFC but rather individual aircraft from
its portfolio of aircraft owned and leased to third parties. Consequently, there
is no practical method of separating the operating expenses, financing and other
costs for the Aircraft. In addition, information related to the historical cost
of the Aircraft is considered to be confidential information by ILFC.
The Schedules of Direct Revenues and Expenses (Related to 27 Aircraft
Purchased from a Subsidiary of MSDW) presents the information indicated on the
basis of cash receipts and cash disbursements, which is a comprehensive basis
of accounting other than accounting principles generally accepted in the United
States of America. The Schedules are not intended to be a complete presentation
of the revenue and expenses related to the Aircraft.
Note 2 - Lease Revenues
The Aircraft are leased to certain third parties under operating leases.
In certain cases, leases provide for additional rent based on usage. For
purposes of the accompanying Schedules, all rentals are reported on the basis
of cash received.
Note 3 - Service Provider and Other Fees
Under the terms of a servicing agreement (the "Agreement"), ILFC is
performing certain aircraft related activities with respect to the Aircraft,
including marketing the Aircraft for lease or sale and monitoring lessee
compliance with lease terms. In the three month period ended February 29, 2000,
MSDW paid certain fees to ILFC in accordance with the terms of the Agreement.
Prior to August 10, 1999, the Aircraft were owned by ILFC and such aircraft
related activities were performed internally. Accordingly, service provider and
other fees are not included in the accompanying schedules for the three month
period ended February 28, 1999.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Morgan Stanley Aircraft Finance and Subsidiaries
We have audited the accompanying consolidated balance sheets of Morgan
Stanley Aircraft Finance and Subsidiaries (the "Group") as of November 30, 1999
and 1998, and the related consolidated statements of operations, cash flows and
changes in beneficial interest/(deficit) for the fiscal years ended November
30, 1999, 1998, and the period from October 30, 1997 (date of formation) to
November 30, 1997. These consolidated financial statements are the
responsibility of the Group's trustees. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the trustees, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Group at
November 30, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the fiscal years ended November 30, 1999, 1998, and
the period from October 30, 1997 (date of formation) to November 30, 1997, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
January 21, 2000
F-13
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
November 30, November 30,
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents..............................$ 35,119 $ 34,850
Receivables:
Lease income, net................................ 1,908 3,744
Investment income and other...................... 161 153
Aircraft under operating leases, net................... 886,051 933,111
Investment in capital lease, net....................... 18,300 21,581
Underwriting and other issuance related costs,
net of amortization.................................. 15,935 17,053
--------- ----------
Total Assets...........................................$ 957,474 $1,010,492
========= ==========
LIABILITIES AND BENEFICIAL INTERESTHOLDER'S DEFICIT
Payables:
Interest payable to Noteholders..................$ 2,481 $ 2,655
Deferred rental income................................. 5,318 7,351
Liability for maintenance.............................. 57,437 52,489
Other liabilities...................................... 11,376 15,865
Notes payable:
Subclass A-1..................................... 400,000 400,000
Subclass A-2..................................... 234,533 274,062
Subclass B-1..................................... 91,023 94,819
Subclass C-1..................................... 99,987 100,000
Subclass D-1..................................... 110,000 110,000
--------- ---------
1,012,155 1,057,241
--------- ---------
Commitments and contingencies
Beneficial Interestholder's Deficit:
Beneficial Interest.............................. 1 1
Deemed Distribution.............................. (15,305) (15,305)
Accumulated Deficit.............................. (39,377) (31,445)
--------- ---------
Total Beneficial Interestholder's Deficit........ (54,681) (46,749)
--------- ---------
Total Liabilities and Beneficial Interestholder's
Deficit..............................................$ 957,474 $1,010,492
========= ==========
See notes to Consolidated Financial Statements
F-14
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
Period from October
30, 1997 (date of
Fiscal Year ended Fiscal Year ended formation) to
November 30, 1999 November 30, 1998 November 30, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Lease income, net................................. $114,651 $120,005 $4,747
Investment income on collection account........... 1,845 2,156 --
-------- -------- ------
Total revenues.................................... 116,496 122,161 4,747
-------- -------- ------
Expenses:
Interest expense.................................. 63,584 50,533 --
Depreciation expense.............................. 47,060 38,876 43
Operating expenses:
Service provider and other fees................. 8,568 9,534 --
Maintenance and other aircraft related costs.... 5,216 2,969 --
-------- -------- ------
Total expenses.................................... 124,428 101,912 43
-------- -------- ------
Net (loss)/income.................................. $ (7,932) $ 20,249 $4,704
======== ======== ======
</TABLE>
See notes to Consolidated Financial Statements.
F-15
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
Period from
October 30, 1997
(date of formation)
Fiscal Year ended Fiscal Year ended to November 30,
November 30, 1999 November 30, 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss)/income....................................... $(7,932) $ 20,249 $ 4,704
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities:
Depreciation expense -- equipment under operating
leases.................................................. 47,060 38,876 43
Gain on capital lease.................................... -- -- (4,610)
Amortization of underwriting and other issuance related
costs................................................... 1,118 837 --
Provision for doubtful accounts.......................... 6,361 689 --
Changes in assets and liabilities:
Receivables:
Investment income and other........................... (8) (153) --
Lease income, net..................................... (1,224) (5,520) (137)
Investment in capital lease............................. (20) 4,643 --
Liability for maintenance............................... 4,948 13,204 --
Interest payable to Noteholders......................... (174) 2,655 --
Deferred rental income.................................. (2,033) 7,351 --
Other liabilities....................................... (4,489) 1,110 --
------- ---------- -------
Net cash provided by operating activities............... 43,607 83,941 --
------- ---------- -------
Cash flows from investing activities
Purchase of aircraft.................................... -- (887,315) (66,370)
------- ---------- -------
Net cash used for investing activities................... -- (887,315) (66,370)
------- ---------- -------
Cash flows from financing activities.....................
Issuance of beneficial interest to Morgan Stanley
Financing Inc......................................... -- -- 1
Proceeds from Notes, net of underwriting costs.......... -- 1,041,610 --
Proceeds from borrowings from Morgan Stanley
Financing Inc......................................... -- 853,490 66,369
Beneficial Interest Distribution........................ -- (976,257) --
Repayments of Notes..................................... (43,338) (71,119) --
Other issuance related costs............................ -- (9,500) --
------- ---------- -------
Net cash (used for)/provided by financing activities..... (43,338) 838,224 66,370
------- ---------- -------
Net increase in cash and cash equivalents................ 269 34,850 --
Cash and cash equivalents at beginning of period......... 34,850 -- --
------- ---------- -------
Cash and cash equivalents at end of period............... $35,119 $ 34,850 $ --
======= ========== =======
</TABLE>
See notes to Consolidated Financial Statements.
F-16
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN BENEFICIAL INTEREST/(DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Retained Total
Earnings Beneficial
Beneficial Deemed (Accumulated Interest
Interest Distribution Deficit) (Deficit)
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Issuance of Beneficial Interest......................... $ 1 $ -- $ -- $ 1
Net income.............................................. -- -- 4,704 4,704
--------- -------- -------- --------
Balance at November 30, 1997............................ 1 -- 4,704 4,705
Net income.............................................. -- -- 20,249 20,249
Deemed Distribution..................................... -- (15,305) -- (15,305)
Borrowings from Morgan Stanley Financing Inc.
converted into Beneficial Interest................ 919,859 -- -- 919,859
Payment of Beneficial Interest Distribution to Morgan
Stanley Financing Inc............................. (919,859) -- (56,398) (976,257)
--------- -------- -------- --------
Balance at November 30, 1998............................ 1 (15,305) (31,445) (46,749)
Net (loss).............................................. -- -- (7,932) (7,932)
--------- -------- -------- --------
Balance at November 30, 1999............................ $ 1 $(15,305) $(39,377) $(54,681)
========= ======== ======== ========
</TABLE>
See notes to Consolidated Financial Statements.
F-17
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
Morgan Stanley Aircraft Finance ("MSAF") is a special-purpose statutory
business trust that was formed on October 30, 1997 under the laws of Delaware.
MSAF and its subsidiaries ("MSAF group") were formed to conduct certain limited
activities, including acquiring, financing, re-financing, owning, leasing,
re-leasing, selling, maintaining and modifying commercial aircraft. All of the
beneficial interest of MSAF group is owned by Morgan Stanley Financing Inc.
("MSF"), a wholly owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW"). MSAF group's obligations, including its financial debt obligations,
are not obligations of, or guaranteed by, MSDW, MSF or any person other than
MSAF group.
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the financial statements and related
disclosures. Management believes that the estimates utilized in the preparation
of the consolidated financial statements are prudent and reasonable. Actual
results could differ materially from these estimates.
All material intercompany transactions have been eliminated.
Certain reclassifications have been made to prior year amounts to conform
to the current presentation.
Note 2 -- Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments
with a maturity of three months or less.
Revenue Recognition
Revenue from aircraft on operating leases is recognized on a straight-line
basis.
Certain lease contracts may require the lessee to make separate payments
for flight hours flown and revenue sector passenger miles flown. In such
instances, MSAF group recognizes rental revenues as they are earned in
accordance with the terms of the lease contract.
Aircraft
Aircraft, including engines, are stated at cost less accumulated
depreciation. Cost is comprised of the cash purchase price paid plus any
maintenance liabilities that MSAF group assumed from the seller at the date of
purchase. Depreciation is calculated on a straight line basis. The estimates of
useful lives and residual values are reviewed periodically. The current
estimates for residual values are generally 10% of cost and useful lives are
generally 25 years from the date of manufacture.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of " ("SFAS 121"), the recognition of an impairment loss for an
asset held for use is required when the estimate of undiscounted future cash
flows expected to be generated by the asset is less than its carrying amount.
Measurement of impairment loss is to be recognized based on the fair value of
the asset. Fair value reflects the underlying economic value of the aircraft,
including engines, in normal market conditions (where supply and demand are in
reasonable equilibrium) and assumes adequate time for a sale and a willing
buyer and seller. Short-term fluctuations in the market place are disregarded
and it is assumed that there is no necessity either to dispose of a significant
number of aircraft simultaneously or to dispose of aircraft quickly. The fair
value of the assets is based on independent valuations of the aircraft in the
fleet and estimates of discounted future cash flows. SFAS 121 also requires
that long-lived assets to be disposed of be reported at the lower of the
carrying amount or fair
F-18
<PAGE>
value less estimated disposal costs. At November 30, 1999 and November 30,
1998, no impairment losses had been recognized.
Liability for Maintenance
In most lease contracts the lessee has the obligation for maintenance
costs on airframes and engines. In many lease contracts the lessee makes a full
or partial prepayment to the lessor, calculated at an hourly rate, which is
used to reimburse the lessee for significant maintenance charges, including
major airframe and engine overhauls. Such prepayments are generally
non-refundable. MSAF group records the cash prepayments made by lessees for
maintenance as a component of the liability for maintenance account which
appears on the Consolidated Balance Sheets. When the lessee incurs maintenance
expenditures, MSAF group must return a corresponding amount of the prepayment
to the lessee. At this time, MSAF group will forward cash to the lessee, with a
corresponding decrease to the liability for maintenance account. MSAF group
will only reimburse the lessee for the cost of maintenance expenditures to the
extent that sufficient prepayments have been made by the lessee. At the time an
aircraft is re-leased to a new lessee, an assessment is made of the expected
maintenance reserve requirements; any excess reserve is then released to lease
income.
MSAF group also estimates the amount of maintenance expenditures for which
it will have primary responsibility. Such expenditures typically are required
when an aircraft must be prepared prior to the commencement of a new lease.
MSAF group also makes estimates of the amounts that, in certain circumstances
(including lessees defaulting on payment obligations), could result in MSAF
group incurring maintenance costs which are the lessee's primary
responsibility. When MSAF group determines that it will be primarily
responsible for certain maintenance expenditures, the amount of such
expenditure is charged directly to earnings and is included as a component of
the liability for maintenance account appearing on the Consolidated Balance
Sheets.
Allowance for Doubtful Accounts
Allowances are made for doubtful accounts where it is considered that
there is a significant risk of non-recovery. The assessment of risk of
non-recovery is primarily based on the extent to which amounts outstanding
exceed the expected value of security deposits held (if any), together with an
assessment of the financial strength and condition of a lessee and the economic
conditions existing in the lessee's operating environment. At November 30,
1999, MSAF group had recorded allowances for doubtful accounts against lease
income receivables for two lessees totaling $0.4 million. The allowance for
doubtful accounts at November 30, 1998 totaled $0.6 million.
Income Taxes
MSAF group is a Delaware business trust treated as a branch of MSF for
U.S. Federal, State and local income tax purposes. As such, MSAF group is not
subject to U.S. Federal, State and local income taxes.
Concentrations of Credit Risk
Credit risk with respect to operating lease receivables is generally
diversified due to the number of lessees comprising MSAF group's customer base
and the different geographic areas in which they operate. At November 30, 1999
MSAF group had leased aircraft to 27 lessees in 19 countries. The geographic
concentrations of the MSAF group's leasing revenues is set forth in Note 6.
Many of MSAF group's lessees are in a relatively weak financial position
because of the difficult economic conditions in the civil aviation industry as
a whole and because, in general weakly capitalized airlines are more likely to
seek operating leases. In addition, at November 30, 1999, 14 of MSAF group's
aircraft are being leased to lessees domiciled in certain emerging markets
nations, including those located in Eastern Europe, the Middle East, Latin
F-19
<PAGE>
America and Asia. Emerging market economies have been affected by severe
economic and financial difficulties. The exposure of MSAF group's aircraft to
particular countries and customers is managed partly through concentration
limits and through obtaining security from lessees by way of deposits. MSAF
group will continue to manage its exposure to particular countries, regions and
lessees through concentration limits.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. As issued, SFAS No. 133 was effective for fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133". SFAS No. 137 deferred the
effective date of SFAS No. 133 for one year to fiscal years beginning after
June 15, 2000. MSAF group is in the process of evaluating the impact of
adopting SFAS No. 133.
In fiscal 1999, MSAF group adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes the standards for the reporting and presentation of
comprehensive income. MSAF group does not have any items affecting
comprehensive income. Accordingly, MSAF group's comprehensive (loss) income was
equal to its net (loss) income for all periods presented.
Note 3 -- Aircraft
November 30, November 30,
1999 1998
------------ ------------
(Dollars in thousands)
Stage 3 Aircraft and one engine:
Cost.................................................. $972,030 $972,030
Less Accumulated depreciation......................... (85,979) (38,919)
-------- --------
$886,051 $933,111
======== ========
Aircraft cost includes $38.7 million of
maintenance liabilities that MSAF group
assumed at the date of purchase.
Fleet Analysis:
On lease for a further period of:
More than five years.................................. 9 8
From one to five years................................ 20 20
Less than one year.................................... 3 5
-------- --------
Total aircraft portfolio (including one engine)
on lease............................................ 32 33
======== ========
At November 30, 1999 there was 1 non-revenue earning aircraft in MSAF
group's portfolio, which is subject to a non-binding letter of intent for
lease. At November 30, 1998 there were no non-revenue earning aircraft in MSAF
group's portfolio.
F-20
<PAGE>
Note 4 -- Investment in Capital Lease
One of MSAF group's aircraft has been leased to a customer under a
sales-type capital lease. The components of MSAF group's investment in this
lease are as follows:
November 30, November 30,
1999 1998
------------ ------------
(Dollars in thousands)
Minimum lease payments receivable.................... $28,733 $26,662
Less: Allowance for doubtful accounts................ -- (136)
------- -------
Net minimum lease payments receivable................ 28,733 26,526
Less: Unearned income................................ (10,433) (4,945)
------- -------
Net investment in capital lease...................... $18,300 $21,581
======= =======
At November 30, 1999, minimum lease payments for each of the five
succeeding fiscal years are $3.7 million.
Unearned income is recognized over the term of the lease using the
interest method.
The provision for doubtful accounts related to this lease of $3.3 million
for the year ended November 30, 1999 is recorded as a reduction of lease income
revenues in the Consolidated Statements of Operations.
The lessee associated with this capital lease has been experiencing severe
financial difficulties and has been adversely affected by economic uncertainty
in Latin America and the devaluation of the Brazilian currency in January 1999.
As a result, in August 1999 MSAF group and the lessee agreed to modify the
terms of the existing capital lease by increasing the total rental payments to
be received and by extending the lease term. The balances of the net minimum
lease payments receivable and unearned income have been adjusted to reflect the
amended terms of the capital lease.
Note 5 -- Lease Income Receivable
Lease income receivable was as follows:
November 30, November 30,
1999 1998
------------ ------------
(Dollars in thousands)
Lease income receivable............................ $2,271 $4,297
Less: Allowance for doubtful accounts.............. (363) (553)
------ ------
Lease income receivable, net....................... $1,908 $3,744
====== ======
The provision for doubtful accounts of $3.1 million in Fiscal 1999 is
recorded as a reduction of lease income revenues in the Consolidated Statement
of Operations.
F-21
<PAGE>
Activity in the allowance for doubtful accounts was as follows:
Fiscal 1999 Fiscal 1998
----------- -----------
(Dollars in thousands)
Balance, beginning of period ...................... $ 553 $ --
Provision for doubtful accounts ................... 3,060 553
Amounts written-off ............................... (3,250) --
------- -----
Balance, end of period ............................ $ 363 $ 553
======= =====
Note 6 -- Revenues
The distribution of lease revenues by geographic area is as follows:
Period from October
30, 1997 (date of
formation) to
Fiscal 1999 Fiscal 1998 November 30, 1997
----------- ----------- -----------------
(Dollars in thousands)
North America.... $ 14,117 $ 8,743 $ --
Asia............. 15,227 13,814 --
Europe........... 38,241 51,409 --
Middle East...... 14,457 10,950 --
Latin America.... 11,860 20,084 4,747
Other............ 20,749 15,005 --
-------- -------- ------
Total............ $114,651 $120,005 $4,747
======== ======== ======
At November 30, 1999, MSAF group had contracted to receive the following
minimum rentals under operating leases (Dollars in millions):
Fiscal year ending November 30,
-------------------------------
2000............................................... $108
2001............................................... 100
2002............................................... 91
2003............................................... 70
2004............................................... 48
Thereafter......................................... 60
Note 7 -- Liability for Maintenance
Activity in the liability for maintenance account was as follows:
Fiscal 1999 Fiscal 1998
----------- -----------
(Dollars in thousands)
Balance, beginning of period............... $52,489 $ --
Liabilities assumed from International
Lease Finance Corporation................ -- 38,735
Collections from lessees................... 17,709 15,837
Reimbursements to lessees.................. (11,872) (2,633)
Net accruals and transfers................. (889) 550
------- -------
Balance, end of period..................... $57,437 $52,489
======= =======
Note 8 -- Notes Payable
During Fiscal 1998, MSAF group acquired 32 aircraft and one spare engine
having an aggregate cost of $972 million. MSAF group financed these purchases
primarily through borrowings from MSF and from the net proceeds from MSAF
group's private placement of securitized notes as discussed below.
F-22
<PAGE>
On March 3, 1998, MSAF group completed an offering of $1,050 million of
securitized notes (the "notes") on a basis exempt from registration under the
Securities Act of 1933, as amended. Simultaneous with the private placement,
the loan provided by MSF was automatically converted into a beneficial interest
held by MSF. MSAF group primarily utilized the proceeds from the notes to pay a
beneficial interest distribution to MSF and to acquire an additional aircraft.
With the exception of MSAF group, the notes are not obligations of, or
guaranteed by, MSDW or any of its subsidiaries, including MSF.
Underwriting and other issuance related costs of $17.9 million which were
incurred in connection with the offering are being amortized over the expected
life of the notes, which is currently estimated to be 16 years.
The repayment terms of each subclass of Notes are such that certain
principal amounts are expected to be repaid based on certain assumptions (the
"Expected Final Payment Date") or refinanced through the issuance of new notes,
but in any event are ultimately due for repayment on specified final maturity
dates (the "Final Maturity Date"). The Expected Final Payment Dates, Final
Maturity Dates and interest rates applicable to each subclass of the notes are
listed below:
Initial
Principal Expected Final Final Maturity
Subclass Of Note Amount Interest Rate Payment Date Date
---------------- --------- ------------- -------------- --------------
(Dollars in
thousands)
Subclass A-1....... 400,000 LIBOR+0.21% March 15, 2000 March 15, 2023
Subclass A-2....... 340,000 LIBOR+0.35% Sept. 15, 2005 March 15, 2023
Subclass B-1....... 100,000 LIBOR+0.65% March 15, 2013 March 15, 2023
Subclass C-1....... 100,000 6.90% March 15, 2013 March 15, 2023
Subclass D-1....... 110,000 8.70% March 15, 2014 March 15, 2023
If the Subclass A-1 notes are not repaid on or before the Expected Final
Payment Date for such subclass, such subclass of notes will accrue interest
thereafter at a rate equal to the stated interest rate therefore, plus 0.50%
per annum ("Step-Up Interest").
MSAF group filed a registration statement with the Securities and Exchange
Commission (the "SEC") with respect to an exchange offer (the "Exchange Offer")
for exchange notes with terms virtually identical to the notes which was
declared effective on January 12, 1999. The Exchange Offer was consummated on
January 18, 1999. MSAF group paid an additional coupon of 0.50% on each of the
subclasses of debt during the period from November 30, 1998 to January 18,
1999, as required under the terms of the notes.
The dates on which principal repayments on the notes will actually occur
will depend on the cash flows generated by the rental income from MSAF group's
portfolio of aircraft. Amounts received by MSAF group and available for
distribution are paid in accordance with the priorities specified in the
Indenture relating to the notes.
Cash paid for interest on the notes amounted to $58.5 million for the year
ended November 30, 1999, as compared to $48.9 million for the year ended
November 30, 1998. The interest expense for Fiscal 1999 is not comparable to
Fiscal 1998 as the notes were not issued until March 3, 1998.
The estimated fair value of the notes was $903 million and $1,001 million
at November 30, 1999 and November 30, 1998, respectively.
F-23
<PAGE>
Note 9 -- Liquidity Facilities
MSAF group requires liquidity in order to finance many of its primary
business activities, including maintenance obligations, security deposit return
obligations, operating expenses and obligations under the Notes. MSAF group's
primary sources of liquidity are cash bank deposits and letters of credit.
MSAF group's cash account (the "Collection Account") is primarily funded
through the receipt of rental payments from lessees.
In connection with the issuance of the notes, MSAF group entered into two
credit agreements. Under a Custody and Loan Agreement (the "ILFC Facility")
between International Lease Finance Corporation ("ILFC") and MSAF group, ILFC
will hold substantially all of the cash security deposits paid by certain
lessees with respect to MSAF group's aircraft portfolio and will retain the
interest earnings on such security deposits. In addition, ILFC has agreed to
extend loans to MSAF group in a maximum amount of $10 million plus the
aggregate amount of cash security deposits held by ILFC. Under a Loan Agreement
(the "MSDW Facility") between MSDW and MSAF group, MSDW has agreed to extend
loans in a maximum amount of $10 million.
As of November 30, 1999, the aggregate amount available under the ILFC
Facility and the MSDW Facility was approximately $40.4 million.
Note 10 -- Derivative Financial Instruments
The leasing revenues of MSAF group are generated primarily from rental
payments. Rental payments are currently entirely fixed but may be either fixed
or floating with respect to leases entered into in the future. In general, an
interest rate exposure arises to the extent that MSAF group's fixed and
floating interest obligations in respect of the notes do not correlate to the
mix of fixed and floating rental payments for different rental periods. This
interest rate exposure can be managed through the use of interest rate swaps
and other derivative instruments. The Subclass A-1, A-2 and B-1 notes bear
floating rates of interest and the Subclass C-1 and D-1 notes bear fixed rates
of interest. MSAF group is a party to seven interest rate swaps with Morgan
Stanley Capital Services Inc. ("MSCS"), a wholly-owned subsidiary of MSDW. In
five of these swaps, MSAF group pays a fixed monthly coupon and receives one
month LIBOR on a total notional balance of $900 million and in two of these
swaps, MSAF group pays one month LIBOR and receives a fixed monthly coupon on a
total notional balance of $200 million. MSAF group was a party to one
additional interest rate swap with MSCS with a notional balance of $100 million
that matured on November 15, 1999. In this swap MSAF group paid a fixed monthly
coupon and received one month LIBOR.
All eight original swaps were originally entered into by MSCS, with an
internal swaps desk as the counterparty, on November 12, 1997 and February 19,
1998, respectively. On March 3, 1998, eight swaps were assigned to MSAF group
by MSCS. Although MSAF group's floating rate liability at March 3, 1998 was
$800 million (after the repayment of principal due to an undelivered aircraft),
the net economic effect of assigning all eight swaps to MSAF group with an
aggregate notional amount of $1.2 billion was to fix the interest rate
liability at the November 12, 1997 interest rate. MSAF group required this
certainty both in furtherance of its interest rate management policy not to be
adversely exposed to material movements in interest rates from November 12,
1997 (shortly after MSAF group entered into the Asset Purchase Agreement) and
by fixing the principal liabilities relating to the transaction, to facilitate
the structuring of the transaction.
On the date that the eight interest rate swaps were assigned from MSCS to
MSAF group, such swaps had an aggregate fair value of approximately $(15.3)
million. No consideration was paid to or received by MSAF group in connection
with the assumption of these swap positions. MSAF group has recorded the
assumption of these interest rate swaps at their fair value by recognizing a
liability within Other liabilities in its Consolidated Balance Sheets, with a
corresponding charge to Deemed Distribution, a component of Beneficial
Interestholder's Deficit.
F-24
<PAGE>
Three of the swaps assumed from MSCS having an aggregate notional
principal amount of $700 million are accounted for as hedges of its obligations
under the notes. Under these swap arrangements MSAF group will pay fixed and
receive floating amounts on a monthly basis. The fair value of the liability
assumed relating to those swaps which are being accounted for as hedges is
being deferred and recognized when the offsetting gain or loss is recognized on
the hedged transaction. This amount and the differential payable or receivable
on such interest rate swap contracts, to the extent such swaps are deemed to be
hedges, is recognized as an adjustment to interest expense. The portion of
these swaps not deemed to be an effective hedge is accounted for on a
mark-to-market basis with changes in fair value reflected in interest expense.
Gains and losses resulting from the termination of such interest rate swap
contracts prior to their stated maturity are deferred and recognized when the
offsetting gain or loss is recognized on the hedged transaction. The fair value
of these interest rate swaps at November 30, 1999 was $5.3 million.
The remaining four swaps assumed by MSAF group have an aggregate gross
notional principal amount of $400 million. Under these swap arrangements, MSAF
group will pay/receive fixed and receive/pay floating amounts on a monthly
basis. MSAF group determined that these swaps do not qualify for hedge
accounting. The fair value of the liability assumed related to these swaps is
accounted for on a mark-to-market basis with changes in fair value reflected in
interest expense. At November 30, 1999, the fair value of these swaps was
$(6.5) million.
The gross notional amounts of these swaps are indicative of MSAF group's
degree of use of such swaps but do not represent MSAF group's exposure to
credit or market risk. Credit risk arises from the failure of the counterparty
to perform according to the terms of the swap contract. MSAF group's exposure
to credit risk at any point in time is represented by the fair value of the
swap contracts reported as assets. MSAF group does not currently require
collateral to support swap contracts with credit risk. The credit risk of these
swap contracts is monitored by MSAF group's Trustees.
MSAF group does not utilize derivative financial instruments for trading
purposes.
Note 11 -- Related Party Transactions
Under service agreements with MSAF group, Cabot Aircraft Services Limited
and Morgan Stanley & Co. Incorporated, both subsidiaries of MSDW, act as
Administrative Agent and Financial Advisor, respectively. During Fiscal 1999,
Cabot Aircraft Services Limited received a fee of $1.6 million for providing
these services, which is calculated as a percentage of the operating lease
rentals received. Morgan Stanley & Co. Incorporated received advisory fees of
$0.05 million in this period.
Prior to the issuance of the notes, MSAF group received approximately $920
million of non-interest bearing financing from MSF which was utilized to
purchase 31 of the 32 aircraft and a spare engine in its aircraft portfolio. At
the time of the issuance of the notes, this loan was automatically converted
into a beneficial interest and a payment of approximately $976 million was made
in the form of a distribution on such beneficial interest, comprised the
following amounts (dollars in millions):
Non-interest bearing loans (subsequently
converted into beneficial interest).................................... $920
Distribution (comprising $21 million in
lease rentals accrued to the date of issuance of the notes
with the balance representing finance and other charges paid to MSF)... 56
----
Total Beneficial Interest Distribution................................... $976
====
MSAF group's counterparty to its interest rate swap agreements is MSCS, a
wholly owned subsidiary of MSDW.
F-25
<PAGE>
MSAF group's management is comprised of six trustees, including the
Delaware trustee, as MSAF group has no employees or executive officers. Three
of MSAF group's six trustees are employees of MSDW. The two remaining trustees
and the Delaware trustee are unaffiliated with MSDW.
Note 12 -- Commitments and Contingencies
MSAF group did not have any material contractual commitments for capital
expenditures at November 30, 1999.
In accordance with the terms of a servicing agreement (the "Servicing
Agreement"), ILFC (the "Servicer") is performing certain aircraft related
activities with respect to MSAF group's aircraft portfolio. Such activities
include marketing MSAF group's aircraft for lease or sale and monitoring lessee
compliance with lease terms including terms relating to payment, maintenance
and insurance. In accordance with the Servicing Agreement, fees payable to ILFC
by MSAF group are calculated as a percentage of the lease rentals contracted
and received, in addition to a base fee and certain incentive-based fees.
The Servicing Agreement expires in 2023, although each party has the right
to terminate the Servicing Agreement under certain circumstances.
Note 13 -- Quarterly Data (Unaudited)
<TABLE>
Fiscal 1999
-------------------------------------------------------------
Quarter ended Quarter ended Quarter ended Quarter ended
Feb. 28, 1999 May 31, 1999 Aug. 31, 1999 Nov. 30, 1999
------------- ------------ ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Lease income, net................................ $27,088 $32,045 $27,898 $27,620
Investment income on collection account.......... 431 450 463 501
------- ------- ------- -------
Total revenues.................................... 27,519 32,495 28,361 28,121
------- ------- ------- -------
Expenses:
Interest expense................................. 16,349 16,046 15,491 15,698
Depreciation expense............................. 11,765 11,765 11,765 11,765
Operating expenses:
Service provider and other fees................ 2,047 2,244 2,153 2,124
Maintenance and other aircraft related costs... 1,072 1,926 2,448 (230)
------- ------- ------- -------
Total expenses.................................... 31,233 31,981 31,857 29,357
------- ------- ------- -------
Net (loss)/income................................. $(3,714) $ 514 $(3,496) $(1,236)
======= ======= ======= =======
</TABLE>
During the fourth quarter ended November 30, 1999, maintenance and other
aircraft related costs included the reversal of certain provisions made in the
previous quarter relating to maintenance costs that were subsequently paid by
the lessee.
F-26
<PAGE>
<TABLE>
Fiscal 1998
-------------------------------------------------------------
Quarter ended Quarter ended Quarter ended Quarter ended
Feb. 28, 1998 May 31, 1998 Aug. 31, 1998 Nov. 30, 1998
------------- ------------ ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Lease income, net................................ $25,117 $32,688 $30,932 $31,268
Investment income on collection account.......... -- 961 724 471
------- ------- ------- -------
Total revenues.................................... 25,117 33,649 31,656 31,739
------- ------- ------- -------
Expenses:
Interest expense................................. -- 16,664 17,693 16,176
Depreciation expense............................. 3,823 11,523 11,765 11,765
Operating expenses:
Service provider and other fees................ 2,837 2,839 1,805 2,053
Maintenance and other aircraft related costs... 375 1,921 305 368
------- ------- ------- -------
Total expenses................................... 7,035 32,947 31,568 30,362
------- ------- ------- -------
Net income........................................ $18,082 $ 702 $ 88 $ 1,377
======= ======= ======= =======
</TABLE>
Note 14 -- Subsequent Events
Intended Securitization
On February 14, 2000, MSAF group filed a Form 8-K in which MSAF group
reported its intention to commence a securitization of 29 aircraft previously
purchased by affiliates of MSDW. MSAF group also reported its intention to
refinance its Subclass A-1 notes simultaneously with the securitization. Upon
consummation of the securitization, MSAF group will acquire the 29 aircraft.
Inspections of MD-80s
On February 11, 2000, following an accident involving a MD-83 aircraft,
the United States Federal Aviation Administration ("FAA") issued an
Airworthiness Directive ("AD") covering DC-9 (MD-83), MD-88, MD-90 and B717
aircraft. The AD required inspection of the stabilization equipment on these
aircraft types within three days. MSAF group owns one MD-82 and two MD-83
aircraft, representing 6.01% of the portfolio by appraised value at November
30, 1999. Under the leases of the affected aircraft, all costs of compliance
with the AD are the obligation of the lessees.
ILFC has confirmed that it believes that all of MSAF group's MD-82 and
MD-83 aircraft were inspected in accordance with instructions of this AD. The
terms of MSAF group's leases do not require the lessees to report to MSAF group
their actions to comply with ADs.
F-27
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
Feb 29, 2000 Nov 30, 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................... $ 39,391 $ 35,119
Receivables:
Lease income, net...................................................... 2,041 1,908
Investment income and other............................................ 183 161
Aircraft under operating leases, net......................................... 874,286 886,051
Investment in capital lease, net............................................. 17,382 18,300
Underwriting and other issuance related costs, net of amortization........... 15,655 15,935
---------- ----------
Total Assets................................................................. $ 948,938 $ 957,474
========== ==========
LIABILITIES AND BENEFICIAL INTERESTHOLDER'S DEFICIT
Payables:
Interest payable to Noteholders........................................ $2,397 $2,481
Deferred rental income....................................................... 5,650 5,318
Liability for maintenance.................................................... 64,935 57,437
Other liabilities............................................................ 11,033 11,376
Notes payable:
Subclass A-1........................................................... 400,000 400,000
Subclass A-2........................................................... 229,516 234,533
Subclass B-1........................................................... 90,044 91,023
Subclass C-1........................................................... 99,910 99,987
Subclass D-1........................................................... 110,000 110,000
---------- ----------
1,013,485 1,012,155
========== ==========
Commitments and contingencies
Beneficial Interestholder's Deficit:
Beneficial Interest.................................................... 1 1
Deemed Distribution.................................................... (15,305) (15,305)
Accumulated Deficit.................................................... (49,243) (39,377)
---------- ----------
Total Beneficial Interestholder's Deficit.............................. (64,547) (54,681)
---------- ----------
Total Liabilities and Beneficial Interestholder's Deficit.................... $ 948,938 $ 957,474
========== ==========
</TABLE>
See notes to Interim Condensed Consolidated Financial (Unaudited)
F-28
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
Three Months Three Months
Ended Ended
February 29, 2000 February 28, 1999
----------------- -----------------
(Unaudited)
Revenues:
Lease income, net........................ $25,716 $27,088
Investment income on collection account.. 539 431
------- -------
Total revenues........................... 26,255 27,519
------- -------
Expenses:
Interest expense......................... 15,245 16,349
Depreciation expense..................... 11,765 11,765
Operating expenses:
Service provider and other fees.......... 1,682 2,047
Maintenance and other aircraft related
costs.................................. 7,429 1,072
------- -------
Total expenses........................... 36,121 31,233
------- -------
Net loss.................................. $(9,866) $(3,714)
======= =======
See Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
F-29
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
Three Months Three Months
Ended Ended
February 29, 2000 February 28, 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $(9,866) $(3,714)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation expense -- aircraft under operating leases.......... 11,765 11,765
Amortization of underwriting and other issuance related costs.... 280 280
Provision for doubtful accounts.................................. 920 3,041
Changes in assets and liabilities:
Receivables:
Investment income and other................................. (22) 33
Lease income................................................ (377) (1,048)
Investment in capital lease................................... 242 606
Liability for maintenance..................................... 7,498 1,819
Interest payable to Noteholders............................... (84) (144)
Deferred rental income........................................ 332 (638)
Other liabilities............................................. (343) (1,279)
------- -------
Net cash provided by operating activities........................ 10,345 10,721
------- -------
Cash flows from financing activities:
Repayments of Notes............................................. (6,073) (10,149)
------- -------
Net cash used for financing activities........................... (6,073) (10,149)
------- -------
Net increase in cash and cash equivalents........................ 4,272 572
Cash and cash equivalents at beginning of period................. 35,119 34,850
------- -------
Cash and cash equivalents at end of period....................... $39,391 $35,422
======= =======
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
F-30
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
BENEFICIAL INTERESTHOLDER'S DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
Total
Beneficial
Beneficial Deemed Accumulated Interestholder's
Interest Distribution Deficit Deficit
---------- ------------ ----------- ----------------
(Unaudited)
<S> <C> <C> <C> <C>
Balance at November 30, 1998....... $ 1 $(15,305) $(31,445) $(46,749)
Net loss........................... -- -- (3,714) (3,714)
--- -------- -------- --------
Balance at February 28, 1999....... $ 1 $(15,305) $(35,159) $(50,463)
=== ======== ======== ========
Balance at November 30, 1999....... $ 1 $(15,305) $(39,377) $(54,681)
Net loss........................... $-- -- (9,866) (9,866)
--- -------- -------- --------
Balance at February 29, 2000....... $ 1 $(15,305) $(49,243) $(64,547)
=== ======== ======== ========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
F-31
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
Note 1 -- Basis of Presentation
Morgan Stanley Aircraft Finance ("MSAF") is a special purpose business
trust that was formed on October 30, 1997 under the laws of Delaware. MSAF and
its subsidiaries ("MSAF Group") were formed to conduct certain limited
activities, including acquiring, financing, re-financing, owning, leasing,
re-leasing, selling, maintaining and modifying commercial aircraft. At February
29, 2000, all of the beneficial interest of MSAF Group was owned by Morgan
Stanley Financing, Inc. ("MSF"), a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co. ("MSDW"). MSAF Group's obligations, including its financial
debt obligations, are not obligations of, or guaranteed by, MSDW, MSF or any
person other than MSAF Group.
The interim condensed consolidated financial statements are prepared in
accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the financial
statements and related disclosures. Management believes that the estimates
utilized in the preparation of the interim condensed consolidated financial
statements are prudent and reasonable. Actual results could differ materially
from these estimates.
All material intercompany transactions have been eliminated.
The interim condensed consolidated financial statements should be read in
conjunction with MSAF Group's consolidated financial statements and notes
thereto as of and for the fiscal year ended November 30, 1999 ("Fiscal 1999").
The interim condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for the fair statement of the results for the interim
period. The results of operations for interim periods are not necessarily
indicative of results for the entire year.
Certain reclassifications have been made to prior year amounts to conform
to the current presentation.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. As issued,
SFAS No. 133 was effective for fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133". SFAS No. 137 deferred the effective date of SFAS No. 133 for one year to
fiscal years beginning after June 15, 2000. MSAF Group is in the process of
evaluating the impact of adopting SFAS No. 133.
Note 2 -- Concentrations of Credit Risk
Credit risk with respect to operating lease receivables is generally
diversified due to the number of lessees comprising MSAF Group's customer base
and the different geographic areas in which they operate. At February 29, 2000
MSAF Group had leased aircraft to 27 lessees in 19 countries.
Certain of MSAF Group's lessees are in a relatively weak financial
position because of the difficult economic conditions in the civil aviation
industry as a whole and because, in general, weakly capitalized airlines are
more likely to seek operating leases. In addition, at February 29, 2000, 11 of
MSAF Group's aircraft were leased to lessees domiciled in certain emerging
market nations, including those located in Eastern Europe, the Middle East,
Latin America and Asia. The exposure of MSAF Group's aircraft to particular
countries and customers is managed partly through concentration limits and
partly through obtaining security from lessees by way of deposits.
F-32
<PAGE>
Note 3 -- Aircraft
Feb 29, 2000 Nov 30, 1999
------------ ------------
(Dollars in thousands)
Stage 3 Aircraft and one engine:
Cost................................................ $972,030 $972,030
Less: Accumulated depreciation...................... (97,744) (85,979)
-------- --------
$874,286 $886,051
======== ========
Aircraft cost includes $38.7 million of
maintenance liabilities that
MSAF Group assumed at the date of purchase
Fleet Analysis:
On lease for a further period of:
More than five years................................ 9 9
From one to five years.............................. 21 20
Less than one year.................................. 2 3
-------- --------
Total aircraft portfolio (including one engine)
on lease.......................................... 32 32
======== ========
At February 29, 2000 there were four non-revenue earning aircraft in MSAF
Group's portfolio. Three of these were subject to lease agreements and one was
subject to a non-binding letter of intent for lease. At November 30, 1999 there
was one non-revenue earning aircraft in MSAF Group's portfolio.
Note 4 -- Investment in Capital Lease
One of MSAF Group's aircraft has been leased to a customer under a
sales-type capital lease. The components of MSAF Group's investment in this
lease are as follows:
Feb 29, 2000 Nov 30, 1999
------------ ------------
(Dollars in thousands)
Minimum lease payments receivable..... $28,084 $28,733
Less: Allowance for doubtful accounts. (676) --
------- -------
Net minimum lease payments receivable. 27,408 28,733
Less: Unearned income................. (10,026) (10,433)
------- -------
Net investment in capital lease....... $17,382 $18,300
======= =======
At February 29, 2000, minimum lease payments for each of the five
succeeding fiscal years were $3.7 million.
Unearned income is recognized over the term of the lease using the
interest method.
The provision for doubtful accounts related to this lease of $0.7 million
for the three months ended February 29, 2000 is recorded as a reduction of
lease income revenues in the Interim Condensed Consolidated Statements of
Operations.
The lessee associated with this capital lease has been experiencing severe
financial difficulties and has been adversely affected by economic uncertainty
in Latin America and the devaluation of the Brazilian currency in January
F-33
<PAGE>
1999. As a result, in August 1999 MSAF Group and the lessee agreed to modify
the terms of the existing capital lease by increasing the total rental payments
to be received and by extending the lease term. The balances of the net minimum
lease payments receivable and unearned income have been adjusted to reflect the
amended terms of the capital lease.
Since February 29, 2000, International Lease Finance Corporation ("ILFC"),
the servicer of MSAF Group's aircraft portfolio, has advised MSAF Group that it
is in the process of repossessing this aircraft.
Note 5 -- Lease Income Receivable
Lease income receivable was as follows:
Feb 29, 2000 Nov 30, 1999
------------ ------------
(Dollars in thousands)
Lease income receivable................. $2,648 $2,271
Less: Allowance for doubtful accounts... (607) (363)
------ ------
Lease income receivable, net............ $2,041 $1,908
====== ======
The provision for doubtful accounts of $0.2 million for the three months
ended February 29, 2000 is recorded as a reduction of lease income revenues in
the Interim Condensed Consolidated Statements of Operations.
Activity in the allowance for doubtful accounts was as follows:
Three Months Ended Three Months Ended
Feb 29, 2000 Feb 28, 1999
------------------ ------------------
(Dollars in thousands)
Balance, beginning of period.... $363 $ 553
Provision for doubtful accounts. 244 1,647
---- ------
Balance, end of period.......... $607 $2,200
==== ======
Note 6 -- Liability for Maintenance
Activity in the liability for maintenance account was as follows:
Three Months Ended
Feb 29, 2000 Fiscal 1999
------------ -----------
(Dollars in thousands)
Balance, beginning of period.... $57,437 $52,489
Collections from lessees........ 2,689 17,709
Reimbursements to lessees....... (1,767) (11,872)
Net accruals and transfers...... 6,576 (889)
------- -------
Balance, end of period.......... $64,935 $57,437
======= =======
Note 7 -- Notes Payable
On March 3, 1998, MSAF Group completed an offering of $1,050 million of
securitized notes (the "Notes") on a basis exempt from registration under the
Securities Act of 1933, as amended. During fiscal 1999, MSAF Group filed a
registration statement with the Securities and Exchange Commission (the "SEC")
with respect to an exchange offer
F-34
<PAGE>
for exchange Notes with terms virtually identical to the Notes which was
declared effective on January 12, 1999. The exchange offer was consummated on
January 18, 1999. With the exception of MSAF Group, the Notes are not
obligations of, or guaranteed by, MSDW or any of its subsidiaries, including
MSF.
Underwriting and other issuance related costs of $17.9 million which were
incurred in connection with the offering are being amortized over the expected
life of the Notes.
The repayment terms of each subclass of Notes are such that certain
principal amounts are expected to be repaid based on certain assumptions (the
"Expected Final Payment Date") or refinanced through the issuance of new Notes,
but in any event are ultimately due for repayment on specified final maturity
dates (the "Final Maturity Date"). The Expected Final Payment Dates, Final
Maturity Dates and interest rates applicable to each subclass of the Notes are
listed below:
<TABLE>
Initial
Principal Expected Final Final Maturity
Subclass Of Note Amount Interest Rate Payment Date Date
---------------- --------- ------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C> <C>
Subclass A-1....... $400,000 LIBOR+0.21% March 15, 2000 March 15, 2023
Subclass A-2....... 340,000 LIBOR+0.35% September 15, 2005 March 15, 2023
Subclass B-1....... 100,000 LIBOR+0.65% March 15, 2013 March 15, 2023
Subclass C-1....... 100,000 6.90% March 15, 2013 March 15, 2023
Subclass D-1....... 110,000 8.70% March 15, 2014 March 15, 2023
</TABLE>
The dates on which principal repayments on the Notes will actually occur
will depend on the cash flows generated by the rental income from MSAF Group's
portfolio of aircraft. Amounts received by MSAF Group are available for
distribution and are paid in accordance with the priorities specified in the
Indenture relating to the Notes.
Cash paid for interest on the Notes amounted to $15.5 million for both the
three month periods ended February 29, 2000 and February 28, 1999.
The estimated fair value of the Notes outstanding was $897.6 million and
$902.9 million at February 29, 2000 and November 30, 1999, respectively.
Note 8 -- Liquidity Facilities
MSAF Group requires liquidity in order to finance many of its primary
business activities, including maintenance obligations, security deposit return
obligations, operating expenses and obligations under the Notes. MSAF Group's
primary sources of liquidity are cash bank deposits and letters of credit.
MSAF Group's cash account (the "Collection Account") is primarily funded
through the receipt of rental payments from lessees.
In connection with the issuance of the Notes, the Company entered into two
credit agreements. Under a Custody and Loan Agreement (the "ILFC Facility")
between ILFC and MSAF Group, ILFC will hold substantially all of the cash
security deposits paid by certain lessees with respect to MSAF Group's aircraft
portfolio and will retain the interest earnings on such security deposits. In
addition, ILFC has agreed to extend loans to MSAF Group in a maximum amount of
$10 million plus the aggregate amount of cash security deposits held by ILFC.
Under a Loan Agreement (the "MSDW Facility") between MSDW and MSAF Group, MSDW
has agreed to extend loans in a maximum amount of $10 million.
F-35
<PAGE>
As of February 29, 2000, the aggregate amount available under the ILFC
Facility and the MSDW Facility was approximately $39.6 million.
Note 9 -- Derivative Financial Instruments
The leasing revenues of MSAF Group are generated primarily from rental
payments. Rental payments are currently entirely fixed but may be either fixed
or floating with respect to leases entered into in the future. In general, an
interest rate exposure arises to the extent that MSAF Group's fixed and
floating interest obligations in respect of the Notes do not correlate to the
mix of fixed and floating rental payments for different rental periods. This
interest rate exposure can be managed through the use of interest rate swaps
and other derivative instruments. The Subclass A-1, A-2 and B-1 Notes bear
floating rates of interest and the Subclass C-1 and D-1 Notes bear fixed rates
of interest. MSAF Group is a party to seven interest rate swaps with Morgan
Stanley Capital Services Inc. ("MSCS"), a wholly-owned subsidiary of MSDW. In
five of these swaps, MSAF Group pays a fixed monthly coupon and receives one
month LIBOR on a total notional balance of $900 million and in two of these
swaps, MSAF Group pays one month LIBOR and receives a fixed monthly coupon on a
total notional balance of $200 million.
Three of the swaps, having an aggregate notional principal amount of $700
million, are accounted for as hedges of the Notes. Under these swap
arrangements, MSAF Group pays fixed and receives floating amounts on a monthly
basis. The fair value of the liability assumed relating to those swaps which
are being accounted for as hedges is being deferred and recognized when the
offsetting gain or loss is recognized on the hedged transaction. This amount
and the differential payable or receivable on such interest rate swap
contracts, to the extent such swaps are deemed to be hedges, is recognized as
an adjustment to interest expense. Gains and losses resulting from the
termination of such interest rate swap contracts prior to their stated maturity
are deferred and recognized when the offsetting gain or loss is recognized on
the hedged transaction. The fair value of these interest rate swaps at February
29, 2000 was $12.0 million.
The remaining four swaps have an aggregate gross notional principal amount
of $400 million. Under these swap arrangements, MSAF Group pays/receives fixed
and receives/pays floating amounts on a monthly basis. MSAF Group determined
that these swaps do not qualify for hedge accounting. The fair value of the
liability assumed related to these swaps is accounted for on a mark-to-market
basis with changes in fair value reflected in interest expense. At February 29,
2000, the fair value of these swaps was $(6.3) million.
The gross notional amounts of these swaps are indicative of MSAF Group's
degree of use of such swaps but do not represent MSAF Group's exposure to
credit or market risk. Credit risk arises from the failure of the counterparty
to perform according to the terms of the swap contract. MSAF Group's exposure
to credit risk at any point in time is represented by the fair value of the
swap contracts reported as assets. MSAF Group does not currently require
collateral to support swap contracts with credit risk. The credit risk of these
swap contracts is monitored by MSAF Group's Trustees.
MSAF Group does not utilize derivative financial instruments for trading
purposes.
Note 10 -- Related Party Transactions
Under service agreements with MSAF Group, Cabot Aircraft Services Limited
and Morgan Stanley & Co. Incorporated, both subsidiaries of MSDW, act as
Administrative Agent and Financial Advisor, respectively. During the three
month period ended February 29, 2000, Cabot Aircraft Services Limited received
a fee of $0.4 million for providing these services, which is calculated as a
percentage of the operating lease rentals received. Morgan Stanley & Co.
Incorporated received advisory fees of $0.01 million in this period.
MSAF Group's counterparty to its interest rate swap agreements is MSCS, a
wholly-owned subsidiary of MSDW.
F-36
<PAGE>
At February 29, 2000, MSAF Group's management was comprised of six
trustees, including the Delaware trustee, as MSAF Group has no employees or
executive officers. Three of MSAF Group's six trustees were employees of MSDW.
The two remaining trustees and the Delaware trustee were unaffiliated with
MSDW.
Note 11 -- Commitments
MSAF Group did not have any material contractual commitments for capital
expenditures at February 29, 2000.
In accordance with the terms of a servicing agreement (the "Servicing
Agreement"), ILFC (the "Servicer") is performing certain aircraft related
activities with respect to MSAF Group's aircraft portfolio. Such activities
include marketing MSAF Group's aircraft for lease or sale and monitoring lessee
compliance with lease terms including terms relating to payment, maintenance
and insurance. In accordance with the Servicing Agreement, fees payable to ILFC
by MSAF Group are calculated as a percentage of the lease rentals contracted
and received, in addition to a base fee and certain incentive-based fees.
The Servicing Agreement expires in 2023, although each party has the right
to terminate the Servicing Agreement under certain circumstances.
Note 12 -- Subsequent Events
Aircraft Purchases and Securitized Note Issuance
On March 15, 2000, MSAF Group acquired a portfolio of 29 commercial
aircraft having an aggregate cost of approximately $1,025.3 million from a
subsidiary of MSDW. All but one of the 29 aircraft were delivered on March 15,
2000. The remaining aircraft, a B737-300 on lease to Lithuanian Airlines, is
subject to a financing that will terminate before April 30, 2000 and is
scheduled to deliver to MSAF Group at this time. These purchases were financed
by the net proceeds from MSAF Group's placement of securitized notes as
discussed below and by a capital contribution from MSF.
On March 15, 2000, MSAF Group completed an offering of $1,310 million of
securitized notes (the "New Notes") on a basis exempt from registration under
the Securities Act of 1933, as amended. MSAF Group used the net proceeds from
the New Notes to finance in part the purchase of the 29 aircraft from a
subsidiary of MSDW and to redeem all $400 million of its Subclass A-1 Notes.
The New Notes will rank equally in right of payment of principal and interest
with the corresponding subclasses of MSAF Group's existing Notes.
F-37
<PAGE>
The initial principal amount, interest rate, Expected Final Payment Dates
and Final Maturity Dates applicable to each subclass of the New Notes are
listed below.
<TABLE>
Initial
Principal Amount Expected Final Final
Subclass of Note (In Thousands) Interest Rate Payment Date Maturity Date
---------------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Subclass A-3....... $580,000 LIBOR+0.52% March 15, 2002 March 15, 2025
Subclass A-4....... 200,000 LIBOR+0.54% March 15, 2003 March 15, 2025
Subclass A-5....... 400,000 LIBOR+0.58% March 15, 2008 March 15, 2025
Subclass B-2....... 75,000 LIBOR+1.05% March 15, 2007 March 15, 2025
Subclass C-2....... 55,000 9.60% October 15, 2016 March 15, 2025
</TABLE>
If the Subclass A-3, A-4 or B-2 notes are not repaid on or before their
respective Expected Final Payment Dates, MSAF Group will pay additional
interest of 1.00% per annum on the Subclass A-3 and A-4 notes and 1.50% per
annum on the Subclass B-2 notes, until such notes are repaid in full.
MSAF Group is obligated to use its best efforts to consummate an exchange
offer (the "Exchange Offer") pursuant to which the New Notes would be exchanged
for substantially similar securities issued pursuant to an effective
registration statement under the Securities Act of 1933. If the Exchange Offer
is not consummated or a registration statement is not declared effective on or
prior to December 10, 2000, thereafter an additional incremental interest
amount will accrue on each subclass of the New Notes, at an annual rate of
0.50%. Such additional incremental interest will be payable until the date that
the Exchange Offer is consummated or until such time as MSAF Group causes a
shelf registration statement with respect to resales of the New Notes to become
effective.
In connection with the offering of the New Notes, on March 15, 2000, MSF
transferred the beneficial interest of MSAF Group to MSDW Aircraft Holdings, a
wholly-owned subsidiary of MSF, and the number of trustees of MSAF Group was
increased to seven, with the appointment of a fourth MSDW employee as the
additional trustee.
F-38
<PAGE>
APPENDIX 1
INDEX OF DEFINED TERMS
Page
----
Adjusted Portfolio Value....................................................96
ADs.........................................................................61
aircraft operating expenses.................................................32
aircraft-owning subsidiaries................................................63
Assumed Portfolio Value.....................................................96
Average Life Date..........................................................102
Base Case....................................................................2
covenant defeasance........................................................104
DCR..........................................................................8
definitive Notes...........................................................139
Debt Service Coverage Ratio..................................................3
DTC........................................................................137
eligible credit facilities..................................................87
eligible provider...........................................................87
Euroclear..................................................................138
Excess Amortization Date...................................................100
Expected Principal Amortization Period.......................................3
Extended Pool Factor........................................................99
Extension Amount............................................................99
first collection account top-up.............................................88
First Year's Interest........................................................3
First Year's Interest and Minimum and
Scheduled Principal........................................................3
First Year's Net Revenue.....................................................3
Global Note................................................................137
H.15(519)..................................................................102
ILFC8........................................................................9
ILFC Conflicts Standards....................................................68
ILFC Services Standards.....................................................67
initial appraised value.....................................................96
Initial Loan.................................................................3
Initial Loan to Value........................................................3
Interest Coverage Ratio......................................................3
Interest earned.............................................................31
lease rentals...............................................................31
leasing subsidiaries........................................................63
legal defeasance...........................................................104
liquidity reserve amount....................................................87
minimum liquidity reserve amount............................................87
Minimum Principal Payment Amount............................................97
Minimum Target Principal Balance............................................97
modification payments.......................................................88
Moody's......................................................................8
most recent H.15(519)......................................................102
MSAF.........................................................................1
MSAF group..................................................................63
MSDW.........................................................................1
net maintenance.............................................................31
net stress-related costs....................................................31
Notes........................................................................1
permitted account investments...............................................71
permitted accruals..........................................................88
plans......................................................................144
Pool Factor.................................................................99
Pool Factor Amount..........................................................99
primary eligible credit facility............................................88
PTCE.......................................................................144
recession...................................................................38
redemption price...........................................................100
remaining allocation........................................................99
remaining principal balance.................................................99
Remaining Weighted Average Life............................................102
RPMs........................................................................58
Scheduled Principal Payment Amount..........................................97
Scheduled Target Principal Balance..........................................98
second collection account top-up............................................88
secondary eligible credit facility..........................................88
SG&A.........................................................................6
significant subsidiary.....................................................122
Standard & Poors.............................................................8
Supplemental Principal Payment Amount.......................................98
Supplemental Target Principal Balance.......................................98
terms and conditions.......................................................138
U.S. GAAP..................................................................111
wet lease...................................................................60
I-1
<PAGE>
MORGAN STANLEY AIRCRAFT FINANCE
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
TRUSTEE, SECURITY TRUSTEE, PAYING AGENT
CASH MANAGER AND REFERENCE AGENT AND REGISTRAR
Bankers Trust Company Bankers Trust Company
Four Albany Street Four Albany Street
Mail Stop 5091 Mail Stop 5091
New York, New York 10006 New York, New York 10006
USA USA
ADMINISTRATIVE AGENT SERVICER
Cabot Aircraft Services Limited International Lease Finance Corporation
Regus House 1999 Avenue of the Stars
Harcourt Centre Los Angeles, California 90067
Harcourt Road USA
Dublin 2
Ireland
FINANCIAL ADVISOR LUXEMBOURG PAYING AGENT,
TRANSFER AGENT AND CO-REGISTRAR
Morgan Stanley & Co. Incorporated
1585 Broadway Banque Internationale a Luxembourg, S.A.
New York, New York 10036 69, route d'Esch
USA L-1470 Luxembourg
LEGAL ADVISORS
To MSAF Group as to To MSAF Group as To the Initial Purchaser
United States law special Delaware counsel as to United States law
Davis Polk & Wardwell Richards, Layton & Finger, P.A. Shearman & Sterling
99 Gresham Street One Rodney Square 9 Appold Street
London EC2V 7NG P. O. Box 551 London EC2A 2AP
England Wilmington, Delaware 19899 England
USA
LISTING AGENT
Banque Internationale a Luxembourg, S.A.
69, route d'Esch
L-1470 Luxembourg
<PAGE>
PROSPECTUS ALTERNATE
$2,360,000,000
Aggregate Initial Principal Amount
Morgan Stanley Aircraft Finance
NOTES
Interest on the notes is payable monthly in arrears on the 15(th) day of
each month.
The subclass A-2 notes bear interest at a rate of LIBOR +0.35%, have an
expected final payment date of September 15, 2005 and a final maturity
date of March 15, 2023.
The subclass A-3 notes bear interest at a rate of LIBOR + 0.52%, have an
expected final payment date of March 15, 2002 and a final maturity date of
March 15, 2025.
The subclass A-4 notes bear interest at a rate of LIBOR + 0.54%, have an
expected final payment date of March 15, 2003 and a final maturity date of
March 15, 2025.
The subclass A-5 notes bear interest at a rate of LIBOR + 0.58%, have an
expected final payment date of June 15, 2008 and a final maturity date of
March 15, 2025.
The subclass B-1 notes bear interest at a rate of LIBOR + 0.65%, have an
expected final payment date of March 15, 2013 and a final maturity date of
March 15, 2023.
The subclass B-2 notes bear interest at a rate of LIBOR + 1.05%, have an
expected final payment date of March 15, 2007 and a final maturity date of
March 15, 2025.
The subclass C-1 notes bear interest at a rate of 6.90%, have an expected
final payment date of March 15, 2013 and a final maturity date of March
15, 2023.
The subclass C-2 notes bear interest at a rate of 9.60%, have an expected
final payment date of October 15, 2016 and a final maturity date of March
15, 2025.
The subclass D-1 notes bear interest at a rate of 8.70%, have an expected
final payment date of March 15, 2014 and a final maturity date of March
15, 2023.
---------
The only source of payment for the notes and other obligations of MSAF group
will be the payments made by the lessees under the leases, proceeds from
dispositions, if any, of the assets of MSAF group, net payments, if any, under
the swap agreements, drawings under available credit or liquidity enhancement
facilities and net cash proceeds received from the sale of refinancing notes.
Payments on the notes will be subordinated to certain other obligations of
MSAF group as further described herein.
MSAF group may from time to time directly or indirectly acquire additional
aircraft and related leases, subject to certain conditions. Such acquisitions
will only be funded through external financing, principally additional notes,
and not through available collections. See "Risk Factors - Risks relating to
Additional Aircraft".
---------
All of the beneficial interest in MSAF is indirectly owned by Morgan Stanley
Dean Witter but the notes are not obligations of, or guaranteed by, Morgan
Stanley Dean Witter or any person other than the MSAF group, the notes
are not obligations of, or guaranteed by, Bankers Trust Company,
as trustee security trustee or cash manager, or International
Lease Finance Corporation, as servicer, or any of their
affiliates.
Investing in the notes involves risks. See "Risk Factors" beginning on page 13
hereof for a discussion of certain factors that should be considered by
prospective investors.
---------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
---------
This prospectus is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales of the notes in market-making
transactions at negotiated prices related to prevailing market
prices at the time of sale. Morgan Stanley & Co. Incorporated
may act as principal or agent in such transactions.
June , 2000
<PAGE>
ALTERNATE
TABLE OF CONTENTS
Page
----
Summary......................................................................1
Overview.....................................................................9
Risk Factors................................................................13
Market-Making Activities of Morgan Stanley & Co. Incorporated...............25
MSAF's Performance Assumptions..............................................26
The Portfolio...............................................................42
Appraisals..................................................................42
Portfolio Information.......................................................44
MSAF Group Portfolio Analysis...............................................49
Acquisition of Additional Aircraft..........................................52
The Leases..................................................................52
The Commercial Aircraft Industry............................................54
Operating Leases............................................................56
MSAF Group..................................................................59
Management of MSAF Group....................................................60
Selected Consolidated Financial Information.................................70
Unaudited Pro Forma Consolidated Financial Information......................69
Management's Discussion and Analysis of Financial Condition and Results
of Operations..............................................................73
Description of the Notes....................................................88
General.....................................................................88
Payments and Distributions..................................................89
Payment of Principal and Interest...........................................89
Indenture Covenants........................................................103
Operating Covenants........................................................114
Events of Default and Remedies.............................................118
Intercreditor Rights.......................................................120
Modification and Waiver....................................................120
Notices to Noteholders.....................................................121
Governing Law and Jurisdiction.............................................122
Beneficial Interest........................................................122
The Accounts...............................................................122
Reports to Noteholders.....................................................125
Book-Entry Registration, Global Clearance and Settlement...................132
Taxation...................................................................136
ERISA Considerations.......................................................139
Plan of Distribution.......................................................140
Legal Matters..............................................................141
Listing and General Information............................................141
Experts....................................................................141
Appendix 1. MSAF Cash Flow Performance for the Period from March 15, 2000
to April 15, 2000......................................................A-1-1
Appendix 2. Extract from Cash Analysis of Financial Condition and
Results of Operations for the Twelve Month Period from December 1,
1998 to November 30, 1999..............................................A-2-1
Appendix 3. Extract from Cash Analysis of Financial Condition and
Results of Operations for the Three Month Period from December 1,
1999 to February 29, 1999..............................................A-3-1
Appendix 4. Monthly Lease Rentals the Base Case..........................A-4-1
Appendix 5. Assumed Portfolio Values.....................................A-5-1
Appendix 6. Class A Class Percentages....................................A-6-1
Appendix 7. Class B Class Percentages....................................A-7-1
Appendix 8. Class C Target Principal Balances............................A-8-1
Appendix 9. Class D Target Principal Balances............................A-9-1
Appendix 10. Pool Factors...............................................A-10-1
Appendix 11. Extended Pool Factors......................................A-11-1
Index to Consolidated Financial Statements.................................F-1
Index of Defined Terms.....................................................I-1
Exhibit A: (CD-ROM)..........................................Inside Back Cover
I-1
<PAGE>
ALTERNATE
CERTAIN RISK FACTORS
Trading Market for the Notes
Morgan Stanley & Co. Incorporated currently makes a market in the notes.
However, it is not obligated to do so, and any such market making may be
discontinued at any time without notice, in its sole discretion. Therefore, no
assurance can be given as to the liquidity of, or the trading market for, the
notes.
MARKET-MAKING ACTIVITIES OF MORGAN STANLEY & CO. INCORPORATED
This prospectus is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales of the notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale.
Morgan Stanley & Co. Incorporated may act as principal or agent in such
transactions. Morgan Stanley & Co. Incorporated has no obligation to make a
market in the notes and may discontinue its market-making activities at any
time without notice, in its sole discretion.
Morgan Stanley & Co. Incorporated is a wholly-owned subsidiary of MSDW,
which indirectly holds 100% of the beneficial interest in MSAF. The controlling
trustees of MSAF are officers of an affiliate of MSDW.
Morgan Stanley & Co. Incorporated acted as representative of the initial
purchasers in connection with the original offering of the notes. The
subscription discounts and commissions received on each subclass of the notes
were as follows:
Subscription
Discounts
Subclass of Notes and Commissions
----------------- ---------------
Subclass A-2 Notes................... 0.60%
Subclass A-3 Notes................... 0.30%
Subclass A-4 Notes................... 0.40%
Subclass A-5 Notes................... 0.50%
Subclass B-1 Notes................... 0.85%
Subclass B-2 Notes................... 0.75%
Subclass C-1 Notes................... 1.50%
Subclass C-2 Notes................... 1.50%
Subclass D-1 Notes................... 2.50%
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Fourth Amended and Restated Trust Agreement (the "Trust Agreement") of
Morgan Stanley Aircraft Finance ("MSAF") dated as of March 15, 2000 provides
that MSAF will indemnify, to the fullest extent permitted by Delaware law, each
trustee (and the officers, directors, employees, heirs, executors or
administrators of such trustee) who was or is a party or is threatened to be
made a party to, or is involved in any threatened, pending or completed action
or suit by or in the right of MSAF to procure a judgment in its favor by reason
of the fact that such person is or was a trustee of MSAF or is or was serving
at the request of MSAF as a trustee, director or officer of another trust,
corporation, partnership, joint venture or other enterprise. MSAF also agreed
to indemnify, to the fullest extent permitted by Delaware law, each trustee of
MSAF from any and all losses, liabilities or expenses that may be imposed on,
incurred by or asserted against any of them arising out of, in connection with
or related to their performance under the Trust Agreement.
Item 21. Exhibits
(a) Exhibits
The following is a list of exhibits to this Registration Statement:
3.1 Certificate of Trust of MSAF*
3.2 Fourth Amended and Restated Trust Agreement of MSAF dated as of
March 15, 2000**
4.1 Indenture dated as of March 3, 1998 by and among MSAF and Bankers
Trust Company, as Trustee with respect to the notes*
4.2 Indenture Supplement No.1 dated as of March 15, 2000 among MSAF and
Bankers Trust Company**
4.3 Form of Global Note (included in Exhibit 4.1)
4.4 Registration Rights Agreement dated March 15, 2000 by and between
MSAF and Morgan Stanley & Co. International Limited**
5.1 Opinion of Davis Polk & Wardwell as to the legality of the securities
being registered hereby**
8.1 Opinion of Davis Polk & Wardwell as to certain U.S. Federal income
tax matters (included in Exhibit 5.1)
10.1 Amended and Restated Administrative Agency Agreement among MSAF,
MSA I, MSA II, MSA III, MSA IV, MSA V, MSA VI, MSA VII, Redfly,
Greenfly, SPC-5, the Security Trustee and the Administrative Agent,
dated as of March 15, 2000**
10.2 Cash Management Agreement dated as of March 3, 1998 among MSAF,
Bankers Trust Company, as Security Trustee and as Cash Manager and
each subsidiary of MSAF*
10.3 Accession Agreement to Cash Management Agreement among the Cash
Manager, the Security Trustee, MSA II, MSA III, MSAIV, MSA V, MSA VI,
MSA VII, and ILFC, dated as of March 15, 2000**
10.4 Financial Advisory Agreement dated as of March 3, 1998 between MSAF
and Morgan Stanley & Co. Incorporated, as Financial Adviser*
10.5 Amended and Restated Custody and Loan Agreement dated as of
March 15, 2000 among MSAF, International Lease Finance Corporation
and each subsidiary of MSAF**
10.6 Amended and Restated Loan Agreement dated as of March 15, 2000
between MSAF and Morgan Stanley, Dean Witter, Discover & Co.**
10.7 Security Trust Agreement dated as of March 3, 1998 among MSAF,
Bankers Trust Company, as Security Trustee, as Cash Manager and
as Trustee, Cabot Aircraft Services Limited, as Administrative
Agent and each subsidiary of MSAF*
10.8 Security Trust Agreement Supplement for MSA II dated as of
March 15, 2000**
10.9 Security Trust Agreement Supplement for MSA III dated as of
March 15, 2000**
10.10 Security Trust Agreement Supplement for MSA IV dated as of
March 15, 2000**
10.11 Security Trust Agreement Supplement for MSA V dated as of
March 15, 2000**
10.12 Security Trust Agreement Supplement for MSA VI dated as of
March 15, 2000**
10.13 Security Trust Agreement Supplement for MSA VII dated as of
March 15, 2000**
10.14 Reference Agency Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Reference Agent and as Trustee
and Cabot Aircraft Services Limited, as Administrative Agent*
10.15 Second Amended and Restated Servicing Agreement dated as of March 15,
2000 among MSAF, International Lease Finance Corporation, Cabot
Aircraft Services Limited, as Administrative Agent and each
subsidiary of MSAF**
10.16 Asset Purchase Agreement dated as of November 10, 1997 between
MSAF and International Lease Finance Corporation*
10.17 Asset Purchase Agreement dated as of March 19, 1999 between MSA II
and GE Capital Mietfinanz GmBH & Co. KG**
10.18 Asset Purchase Agreement dated as of August 6, 1999 among MSA IV,
MSA V and ILFC**
10.19 Purchase Agreement dated as of March 15, 2000 between MSAF and
MS Financing Inc.**
21.1 Subsidiaries of MSAF**
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Aircraft Information Services, Inc.**
23.3 Consent of BK Associates, Inc.**
23.4 Consent of Airclaims Limited**
23.5 Consent of Aircraft Value Analysis Company**
23.6 Consent of Morten Beyer and Agnew**
23.7 Consent of Deloitte & Touche LLP**
23.8 Consent of PricewaterhouseCoopers LLP**
24.1 Trustees' Power of Attorney (included in signature pages)
25.1 Statement of Eligibility of Bankers Trust Company, as Trustee,
under the Indenture to be qualified under the Trust Indenture Act
of 1939**
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27.1
to Quarterly Report on Form 10-Q for the quarter ended February 29,
2000)*
99.1 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft**
99.2 Appraisal of BK Associates, Inc. relating to the Aircraft**
99.3 Appraisal of Airclaims Limited relating to the Aircraft**
99.4 Appraisal of Aircraft Value Analysis Company**
99.5 Appraisal of Morten Beyer & Agnew**
---------
* Previously filed
** Filed herewith
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement throughout the
date responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each of the registrant's
annual reports pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of any employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-2
<PAGE>
(e) The undersigned registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant, Morgan
Stanley Aircraft Finance, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York, on May 30, 2000.
Morgan Stanley Aircraft Finance
By: /s/ C. Scott Peterson
------------------------------------
Signatory Trustee
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Karl Essig, Alexander C. Frank, A. Maurice Mason
and C. Scott Peterson his true and lawful attorneys-in-fact and agent, each
acting alone, with full powers of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, including post-effective amendments,
as well as any related registration statement (or amendment thereto) and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, and hereby ratifies and confirms all his said attorneys-in-fact and
agents or any of them or his substitute or substitutes may lawfully do or cause
to be done by virtue thereof.
The Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
following capacities on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Karl Essig Controlling Trustee
-----------------------
Karl Essig
/s/ Alexander Frank Controlling Trustee
-----------------------
Alexander C. Frank
/s/ A. Maurice Mason Controlling Trustee
-----------------------
A. Maurice Mason
/s/ C. Scott Peterson Controlling Trustee
-----------------------
C. Scott Peterson
/s/ Juan C. O'Callahan Independent Trustee
-----------------------
Juan C. O'Callahan
/s/ Alexander C. Bancroft Independent Trustee
-----------------------
Alexander C. Bancroft
Wilmington Trust Company Delaware Trustee
By:.............................
Title:..........................
II-4
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Trust of MSAF*
3.2 Fourth Amended and Restated Trust Agreement of MSAF dated as of
March 15, 2000**
4.1 Indenture dated as of March 3, 1998 by and among MSAF and Bankers
Trust Company, as Trustee with respect to the notes*
4.2 Indenture Supplement No.1 dated as of March 15, 2000 among MSAF and
Bankers Trust Company**
4.3 Form of Global Note (included in Exhibit 4.1)
4.4 Registration Rights Agreement dated March 15, 2000 by and between
MSAF and Morgan Stanley & Co. International Limited**
5.1 Opinion of Davis Polk & Wardwell as to the legality of the securities
being registered hereby**
8.1 Opinion of Davis Polk & Wardwell as to certain U.S. Federal income
tax matters (included in Exhibit 5.1)
10.1 Amended and Restated Administrative Agency Agreement among MSAF,
MSA I, MSA II, MSA III, MSA IV, MSA V, MSA VI, MSA VII, Redfly,
Greenfly, SPC-5, the Security Trustee and the Administrative Agent,
dated as of March 15, 2000**
10.2 Cash Management Agreement dated as of March 3, 1998 among MSAF,
Bankers Trust Company, as Security Trustee and as Cash Manager and
each subsidiary of MSAF*
10.3 Accession Agreement to Cash Management Agreement among the Cash
Manager, the Security Trustee, MSA II, MSA III, MSAIV, MSA V, MSA VI,
MSA VII, and ILFC, dated as of March 15, 2000**
10.4 Financial Advisory Agreement dated as of March 3, 1998 between MSAF
and Morgan Stanley & Co. Incorporated, as Financial Adviser*
10.5 Amended and Restated Custody and Loan Agreement dated as of March 15,
2000 among MSAF, International Lease Finance Corporation and each
subsidiary of MSAF**
10.6 Amended and Restated Loan Agreement dated as of March 15, 2000 between
MSAF and Morgan Stanley, Dean Witter, Discover & Co.**
10.7 Security Trust Agreement dated as of March 3, 1998 among MSAF, Bankers
Trust Company, as Security Trustee, as Cash Manager and as Trustee,
Cabot Aircraft Services Limited, as Administrative Agent and each
subsidiary of MSAF*
10.8 Security Trust Agreement Supplement for MSA II dated as of
March 15, 2000**
10.9 Security Trust Agreement Supplement for MSA III dated as of
March 15, 2000**
10.10 Security Trust Agreement Supplement for MSA IV dated as of
March 15, 2000**
10.11 Security Trust Agreement Supplement for MSA V dated as of
March 15, 2000**
10.12 Security Trust Agreement Supplement for MSA VI dated as of
March 15, 2000**
10.13 Security Trust Agreement Supplement for MSA VII dated as of
March 15, 2000**
10.14 Reference Agency Agreement dated as of March 3, 1998 among MSAF,
Bankers Trust Company, as
Reference Agent and as Trustee and Cabot Aircraft Services Limited,
as Administrative Agent*
10.15 Second Amended and Restated Servicing Agreement dated as of March 15,
2000 among MSAF, International Lease Finance Corporation, Cabot
Aircraft Services Limited, as Administrative Agent and each
subsidiary of MSAF**
10.16 Asset Purchase Agreement dated as of November 10, 1997 between
MSAF and International Lease Finance Corporation*
10.17 Asset Purchase Agreement dated as of March 19, 1999 between MSA II
and GE Capital Mietfinanz GmBH & Co. KG**
10.18 Asset Purchase Agreement dated as of August 6, 1999 among MSA IV,
MSA V and ILFC**
10.19 Purchase Agreement dated as of March 15, 2000 between MSAF and MS
Financing Inc.**
21.1 Subsidiaries of MSAF**
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Aircraft Information Services, Inc.**
23.3 Consent of BK Associates, Inc.**
23.4 Consent of Airclaims Limited**
23.5 Consent of Aircraft Value Analysis Company**
23.6 Consent of Morten Beyer and Agnew**
23.7 Consent of Deloitte & Touche LLP**
23.8 Consent of PricewaterhouseCoopers LLP**
24.1 Trustees' Power of Attorney (included in signature pages)
25.1 Statement of Eligibility of Bankers Trust Company, as
II-5
<PAGE>
Trustee, under the Indenture to be qualified under the Trust Indenture
Act of 1939**
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27.1
to Quarterly Report on Form 10-Q for the quarter ended February 29,
2000)*
99.1 Appraisal of Aircraft Information Services, Inc. relating to the
Aircraft**
99.2 Appraisal of BK Associates, Inc. relating to the Aircraft**
99.3 Appraisal of Airclaims Limited relating to the Aircraft**
99.4 Appraisal of Aircraft Value Analysis Company**
99.5 Appraisal of Morten Beyer & Agnew**
---------
* Previously filed
** Filed herewith
II-6
