<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH -- , 1999.
REGISTRATION STATEMENT NO. 333-66973
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Amendment No. 4 to
FORM F-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
AERCO LIMITED
(Exact name of Registrant as specified in its charter)
JERSEY, CHANNEL ISLANDS
(Jurisdiction of organization)
7359
(Primary Standard Industrial Classification Code Number)
N/A
(I.R.S. Employer Identification Number)
AERCO LIMITED
22 GRENVILLE STREET
ST. HELIER
JERSEY, JE4 8PX
CHANNEL ISLANDS
ATTENTION: COMPANY SECRETARY
(01144 1534) 609 000
(Address and telephone number of Registrant's principal executive offices)
------------------------------------
CORPORATION SERVICE COMPANY
375 HUDSON STREET
NEW YORK, NY 10014-3666
(212) 463-2700
(Name, address and telephone number of agent for service)
Copy to:
THOMAS J. REID, ESQ.
DAVIS POLK & WARDWELL
1 FREDERICK'S PLACE
LONDON EC2R 8AB
ENGLAND
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
------------------------------------
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.
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<PAGE> 2
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MARCH -- , 1999
$800,000,000
INITIAL PRINCIPAL AMOUNT
OFFER TO EXCHANGE NOTES DUE JULY 15, 2023
FOR ANY AND ALL OUTSTANDING NOTES DUE JULY 15, 2023
OF
AERCO LIMITED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1999, UNLESS EXTENDED.
------------------------
AerCo Limited is offering to exchange four subclasses of new notes for each
subclass of the issued and outstanding notes of AerCo Limited. The terms of the
new notes are identical to the old notes except that the new notes will be
registered under the Securities Act of 1933, as amended.
------------------------
THE OLD NOTES WERE LISTED ON THE LUXEMBOURG STOCK EXCHANGE ON JULY 15, 1998. 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
14.
------------------------
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.
------------------------
March -- , 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary................................ 3
Summary Consolidated Financial Data.... 11
Risk Factors........................... 14
The Exchange Offer..................... 23
The Parties............................ 29
The Refinancing of ALPS 94-1 and
Acquisition of the AerFi Transferred
Companies............................ 31
The Aircraft, Related Leases and
Collateral........................... 34
Management of AerCo Group.............. 51
Selected Consolidated Financial Data... 60
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 64
Unaudited Pro-Forma Combined Financial
Information.......................... 75
Description of the Notes............... 83
Reports to Noteholders................. 132
Available Information.................. 134
Book-Entry Registration, Global
Clearance and Settlement............. 136
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tax Considerations..................... 141
ERISA Considerations................... 147
Plan of Distribution................... 147
Legal Matters.......................... 148
Experts................................ 148
Index to Consolidated Financial
Statements........................... F-1
Independent Auditors' Report........... F-2
Appendix 1. Index of Defined Terms..... A-1
Appendix 2. Aircraft Types Data........ A-2
Appendix 3. Monthly Gross Revenues
Based on the Assumptions... A-3
Appendix 4. Assumed Portfolio Values
for the Initial
Portfolio.................. A-5
Appendix 5. Class A Class
Percentages.......................... A-7
Appendix 6. Class B Class
Percentages.......................... A-10
Appendix 7. Class C Target Principal
Balances................... A-13
Appendix 8. Class D Target Principal
Balances................... A-16
Appendix 9. Pool Factors............... A-19
Appendix 10. Extended Pool Factors..... A-22
</TABLE>
2
<PAGE> 4
SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the notes and the financial statements
(including the notes to the financial statements) appearing elsewhere in this
prospectus.
THE EXCHANGE OFFER
On July 15, 1998, we issued $800 million in aggregate principal amount of
the old notes in four subclasses: subclass A-1, subclass A-2, subclass B-1 and
subclass C-1. Because we originally issued the old notes under an exemption from
registration under the Securities Act, the old notes contain transfer
restrictions. We are now offering to exchange the new notes for the old notes.
The new notes will not contain these transfer restrictions and may be
transferred as we describe under "-- Consequences of Exchanging the Old Notes in
the Exchange Offer". Otherwise, the terms of the new notes and old notes are
identical, except for registration rights and special interest provisions
relating to the old notes.
The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless we extend it. At any time before the expiration date,
you may withdraw any old notes that you have tendered in the exchange offer. If
we or the exchange agent do not accept any old notes that you have tendered, we
or the exchange agent will return the old notes to you without expense as soon
as is practicable after the exchange offer has expired or has been terminated.
Neither you nor our company will recognize any income, gain or loss for
U.S. federal income tax purposes because you exchange your old notes.
You should refer to "The Exchange Offer" below for more details about the
procedures for tendering the old notes and the other terms of the exchange
offer.
CONSEQUENCES OF EXCHANGING OLD NOTES IN THE EXCHANGE OFFER
Based upon interpretations contained in letters issued to third parties by
the staff of the Commission, we believe that any holder of old notes, other than
a broker-dealer or any holder who is an affiliate of AerCo within the meaning of
Rule 405 under the Securities Act who exchanges its old 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:
- the holder acquires the new notes 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 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:
- 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.
- 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.
- If you are a broker-dealer who will receive new notes for your own
account, you must represent that you acquired the old 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 acknowledgement and delivering a prospectus, you
will not be deemed to admit that you are an underwriter within the
meaning of the Securities Act.
3
<PAGE> 5
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 old 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 old notes for new notes in the exchange offer,
your old notes will continue to be subject to the restrictions on transfer
contained in the legend on the old 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 sets forth summary information regarding the notes.
<TABLE>
<CAPTION>
SUBCLASS A-1 SUBCLASS A-2 SUBCLASS B-1 SUBCLASS C-1
NOTES NOTES NOTES NOTES
------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Aggregate Initial
Principal Amount... $ 340,000,000 $ 290,000,000 $ 85,000,000 $ 85,000,000
Ratings:
DCR................ AA AA A BBB
Moody's............ Aa2 Aa2 A2 --
Standard & Poor's.. AA AA A BBB
Interest Rate........ LIBOR + 0.19% LIBOR + 0.32% LIBOR + 0.60% LIBOR + 1.35%
Expected Average Life
(Years)............ 2.0 3.8 7.7 10.5
Expected Final
Payment Date....... July 15, 2000 December 15, 2005 July 15, 2013 July 15, 2013
Final Maturity
Date............... July 15, 2023 July 15, 2023 July 15, 2023 July 15, 2023
</TABLE>
You should not view the ratings on the notes as a recommendation to buy,
sell or hold the notes. The ratings only addresses the likelihood of whether we
will make timely payment of interest on the notes, as well as the ultimate
payment of principal and any premium. You should also note that the rating
agencies have not rated our ability to pay the full principal amount of any
subclass of notes on the expected final payment date for that subclass or any
additional interest that we may have to pay under the indenture if the full
principal amount is not repaid at that time.
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 day which is a
business day. By business day, we mean a day on
which a bank may deal in U.S. dollar deposits on
the London inter-bank market and commercial banks
and foreign exchange markets are open in New York
and London.
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.
The cash manager 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.
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<PAGE> 6
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.
Sources of Note Payments... Our only sources of payment for the notes and our
other obligations will be:
- the payments made by the lessees under the
leases
- proceeds from any sales of our assets
- net payments to us under our swap agreements and
other hedging instruments
- interest earned on investments of our cash
balances and
- 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
Obligations................ Neither the trustee nor the holders have any
security interest, mortgage, charge or other
similar interest in any of the aircraft. As
security for our obligations under the notes and to
the servicer, the cash manager and the
administrative agent, Bankers Trust Company as
security trustee has acquired a security interest
in:
- the capital stock of our subsidiaries
- our interest in the leases
- our intercompany loans to our subsidiaries
- our cash balances
- our investments made with cash balances.
Principal Payments......... We have determined the expected principal payments
on the notes based on assumptions regarding:
- the timing and amount of payments under our
current leases and leases we may enter into in
the future
- the terms of future leases
- our ability to refinance the subclass A-1 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.
Refinancing of the Notes... We will have the ability to refinance any subclass
of the notes by issuing refinancing notes. Such
refinancing notes will rank equally with the
subclasses of refinanced notes and will never rank
higher in priority than the class A notes.
Redemption................. We may redeem any subclass of notes, in whole or in
part, on any payment date. The redemption price for
a subclass may include a premium over the
outstanding principal balance of the subclass.
Whether
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<PAGE> 7
we must pay a premium will depend on how we obtain
the funds we use to pay the redemption price. The
amount of any premium will also depend on when the
redemption occurs. We describe how the redemption
price is determined under "Description of the Notes
-- Payment of Principal and Interest --
Redemption". If we redeem any subclass in part, we
will apply the redemption price to that subclass
pro rata.
We may also redeem each subclass of notes on any
payment date, in whole but not in part, if adverse
tax events affecting AerCo occur. In that case, the
redemption price will equal the outstanding
principal balance of the subclass being redeemed,
plus accrued and unpaid interest.
Operating Covenants........ We may not enter into any future lease unless, it
is in compliance with geographic and other
concentration limits. This restriction does not
apply to renewals, extensions or restructurings of
existing leases. We may enter into a future lease
not meeting these requirements if the rating
agencies have confirmed that such lease will not
result in the lowering or withdrawal of their
current ratings on any subclass of notes then
outstanding.
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 any obligation under any
intercompany loans to make any additional payments
for any withholding or deduction that they must
make from payments on the intercompany loans under
applicable law.
Additional Aircraft........ We intend to acquire additional aircraft and any
related leases. Additional aircraft may include
aircraft, engines and companies with an ownership
or leasehold interest in aircraft or engines. We
have the option to appoint Babcock & Brown as
servicer of additional aircraft on the same terms
that apply to our current fleet of aircraft,
however additional aircraft may have a different
servicer. Cash flows from any additional aircraft
will be available to pay our obligations, including
the notes and any additional notes. There is no
limit on the value of the additional aircraft that
we may acquire.
Additional Notes........... We will finance the acquisition of additional
aircraft by issuing additional notes in up to five
classes, A through E. Each class of additional
notes will rank equally in right of payment of
principal and interest with the same class of notes
then outstanding. We may acquire additional
aircraft and issue additional notes only if we meet
various conditions in the indenture. The main
condition is that we receive confirmation from Duff
& Phelps Credit Rating Co., Moody's Investors
Service, Inc., and Standard & Poor's Ratings Group,
Inc., that the acquisition will not result in the
lowering or withdrawal of their then current rating
of any subclass of notes.
6
<PAGE> 8
OVERVIEW OF PRIORITY OF PAYMENTS
The following chart summarizes the order of priority of payments on the
notes, the subclass D-1 notes and the subclass E-1 notes and other obligations
of AerCo. We describe the order of priority in more detail in "Description of
the Notes -- Payment of Principal and Interest -- Priority of Payments".
Collections
Required Expense Amount (1)
Class A Interest and Swap Payments (2)
First Collection Account Top-up (3)
Class A Minimum Principal (4)
Class B Interest (5)
Class B Minimum Principal (6)
Class C Interest (7)
Class C Minimum Principal (8)
Class D Interest (9)
Class D Minimum Principal (10)
Second Collection Account Top-up (11)
Class A Scheduled Principal (12)
Class B Scheduled Principal (13)
Class C Scheduled Principal (14)
Class D Scheduled Principal (15)
Modification Payments (16)
Step-up Interest (17)
Class A Supplemental Principal (18)
Class E Primary Interest (19)
Class B Supplemental Principal (20)
Class A Outstanding Principal (21)
Class B Outstanding Principal (22)
Class C Outstanding Principal (23)
Class D Outstanding Principal (24)
Subordinated Swap Payments (25)
Subordinated Tax-Related Disposition Payments (26)
Class E Accrued and Unpaid Interest (27)
Class E Outstanding Principal (28)
Charitable Trust (29)
7
<PAGE> 9
THE PORTFOLIO
The following pie charts summarize our exposure as of January 18, 1999 to
various types of aircraft, lessees, ages of aircraft, the regions and countries
in which lessees are based and aircraft noise restrictions. We have calculated
all percentages by reference to the appraised value of the aircraft as of
January 18, 1999.
EXPOSURE TO TYPE OF AIRCRAFT
<TABLE>
<S> <C>
B737-500........................... 2.21%
B747-200B.......................... 3.57%
B757-200........................... 13.93%
B737-400........................... 19.65%
B767-300ER......................... 13.42%
DC8-71F............................ 3.45%
B737-300........................... 12.68%
F100............................... 6.49%
A300-B4-200........................ 1.30%
MD83............................... 7.06%
A320-200........................... 16.23%
</TABLE>
Total Number of Aircraft: 34
Narrowbody Aircraft: 30 (81.70%)
Widebody Aircraft: 4 (18.30%)
EXPOSURE TO REGION IN WHICH LESSEES ARE BASED
<TABLE>
<S> <C>
North America...................... 8.57%
Emerging Europe.................... 13.65%
Others............................. 2.21%
Latin America...................... 17.90%
Emerging Asia...................... 21.79%
Developed Europe................... 35.96%
</TABLE>
EXPOSURE OF AIRCRAFT TO NOISE RESTRICTIONS
<TABLE>
<S> <C>
Stage 3 Aircraft................... 100%
</TABLE>
EXPOSURE TO YEAR OF AIRCRAFT MANUFACTURE
(OR SUBSEQUENT FREIGHTER CONVERSION)
<TABLE>
<S> <C>
1991............................... 30.45%
1990............................... 8.04%
1989............................... 9.54%
1988............................... 2.58%
1983............................... 1.30%
1981............................... 3.57%
1992............................... 33.04%
1993............................... 11.48%
</TABLE>
Weighted average age from manufacture is approximately 7.9 years.
EXPOSURE TO INDIVIDUAL LESSEES
<TABLE>
<S> <C>
Canadian........................... 3.45%
Monarch............................ 3.57%
Avianca............................ 4.58%
China Southwest.................... 4.65%
Air 2000........................... 4.71%
PAL................................ 4.78%
TAM................................ 4.88%
THY................................ 5.73%
Asiana............................. 5.92%
Lan Chile.......................... 6.68%
Airtours........................... 6.68%
Spanair............................ 11.35%
Others............................. 29.70%
Tower Air.......................... 3.33%
</TABLE>
Total Number of Lessees: 26
EXPOSURE TO COUNTRIES IN WHICH LESSEES ARE BASED
<TABLE>
<S> <C>
United Kingdom..................... 17.43%
United States...................... 5.25%
France............................. 2.77%
Chile.............................. 8.45%
Spain.............................. 11.35%
China.............................. 7.34%
Philippines........................ 4.78%
South Korea........................ 5.92%
Turkey............................. 10.96%
Colombia........................... 4.58%
Canada............................. 3.33%
Ireland............................ 2.80%
Hungary............................ 2.61%
Brazil............................. 4.88%
Others............................. 7.58%
</TABLE>
Total Number of Countries: 18
8
<PAGE> 10
OWNERSHIP STRUCTURE
AerFi
100% Ownership of Class D and Class E Notes
5% Ownership of Ordinary Shares
Charitable Trust
95% Ownership of Ordinary Shares
AerCo 1 Aircraft
100% Equity Interest in ALPS 94-1
100% Equity Interest in AerCo Ireland
100% Equity Interest in AerCo Ireland II
100% Equity Interest in AerCo USA
ALPS 94-1 and Subsidiaries
AerCo Ireland and Subsidiaries
AerCo Ireland II and Subsidiaries
AerCo USA and Subsidiaries
Aircraft Owning Company V and Subsidiaries
Aircraft Owning Company VI and Subsidiaries
Aircraft Ownership
Aircraft Ownership
Aircraft Ownership
Aircraft Ownership
Aircraft Ownership
Aircraft Ownership
23 Aircraft
7 Aircraft
1 Aircraft
2 Aircraft
Additional Aircraft
Additional Aircraft
We may establish or acquire additional subsidiaries for the purpose of
acquiring additional aircraft. We may also establish additional subsidiaries for
the purpose of leasing aircraft from other AerCo subsidiaries and sub-leasing
them to operators when there are business or other reasons to do so.
AerFi may dispose of all or a portion of its class D and class E notes.
9
<PAGE> 11
PAYMENT FLOWS
Noteholders
Payments of Interest and Principal on Notes
Charitable Trust Jersey
Payment of annual fee
Payment of Interest and Principal on Subclass D-1 and Subclass E-1 Notes
AerFi Group
AerCo (Jersey) 1 Aircraft
Payment on intercompany loans
ALPS 94-1 (Jersey)
Lease Payments
23 Aircraft
AerCo Ireland (Ireland)
Lease Payments
7 Aircraft
AerCo Ireland II (Ireland)
Lease Payments
1 Aircraft
AerCo USA (Delaware)
Lease Payments
2 Aircraft
This chart assumes that we do not acquire any additional aircraft.
10
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SUMMARY CONSOLIDATED FINANCIAL DATA
FINANCIAL INFORMATION PRESENTED IN THIS PROSPECTUS
AerCo was formed on June 4, 1998 and did not conduct any business
operations until it acquired its aircraft portfolio and issued the old notes on
July 15, 1998. We have included historical financial information for AerCo
elsewhere in this prospectus.
We have extracted or derived the summary consolidated financial data set
forth below from the audited consolidated financial statements of ALPS 94-1, the
predecessor business of AerCo, for each of the fiscal years ended June 30, 1995
(as restated), 1996 (as restated), 1997 (as restated) and 1998. Arthur Andersen,
independent chartered accountants, audited the financial statements for 1995 (as
restated), 1996 (as restated) and 1997 (as restated). KPMG, independent
chartered accountants, audited the financial statements for 1998. We have
included the audited consolidated financial statements of ALPS 94-1 for 1996 (as
restated), 1997 (as restated) and 1998 elsewhere in this prospectus.
The summary consolidated financial data include the results of operations
and financial position relating to the 27 aircraft originally acquired by ALPS
94-1 from AerFi in August 1994, including:
- the Boeing 767-300ER aircraft that was purchased by AerFi from ALPS 94-1
prior to the closing of the offering of the old notes and was not among
the initial aircraft of AerCo.
- the A300-B4-200 aircraft up to April 28, 1998. AerFi acquired this
aircraft from ALPS 94-1 on that date. AerFi subsequently sold this
aircraft to AerCo at the time the old notes were issued.
We believe that the ALPS 94-1 summary consolidated financial data set forth
below is an appropriate presentation because:
- AerCo was formed mainly for the purpose of refinancing the aircraft
portfolio of ALPS 94-1.
- Our initial portfolio included 26 of the 27 aircraft that ALPS 94-1
originally acquired from AerFi.
- The original ALPS 94-1 aircraft represented 79% of our initial portfolio
by appraised value as at March 1, 1998.
- Our ongoing aircraft leasing activities are largely the same as those
conducted by ALPS 94-1.
Such data is not indicative of, and will not be comparable with, the
consolidated financial results of AerCo group, which consists of AerCo and its
subsidiaries, during periods since July 15, 1998.
We have included financial statements for the 10 aircraft which AerCo
acquired from AerFi (including the A300-B4-200 aircraft referred to above, the
"AerFi transferred aircraft") for the years ended June 30, 1997 and 1998
elsewhere in this prospectus. These financial statements include information on
the A300-B4-200 aircraft only from April 28, 1998, the date AerFi acquired it.
Arthur Andersen, independent chartered accountants, audited the financial
statements for 1997. KPMG, independent chartered accountants, audited the
financial statements for 1998. We have presented these financial statements on
the basis that the AerFi transferred aircraft were operated separately from
AerFi for the years presented. You should note that the companies owning the
AerFi transferred aircraft did not conduct any independent business operations
in the periods presented.
We have also included in this prospectus unaudited pro forma combined
financial information for AerCo group for the year ended June 30, 1998. Such pro
forma combined financial information gives effect, among other things, to the
issuance by AerCo of the Notes, the refinancing of ALPS 94-1, the sale of the
Boeing 767-300ER and other transactions described in "Unaudited Pro Forma
Combined Financial Information".
ALPS 94-1
We have extracted or derived ALPS 94-1 summary consolidated financial data
set out below from the ALPS 94-1 consolidated financial statements. ALPS 94-1
did not conduct any business operations prior to its acquisition of the original
ALPS 94-1 aircraft from AerFi in 1994. Accordingly, the financial data for the
fiscal year ended June 30, 1995 only includes trading data for the period from
August 24, 1994 to June 30, 1995. These financial statements have been prepared
in accordance with generally accepted accounting
11
<PAGE> 13
principles in the United Kingdom, which differ in certain significant respects
from generally accepted accounting principles in the United States. For a
discussion of the principal differences and a reconciliation from U.K. GAAP to
U.S. GAAP of shareholders' equity and net income or loss at and for the fiscal
years ended June 30, 1996 (as restated), 1997 (as restated) and 1998, see Notes
22 (as restated), 23 (as restated), 24 (as restated) and 25 to the ALPS 94-1
audited consolidated financial statements.
ALPS 94-1 CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------------------
1995 1996 1997 1998
------------- ------------- ------------- -------
(AS RESTATED) (AS RESTATED) (AS RESTATED)
($ THOUSANDS)
<S> <C> <C> <C> <C>
U.K. GAAP
Revenues
Aircraft leasing................................ 88,050 102,460 101,434 100,682
Expenses
Depreciation.................................... (18,158) (17,978) (38,062) (37,826)
Additional depreciation......................... -- -- (34,385) --
Provision for permanent diminution in aircraft
value........................................ -- (12,000) -- (8,720)
Net interest expense............................ (64,206) (73,576) (71,037) (69,785)
Other expenses.................................. (3,702) (5,581) (5,053) (6,599)
Exceptional item -- termination fee.......... -- -- -- (12,700)
Operating profit/(loss)........................... 1,984 (6,675) (47,103) (34,948)
Profit on sale of aircraft...................... -- -- -- 2,426
Reduction in indebtedness......................... -- -- 5,258 --
Profit/(loss) before taxes........................ 1,984 (6,675) (41,845) (32,522)
Taxes............................................. (69) (200) 143 (33)
Dividends......................................... (2) -- --
Net income/(loss)................................. 1,913 (6,875) (41,702) (32,555)
U.S. GAAP
Depreciation...................................... (16,442) (32,338) (32,339) (32,053)
Provision for permanent diminution in aircraft
value........................................... -- (12,000) -- (520)
Reduction in indebtedness......................... -- -- 5,258 --
Net loss.......................................... (13,603) (21,590) (1,594) (20,808)
</TABLE>
ALPS 94-1 CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
JUNE 30
--------------------------------------------------------
1995 1996 1997 1998
------------- ------------- ------------- --------
(AS RESTATED) (AS RESTATED) (AS RESTATED)
($ THOUSANDS)
<S> <C> <C> <C> <C>
U.K. GAAP
Aircraft, net of accumulated depreciation and
provision for permanent diminution in aircraft
value.......................................... 957,021 927,043 854,596 800,090
Total assets..................................... 1,039,938 1,021,356 950,031 890,873
Indebtedness................................... (976,494) (953,376) (919,157) (877,128)
Provision for maintenance...................... (29,405) (39,544) (46,247) (44,309)
Total liabilities................................ (1,038,025) (1,026,318) (996,695) (970,092)
Shareholders' equity/(deficit)................... 1,913 (4,962) (46,664) (79,219)
U.S. GAAP
Aircraft, net of accumulated depreciation and
provision for permanent diminution in aircraft
value.......................................... 811,149 766,811 734,472 691,713
Indebtedness..................................... (976,494) (953,376) (919,157) (877,128)
Shareholders' deficit............................ (161,191) (182,781) (184,375) (205,183)
</TABLE>
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<PAGE> 14
ALPS 94-1 CONSOLIDATED STATEMENT OF CASH FLOWS AND OTHER DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------------------
1995 1996 1997 1998
------------- ------------- ------------- -------
<S> <C> <C> <C> <C>
(AS RESTATED) (AS RESTATED) (AS RESTATED)
<CAPTION>
($ THOUSANDS)
<S> <C> <C> <C> <C>
U.K. GAAP
Cash paid in respect of interest.............. (51,147) (64,002) (59,872) (54,815)
Net cash provided by operating activities
(after payment of interest)................. 66,526 45,532 45,119 45,721
Net cash (used in)/provided by investing
activities.................................. (953,859) -- -- 10,386
Net cash provided by/(used in) financing
activities.................................. 967,496 (36,025) (43,494) (59,108)
Net movements in cash......................... 80,163 (25,803) (2,886) 134
</TABLE>
SELECTED RATIOS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-----------------------------------------------------
1995 1996 1997 1998
------------- ------------- ------------- -----
<S> <C> <C> <C> <C>
(AS RESTATED) (AS RESTATED) (AS RESTATED)
<CAPTION>
($ THOUSANDS)
<S> <C> <C> <C> <C>
U.K. GAAP
Ratio of Earnings to Fixed Charges.............. 1.031 0.909 0.411 0.534
U.S. GAAP
Ratio of Earnings to Fixed Charges.............. 0.789 0.709 0.976 0.702
</TABLE>
- ---------------
In relation to "Ratios of Earnings to Fixed Charges" under both U.K. GAAP
and U.S. GAAP, you should note the following:
-- Earnings include pretax income from continuing operations plus fixed
charges. Fixed charges are the total of (1) interest, whether expensed
or capitalized, (2) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized and (3)
such portion of rental expense as can be demonstrated to be
representative of the interest factor in the particular case.
-- A ratio of less than one indicates that earnings are inadequate to cover
fixed charges. The amount by which fixed charges exceeded earnings (1)
for the years ended June 30, 1996 (as restated), 1997 (as restated) and
1998 under U.K. GAAP was $6.68 million, $41.85 million and $32.52
million, and (2) for the years ended June 30, 1995 (as restated), 1996
(as restated), 1997 (as restated) and 1998 under U.S. GAAP was $13.53
million, $21.39 million, $1.74 million and $20.78 million.
For a discussion of the differences between ALPS 94-1's results of
operations and financial position under U.S. GAAP compared with U.K. GAAP, see
Notes 22 (as restated), 23 (as restated), 24 (as restated) and 25 to the ALPS
94-1 audited consolidated financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Year Ended June 30, 1997 Compared With Year Ended June 30, 1996 --
Differences between U.K. GAAP and U.S. GAAP".
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<PAGE> 15
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company.
If any of the following risks actually occur, we may not be able to make
the required payments on the notes.
THERE IS NO SECURITY INTEREST IN THE AIRCRAFT -- YOU CANNOT SELL THE AIRCRAFT TO
REPAY THE NOTES IF WE DO NOT MEET OUR OBLIGATIONS UNDER THE NOTES.
Neither the trustee, the security trustee nor any noteholder has any
security interest, mortgage, charge or other similar interest in any 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.
OUR SUBSIDIARIES MAY HAVE CONTINGENT LIABILITIES THAT ARE UNKNOWN TO US -- IF WE
HAVE TO PAY SUCH LIABILITIES, WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES.
There is a risk that our subsidiaries could have material contingent
liabilities that are unknown to us. For example, our subsidiaries could have
incurred liabilities to third parties from operating and leasing the aircraft
before we acquired them. When we acquired the ALPS 94-1 capital stock, we
obtained no representations, warranties or indemnities from the seller. AerFi
Group indemnified us for breaches of their representations and warranties
relating to the aircraft-owning companies and aircraft which they sold to us.
These representations and warranties survive until July 15, 2001. Our potential
recovery under them is limited to approximately $185 million. If such a
contingent liability becomes known and we are called on to pay it, we may be
unable to recover the amount of the liability from AerFi Group, the former
shareholders of ALPS 94-1 or any other person. If we have to pay any such
liability, we may be unable to make the required payments on the notes.
WE RELY ON THIRD PARTIES TO MANAGE OUR BUSINESS -- OUR OPERATIONS MAY SUFFER AND
WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES IF OUR SERVICE PROVIDERS DO NOT
PERFORM THEIR OBLIGATIONS TO US OR IF WE HAVE TO REPLACE THEM.
We have no executive management resources of our own. We therefore rely on
several service providers for the leasing and re-leasing of the aircraft 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 AerCo Group -- The Servicer"; and "Management of AerCo Group
- -- Corporate Management" for detailed information on the responsibilities
delegated to service providers.
The servicing agreement with Babcock & Brown, unless extended, expires in
2008, which is five years before the expected final payment date of the last
notes to be repaid. If we cannot extend the existing servicing agreement or find
a replacement servicer, we may be unable to re-lease or sell aircraft. As a
result, we may be unable to make payments on the notes.
BABCOCK & BROWN WILL HAVE CONFLICTS OF INTEREST FROM ITS OTHER BUSINESS
ACTIVITIES -- WE MAY BE UNABLE TO RE-LEASE OR SELL AIRCRAFT IF IT CANNOT RESOLVE
THESE CONFLICTS.
Babcock & Brown manages a large aircraft portfolio for others, including
its own affiliates, and it may face conflicts of interest in managing and
marketing our aircraft for re-lease or sale. The aircraft it manages for others
may compete with our aircraft when they are being marketed for re-lease or sale.
Babcock & Brown
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<PAGE> 16
also arranges aircraft financings and lease transactions and advises many
airlines. Some of these airlines are our lessees and potential lessees. If
Babcock & Brown cannot resolve a conflict of interest, the conflict could have
an adverse effect on our ability to manage, re-lease or sell the aircraft. In
that case, we may be unable to make the required payments on the notes.
For a description of Babcock & Brown's aircraft management and advisory
business, you should refer to "Management of AerCo Group -- The Servicer".
THE SERVICING AGREEMENT LIMITS BABCOCK & BROWN'S LIABILITY TO US -- WE MAY BE
UNABLE TO RECOVER FROM BABCOCK & BROWN THE AMOUNT OF ANY LOSSES THEY CAUSE US.
Our servicing agreement with Babcock & Brown contains limitations on its
liability for losses caused by its services. There is a risk that we may be
unable to recover from Babcock & Brown the amount of any losses they cause in
performing the services. Additionally, Babcock & Brown 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 AerCo Group -- The Servicer".
THE COMMERCIAL AIRCRAFT MARKET IS CYCLICAL -- DECREASED DEMAND OR EXCESS SUPPLY
OF AIRCRAFT MAY DECREASE OUR CASH FLOWS.
The market for commercial jet aircraft is very cyclical and can produce
sharp increases and decreases in aircraft values and lease rates. The aircraft
leasing market is currently near a peak but may decline in the near future.
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, including:
- general economic conditions affecting lessee operations;
- used aircraft supply;
- interest rates and credit availability;
- fuel and other operating costs;
- manufacturer production levels and prices for new aircraft;
- passenger demand;
- retirement and obsolescence of aircraft models;
- manufacturers merging or leaving the aircraft industry;
- re-introduction into service of aircraft previously in storage;
- governmental regulations; and
- 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, including:
- maintenance and operating history of the aircraft;
- number of operators using a type of aircraft;
- legal or regulatory requirements that prevent us from re-leasing or
selling an aircraft in the condition that it is in; and
- the discovery of manufacturing defects in an aircraft model.
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<PAGE> 17
The value of specific aircraft may also depend on the condition of the
manufacturer. For example, since Fokker N.V. ceased operations in 1996, there
have been significant reductions in values and lease rates for Fokker 100s. We
expect these reductions will continue. We have four Fokker 100s, representing
6.49% of the portfolio by appraised value at January 18, 1999. Likewise, because
of its merger with McDonnell Douglas Corporation, Boeing has announced that it
will discontinue production of MD-83 aircraft in mid-1999. This development is
likely to decrease values and rental rates for these aircraft. We have three
MD-83s, representing 7.06% of the portfolio by appraised value at January 18,
1999.
THE APPRAISED VALUE OF THE AIRCRAFT MAY BE SIGNIFICANTLY HIGHER THAN THE ACTUAL
VALUE WE WOULD RECEIVE UPON A SALE OF THE AIRCRAFT -- IN THAT CASE, OUR ABILITY
TO MAKE SCHEDULED PAYMENTS ON THE NOTES MAY SUFFER.
Aircraft appraised values, also known as base values, do not necessarily
reflect the market value for an aircraft at a specific time. We have determined
the scheduled principal payments on the notes based on assumptions as to the
appraised value of the aircraft. If we sell an aircraft to generate cash to make
payments on the notes, the proceeds of the sale may be significantly less than
its appraised value. We may therefore have insufficient cash to make payments on
the notes. Market lease rates may also depend on current market values for
aircraft. If market values are less than appraised values, we may be unable to
re-lease aircraft at rental rates sufficient to repay the notes.
Appraised values are based on the assumption that there is an "open
unrestricted stable market environment with a reasonable balance of supply and
demand. However, 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 the aircraft market cycle, the current market value
of some aircraft may be close to their appraised value while the current market
value of others, particularly older aircraft may be significantly less than
their appraised values. At the low point in the aircraft market cycle, the
current market value of most aircraft types is likely to be less than appraised
values. As a result you should not rely on aircraft appraised values as an
indication of the market value for the aircraft.
IF THE APPRAISED VALUES OF OUR AIRCRAFT DECLINE AT A FASTER RATE THAN WE HAVE
ASSUMED, WE MAY BE REQUIRED TO SUSPEND PRINCIPAL PAYMENTS ON CLASS B AND CLASS C
NOTES.
Due to various market factors, aircraft appraisers have recently reduced
appraised values for aircraft, especially Fokker aircraft and older widebody
aircraft. If future appraised values for our aircraft decline below a specific
level, we may suspend principal payments on the class B and class C notes. Under
the indenture, we must accelerate the scheduled principal payments on class A
notes if the aircraft appraised values decline at a greater rate than we
assumed. In that case, principal payments on the class B and class C notes may
be suspended because of the increased principal amount that we must pay on the
class A notes.
NEW, MORE TECHNOLOGICALLY ADVANCED AIRCRAFT MAY IMPAIR OUR ABILITY TO RE-LEASE
OR SELL OUR AIRCRAFT -- IF WE ARE UNABLE TO RE-LEASE OR SELL OUR AIRCRAFT ON
FAVORABLE TERMS, WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES.
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 us to lease or sell many of the
aircraft close to the end of their useful economic life. We expect that our
ability to manage these technological risks through modifications to aircraft
and sale of aircraft will be limited.
OUR SERVICE PROVIDERS AND LESSEES, THE AIR TRAFFIC CONTROL SYSTEM AND OTHERS WE
DEPEND ON MAY NOT BE YEAR 2000 COMPLIANT -- IF THEIR SYSTEMS MALFUNCTION, WE MAY
BE UNABLE TO MAKE PAYMENTS ON THE NOTES.
We may suffer an adverse impact on our business and results of operations
if information technology relied upon by our service providers, suppliers,
financial advisors, lessees, and others with which we conduct business are not
Year 2000 compliant. Specifically, aircraft navigation and management systems
and air
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<PAGE> 18
traffic control systems depend heavily on microprocessors and software
technology. If any of these systems malfunction because operators, lessees or
air traffic control authorities do not make them Year 2000 compliant, our
lessees may be unable to operate their aircraft and generate the revenues
necessary to make lease payments to us. Reductions in lease payments will impair
our ability to make payments on the notes.
You should refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Resources and Liquidity" for a
more detailed discussion of the Year 2000 compliance issues we face.
IF WE SELL AIRCRAFT-RELATED TAX BENEFITS, WE MAY BE UNABLE TO RECOVER LEGAL
OWNERSHIP OF THE AIRCRAFT -- IN THAT CASE, WE MAY BE UNABLE TO RE-LEASE OR SELL
THE AIRCRAFT.
In addition to selling aircraft outright, we may make more limited
transfers of aircraft ownership to investors who wish to acquire depreciation or
other tax benefits available to aircraft owners. If we enter into tax-related
dispositions, we will be exposed to the credit risk of the investor. This
includes the risk that we will not be able to recover legal title to the
aircraft or other aspects of ownership transferred to the investor if the
investor becomes insolvent. This would harm our ability to re-lease or sell the
aircraft. Because the terms of tax-related dispositions are not standardized, we
cannot identify with certainty the nature and the level of the risks we would
face if we entered into these transactions.
RESTRICTIONS IN THE INDENTURE AND OUR GOVERNING CORPORATE DOCUMENTS MAY IMPAIR
OUR ABILITY TO COMPETE IN THE AIRCRAFT LEASING MARKET.
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.
IF LESSEES EXERCISE PURCHASE OPTIONS AT PRICES BELOW FAIR MARKET VALUES, WE MAY
BE UNABLE TO MAKE REQUIRED PRINCIPAL PAYMENTS ON THE NOTES.
As of January 18, 1999, five lessees had options to purchase a total of six
aircraft, representing 23.57% of the portfolio by appraised value at January 18,
1999. There is a risk that lessees could exercise these options in the future at
prices below the pro rata portion of the unpaid principal represented by the
aircraft being purchased. If that occurs, it may reduce the amount, or delay the
timing, of principal payments on the notes.
IF LESSEES DO NOT DISCHARGE LIENS THAT ATTACH TO THE AIRCRAFT DURING THE TERM OF
THE LEASE, WE MAY BE UNABLE TO REPOSSESS, RE-LEASE OR SELL AIRCRAFT.
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, 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 jurisdictions, a holder of aircraft liens may have
the right to detain, sell or cause the forfeiture of the aircraft. The lessees
may fail to comply with their obligations under the leases to discharge liens
arising during the terms of the leases.
LESSEES MAY FAIL TO MAINTAIN VALID REGISTRATION OF THE AIRCRAFT -- LOSS OF
AIRCRAFT REGISTRATION COULD HARM OUR ABILITY TO MAKE PAYMENTS ON THE NOTES.
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.
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INCREASED REGULATION OF THE AIRCRAFT INDUSTRY MAY IMPAIR OUR ABILITY TO RE-LEASE
OR SELL 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 or sell aircraft.
WE MAY NOT HAVE ENOUGH CASH FLOW TO MAKE PAYMENTS ON THE NOTES IF WE ARE UNABLE
TO RE-LEASE AIRCRAFT QUICKLY OR ON FAVORABLE TERMS.
We may not be able to re-lease the aircraft upon expiration of the leases
without incurring significant downtime. If we cannot re-lease the aircraft we
may not have enough cash flow to make payments on the notes. Even if we can
re-lease the 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:
- economic conditions affecting the airline industry,
- the supply of competing aircraft and demand for particular types,
- lessor competition, and
- restrictions on our re-leasing flexibility under the indenture.
The leases for 10 of the aircraft, representing approximately 30.91% of the
portfolio by appraised value at January 18, 1999, are scheduled to expire before
December 31, 2000. The leases for 25 of the aircraft, representing 75.98% of the
portfolio by appraised value at January 18, 1999 are scheduled to expire before
December 31, 2003. Re-leasing may also affect the rental rates we are able to
obtain and may adversely affect our ability to make payments on the notes,
especially when there is lesser demand for aircraft on operating lease.
WE MAY INCUR SUBSTANTIAL COSTS IF LESSEES DO NOT PERFORM REQUIRED MAINTENANCE --
THIS WOULD REDUCE THE AMOUNTS AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
The standards of maintenance observed by our lessees and the condition of
the aircraft at the time of sale or lease may offset 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 during the term of such
lease, 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 some 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.
WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES IF AIRCRAFT INSURANCE IS NOT
ADEQUATE TO COVER ANY LOSSES OR LIABILITIES WE INCUR.
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 under the lease,
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<PAGE> 20
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.
IF WE CANNOT OBTAIN THE REQUIRED LICENSES, CONSENTS AND APPROVALS TO RE-LEASE OR
SELL AIRCRAFT, WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES.
If we cannot obtain required government licenses, consents 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 licenses, consents or approvals
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 license, consent or approval, once given, will be
withdrawn. We may be unable to receive licenses, consents or approvals needed in
connection with future re-leasing or sale of an aircraft.
IF WITHHOLDING TAXES ARE IMPOSED ON LEASE RENTALS, THIS WOULD REDUCE OUR CASH
FLOW AVAILABLE FOR PAYMENTS ON THE NOTES.
We have attempted to structure our leases in such a way that either no
withholding taxes will be applicable to payments by the lessees under the leases
or, if withholding taxes are applicable, the lessees may be required to pay
corresponding additional amounts. If such taxes must be paid and we cannot
recover these additional amounts from the lessee, that amount will be
unavailable for note payments.
LESSEES IN WEAK FINANCIAL CONDITION MAY FAIL TO MAKE LEASE PAYMENTS -- THIS WILL
REDUCE THE CASH FLOW AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
There is a significant risk that the lessees in weak financial condition
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, and environmental and other governmental
regulation of the air transportation business. The economic conditions of the
regions where our lessees operate will also affect their ability to meet their
lease obligations. Many of our lessees are based or operate in regions such as
Asia or Latin America that are experiencing severe economic crises. You should
refer to "The Aircraft, Related Leases and Collateral -- The Lessees -- Regional
Concentrations" for a detailed discussion of the regional concentrations of our
lessees and the economic trends of the regions that may impact the lessees
financial condition.
Many of our lessees are in a weak financial position. Investors should also
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. The environment for commercial aircraft operators in
most geographic regions has been extremely favorable in the past few years.
Therefore, the current level of defaults and lessee arrears should not be seen
as representative of future defaults and arrears as economic conditions
deteriorate. We can give no assurance that defaults and amounts in arrears will
not increase as the market for aircraft on operating lease experiences further
cyclical downturns, particularly in regions such as Asia or Latin America which
is experiencing acute economic difficulties. You should refer to "The Aircraft,
Related Leases and Collateral -- The Lessees -- Payment History" for a detailed
discussion of the lessees that are having financial difficulties or are in
arrears on their lease obligations.
OUR ABILITY TO RELEASE AIRCRAFT AND GENERATE CASH TO MAKE PAYMENTS ON THE NOTES
WILL BE IMPAIRED IF WE CANNOT TERMINATE LEASES AND REPOSSESS AIRCRAFT WHEN A
LESSEE DEFAULTS.
We have the right to terminate the lease and repossess the aircraft if
there is an event of default under a lease. However, we may be unable to
terminate the lease or may incur substantial costs if we terminate a lease and
repossess the aircraft. If we cannot repossess the aircraft, it will not be
available for re-lease or sale. In
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that event, or if we incur substantial costs in terminating a lease and
repossessing an aircraft, we may be unable to make payments on the notes.
Our ability to terminate the lease and repossess the aircraft may be
limited by the following factors:
- a lessee contesting AerCo group's right to terminate the lease and
repossess the aircraft;
- our inability to export, deregister and redeploy the aircraft;
- legal restrictions on our ability to terminate or repossess the
aircraft; and
- the appointment of a trustee in bankruptcy or similar officer in the
case of a bankrupt or insolvent lessee.
Even if we are able to terminate the lease and repossess the aircraft, we
may incur substantial costs, including:
- the direct costs associated with the termination of the lease or
repossession of an aircraft, including legal costs;
- the cost of returning the aircraft to the appropriate jurisdiction;
- the payment of debts and taxes secured by liens on the aircraft that
were not paid by the lessee;
- the costs of retrieving or recreating aircraft records that are required
for reregistering the aircraft;
- costs to obtain a certificate of airworthiness for the aircraft; and
- swap breakage costs incurred under our agreements with swap providers.
IF OUR ASSUMPTIONS ABOUT CASH FLOW AND OPERATING COSTS DO NOT MATCH ACTUAL
EXPERIENCE, WE MAY BE UNABLE TO MAKE NOTE PAYMENTS ON TIME OR AT ALL.
We have determined the expected final payment dates for the notes based on
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 that are outside our control
and are difficult or impossible to predict. Market interest rates are an example
of such an assumption. Other assumptions relate to future events that depend on
the actions of lessees or others with whom we deal. Insurance recoveries and
maintenance payments are examples of such assumptions. For this reason, it is
unlikely that our experience in the future will be consistent with these
assumptions. As a result, we may be unable to make payments on the notes at the
times and in the amounts that the assumptions indicate.
You should refer to "Description of the Notes -- Assumptions" for more
details about the assumptions we have made.
YOUR RIGHT TO RECEIVE PAYMENTS ON YOUR NOTES RANKS JUNIOR TO OUR EXPENSES,
CERTAIN OTHER PAYMENTS WE MAY MAKE AND ANY MORE SENIOR SUBCLASSES OF NOTES.
Our expenses and certain other payments which we must make rank senior to
the notes and are payable out of our funds before any payments are made on the
notes. Depending on the amount of these more senior payments, we may be unable
to make the required payments on the notes.
Your right to receive payments of interest, principal and any premium on
your notes will rank junior to payments on more senior subclasses of notes. If
an event of default occurs, then the holders of a class of notes may not
exercise remedies under the indenture until all amounts we owe on more senior
classes of notes and our other more senior obligations have been paid. In that
case, holders of the most senior class of notes will control the exercise of
these remedies.
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A PUBLIC MARKET FOR THE NOTES MAY NOT DEVELOP -- IN THAT CASE, YOU MAY BE UNABLE
TO SELL YOUR NOTES OR THE PRICE OF THE NOTES MAY SUFFER.
An active public market for the new notes may not develop, which may harm
your ability to sell the notes or the price at which you sell them. We issued
the old notes to a limited number of institutional investors. There is currently
no market for new notes. We intend to list the new notes only on the Luxembourg
Stock Exchange. No one has an obligation to make a market in the new notes. We
do not intend to seek approval for quotation through any automated quotation
system. If a market for the new notes does develop, future trading prices will
depend upon many factors, including general economic conditions and our
financial condition, performance and prospects.
WE MAY BE UNABLE TO REFINANCE THE SUBCLASS A-1 NOTES IN THE CAPITAL MARKETS --
THIS MAY DELAY THE REPAYMENT OF PRINCIPAL AND LOWER THE MARKET PRICE OF THE
CLASS B AND C NOTES.
The subclass A-1 notes may reach their expected final payment date before
we have received sufficient cash flows to repay them. In that case, we plan to
refinance the subclass A-1 notes by issuing refinancing notes. The refinancing
notes will rank equally with the other class A notes but the interest rate,
principal payment provisions and other terms will be different. Our ability to
refinance the subclass A-1 notes will depend on many factors outside our
control. These factors include general conditions in the capital markets and the
markets' perception of the commercial aviation industry, the aircraft leasing
business generally or our own company. If we cannot refinance the subclass A-1
notes on acceptable terms, we may not be able to repay the subclass A-1 notes by
their expected final payment date. This may also delay repayment of principal on
the class B and class C notes and may result in lower market prices for the
notes.
In the future, we may issue additional notes and refinancing notes that may
also require refinancing like the subclass A-1 notes. These notes would present
the same refinancing risk that we describe above.
IF AERFI BECOMES BANKRUPT OR INSOLVENT, THE AIRCRAFT AND OUR OTHER ASSETS MAY
NOT BE AVAILABLE TO REPAY THE NOTES AND OUR OTHER OBLIGATIONS.
We have taken steps to structure our company, our acquisition of ALPS 94-1
and the acquisition of our other aircraft owning subsidiaries from AerFi to
ensure that our assets are not consolidated with AerFi's assets or otherwise
become available to AerFi's creditors in any bankruptcy or insolvency proceeding
involving AerFi. ALPS 94-1 took similar steps for the same purpose when it
originally acquired its aircraft from AerFi in 1994 and 1995.
If AerFi 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 AerFi's assets or that AerFi's transfer of aircraft to us was
improper. As a result, the aircraft and our other assets could become available
to repay both AerFi'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. You should refer
to "The Refinancing of ALPS 94-1 and Acquisition of the AerFi Transferred
Companies -- Bankruptcy Considerations" for a detailed discussion of these
bankruptcy issues.
IF PAYMENTS OF PRINCIPAL AND INTEREST ON THE NOTES BECOME SUBJECT TO WITHHOLDING
TAX, WE WILL NOT MAKE ADDITIONAL PAYMENTS TO YOU.
We will not make any additional payments to noteholders for any withholding
or deduction that is required under applicable law on payments on the notes. If
we are required to make a withholding or deduction, we will use reasonable
efforts to avoid the application of withholding taxes. If we cannot avoid the
withholding taxes, we may redeem the notes. If withholding taxes are imposed on
the notes and we do not redeem them, we will reduce the amount of interest that
you will receive by the amount of the withholding taxes. We have received
opinions from our tax advisors that payments on the notes will not be subject to
Jersey or Irish withholding tax. You should be aware, however, that these
opinions represent only the best judgment of counsel and are not binding on the
applicable taxing authorities or the courts. The opinions
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depend upon certain factual assumptions and the existence of different facts
could lead to circumstances not anticipated by counsel.
Ownership of the notes entails certain risks regarding the application of
the tax laws of Ireland, the United States, Jersey and the jurisdictions in
which the members of AerCo group and the lessees are organized, reside or
operate. You should refer to "Tax Considerations" for a more detailed discussion
of the possible tax consequences of owning the notes.
OUR OPERATIONS MAY BECOME SUBJECT TO INCOME TAXES, WHICH WOULD REDUCE THE CASH
FLOW AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
Our operations may be subject to the income tax laws of Ireland, the United
States, Jersey and other jurisdictions. There is also a risk that the servicer's
future management of the aircraft may expose members of AerCo group to tax
liabilities outside Ireland. If our income is subject to taxation, the cash
flows available to make payments on the notes may be reduced. For a more
detailed discussion of our potential income tax liabilities you should refer to
"Tax Considerations".
IF WE LOSE OUR IRISH TAX BENEFITS, THE RATING AGENCIES MAY DOWNGRADE THE NOTES
AND WE MAY BE UNABLE TO MAKE REQUIRED NOTE PAYMENTS.
AerCo, AerCo Ireland and AerCo Ireland II are entitled to certain corporate
tax benefits for Shannon, Ireland certified companies including a preferential
corporate taxation rate of 10% through December 2005. The loss of these tax
benefits could lead to a downgrade in the then-current ratings on the notes and
it could also affect our ability to make the required payment on the notes.
If AerFi Group were liquidated or were to cease to hold its 5% shareholding
in AerCo, or if AerFi Group were to reduce or relocate its operations for any
reason such that it failed to maintain, among other things, certain employment
levels at Shannon, Ireland, or if AerFi Administrative Services or AerFi Cash
Manager II were to resign or be removed as administrative agent or cash manager,
respectively, of AerCo group, then AerCo, AerCo Ireland, and AerCo Ireland II
may become subject to Irish corporate taxation at general Irish statutory rates,
which is currently 28%. AerFi Group has agreed to use its best efforts to
maintain the Shannon corporate tax benefits for the benefit of AerCo group.
You should refer to "Irish Tax Considerations -- Irish Income and
Withholding Taxes on Payments on the Notes" for additional discussions of the
Irish tax benefits.
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.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD 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,
AerCo will accept for exchange old notes which are properly tendered on or
before the expiration date and not withdrawn as permitted below. The term
"expiration date" means 3:00 p.m., New York City time, on 1999. If
AerCo, 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 old notes known to AerCo. AerCo's obligations to accept old notes for
exchange is subject to certain conditions as listed under "Conditions to the
Exchange Offer" below.
AerCo expressly reserves the right to extend the time during which the
exchange offer is open, and delay acceptance of any old notes, by giving oral or
written notice of any extension to the exchange agent and the holders. During
any extension, all old notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by AerCo. AerCo 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 old notes or longer if required by applicable law.
AerCo expressly reserves the right to amend or terminate the exchange
offer, and to refuse any old 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." AerCo will give oral or written notice of
any extension, amendment, non-acceptance or termination to the holders of the
old 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 old notes do not have any appraisal or dissenters' rights under
the indenture in connection with the exchange offer. AerCo 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 OLD NOTES
The tender to AerCo of old notes by a holder as described below and the
acceptance by AerCo will constitute a binding agreement between the tendering
holder and AerCo 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 old
notes who wishes to tender old notes for exchange under the exchange offer must
transmit to the exchange agent on or before the expiration date either:
- 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
- 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 old notes:
- the exchange agent must receive a confirmation of a book-entry transfer
of the old notes into its account at The DTC before the expiration date;
or
- the holder of old notes must comply with the guaranteed delivery
procedures described below.
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THE METHOD OF DELIVERY OF OLD 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 AERCO.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the old notes surrendered for exchange are tendered by a
holder of the old 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.
AerCo will determine in its sole discretion all questions as to the
validity, form, eligibility and acceptance of old notes tendered for exchange.
AerCo's decision in this respect will be final and binding. AerCo reserves the
absolute right to reject any tenders of any old notes not properly tendered or
to reject any old notes acceptance of which might, in the judgment of AerCo or
its counsel, be unlawful. AerCo also reserves the absolute right in its sole
discretion to waive any defects or irregularities or conditions of the exchange
offer as to any old notes either before or after the expiration date. AerCo's
interpretation of the terms and conditions of the exchange offer or any old
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 old notes for exchange must be cured within a reasonable period of
time as AerCo shall determine. Neither AerCo, 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 old 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 old 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 AerCo, offer proper
evidence satisfactory to AerCo of its authority to so act must be submitted.
By tendering, each holder of old notes will represent to AerCo that:
- 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,
- neither the holder of old notes nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of the new notes,
- 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 old notes, neither
the holder nor any such other person is engaged in or intends to
participate in the distribution of the new notes, and
- neither the holder nor any other person is an "affiliate" of AerCo
within the meaning of Rule 405 under the Securities Act.
By tendering each holder of old notes that is a broker-dealer, whether or
not it is also an affiliate, that will receive new notes for its own account
pursuant to the exchange offer will represent that old notes to 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.
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ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
AerCo will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. For purposes of the exchange offer, AerCo shall be deemed to have
accepted properly tendered old notes for exchange when, as and if AerCo has
given oral or written notice thereof to the exchange agent.
In all cases, issuance of new notes for old 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 old
notes". If any tendered old notes are not accepted for any reason set forth in
the terms and conditions of the exchange offer, such unaccepted or non-exchanged
old notes will be credited to an account maintained with the DTC as promptly as
practicable after the expiration or termination of the exchange offer.
INTEREST ON THE NEW NOTES
Holders of old notes that are accepted for exchange will not receive
accrued interest on the old 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 old notes or new notes, or if no interest has been paid on the old
notes or new notes.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the old
notes at the DTC for purposes of the exchange offer promptly after the date of
this prospectus. All deliveries of old notes must be made by book-entry transfer
to the account maintained by the exchange agent at the DTC. Any financial
institution that is a participant in the DTC's systems may make book-entry
delivery of old notes by causing the DTC to transfer such old notes into the
exchange agent's account in accordance with the DTC's ATOP procedures for
transfer. Holders of old notes who are unable to deliver confirmation of the
book-entry tender of their old notes into the exchange agent's account at the
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 old notes according
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a holder of the old 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
completed on a timely basis, a tender may be effected if:
- 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,
- 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 AerCo listing:
-- the name and address of the holder of old notes,
-- the amount of old notes tendered,
-- 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
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- 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 old 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 procedures of the DTC's ATOP system
must be complied with. Any notice of withdrawal must specify the name of the
person that tendered the old notes to be withdrawn and identify the old notes to
be withdrawn. Any notice of withdrawal must specify the name and number of the
account at the DTC to be credited with the withdrawn old notes and otherwise
comply with the procedures of the DTC. All questions as to the validity, form
and eligibility of such notices will be determined by AerCo, whose determination
shall be final and binding on all parties. Any old notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
exchange offer. Any old notes which holders have tendered for exchange but which
are not exchanged for any reason will be credited to an account maintained with
the DTC for the old notes as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Holders who have properly withdrawn
old notes may retender old notes by following one of the procedures described
under "Procedures for Tendering old notes" above at any time on or before the
expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, AerCo shall not
be required to accept any old notes for exchange or to issue new notes in
exchange for any old notes. AerCo may terminate or amend the exchange offer, if
at any time before the acceptance of such old notes for exchange or the exchange
of the new notes for such old notes, such acceptance or issuance would violate
applicable law or any interpretation of the staff of the Commission.
The foregoing condition is for the sole benefit of AerCo and may be
asserted by AerCo regardless of the circumstances giving rise to such condition
or may be waived by AerCo in whole or in part at any time and from time to time
in its sole discretion. The failure by AerCo 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, AerCo will not accept for exchange any old notes tendered, and
no new notes will be issued in exchange for any such old 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.
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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:
Delivery To: Bankers Trust Company, as Exchange Agent
If by Mail, Hand or Overnight Courier:
Bankers Trust Company
Four Albany Street
Mail Stop 5101
New York, New York 10006
Attention: Structured Finance Group
or
If by Facsimile:
(212) 250-6439
Confirm by Telephone:
(212) 250-5601 or (212) 250-6137
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 AerCo. No additional compensation will be paid to the exchange agent
who engages in soliciting tenders. AerCo will not pay brokers, dealers, or
others soliciting acceptances of the exchange offer. AerCo however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
it 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 AerCo and are estimated in the aggregate to be $500,000.
TRANSFER TAXES
Holders who tender their old 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 old notes to AerCo 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.
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CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for new notes
under the exchange offer will continue to be subject to the transfer
restrictions of the old notes. In general, the old 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. AerCo does not intend to register the old
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 old notes pursuant to the exchange offer will reduce the principal
amount of the old notes outstanding. This may have an adverse effect upon, and
increase the volatility of, the market price of the old notes due to a reduction
in liquidity.
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THE PARTIES
AERCO
AerCo is a special purpose limited liability company formed on June 4, 1998
under the laws of Jersey. AerCo's limited purposes include:
- acquiring, financing, re-financing, leasing, re-leasing, maintaining and
modifying the aircraft and any additional aircraft directly or by owning
the share capital of ALPS 94-1 and the other aircraft-owning
subsidiaries;
- selling aircraft or interests in aircraft including in certain
tax-related transactions;
- entering into certain hedging contracts; and
- establishing and providing loans or guarantees to its subsidiaries and
any entities that it may establish in the future for additional aircraft
acquisitions.
AerCo's direct wholly owned subsidiaries are ALPS 94-1, AerCo Ireland,
AerCo Ireland II and AerCo USA. AerCo operates its business principally through
its direct and indirect subsidiaries but may also directly acquire or lease
aircraft. AerCo's own business therefore principally consists of, and its own
revenues are derived principally from, making loans to its subsidiaries.
AerCo has an authorized share capital of 10,000 ordinary shares, $1 par
value per share, 20 of which are issued and outstanding. Nineteen shares of the
issued capital stock are held by the Juris Limited and Lively Limited, each a
Jersey limited liability company (together, the "Nominees"), for the benefit of
the AerCo Holding Trust, a charitable trust established under the laws of Jersey
(the "Charitable Trust"). AerFi Group holds one share of the issued capital
stock.
AerCo's registered and principal office is located at 22 Grenville Street,
St. Helier, Jersey, JE4 8PX, Channel Islands and its telephone number is
011-44-1534-609000.
AERFI
AerFi Group plc holds all of AerCo's subclass D-1 and subclass E-1 Notes.
AerFi's wholly owned subsidiaries provide administrative, accounting, liability
management, financial consulting and cash management services to AerCo group.
At January 31, 1999, AerFi employed 30 people and had 65 commercial
aircraft in its portfolio, of which 62 were on lease to 32 lessees in 20
countries.
On November 20, 1998, AerFi, formerly known as GPA, completed a
restructuring which significantly changed its operations. As part of the
restructuring, AerFi sold a portion of its aircraft portfolio to GE Capital
Aviation Services Limited ("GECAS"), including one aircraft which was previously
owned by ALPS 94-1, transferred its interest in Airplanes Group to GECAS and
agreed to stop using the GPA name.
BABCOCK & BROWN
Babcock & Brown, provides various services to AerCo group under the
servicing agreement. Babcock & Brown is a part of a global financial advisory
group specializing in arranging and managing asset-based financial transactions,
with particular expertise in the international aviation industry. The Babcock &
Brown group is one of the largest independent arrangers of finance and operating
leases for aircraft, providing financial advisory or management services in
approximately 775 transactions to more than 140 clients in the international
aviation industry.
The Babcock & Brown group has been providing management services to its
clients for aircraft on operating lease since 1990, and has developed a team of
experienced professionals and support systems to handle the broad range of tasks
involved in the management of high value assets. At March 31, 1998, the Babcock
& Brown group managed a portfolio of 63 aircraft on behalf of its clients. The
portfolio contained 14 widebody and 49 narrowbody aircraft.
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<PAGE> 31
The Babcock & Brown group's lease arrangement services include acquiring
and managing aircraft on operating lease for identified investors. The Babcock &
Brown group also represents owners of aircraft in the sale of aircraft from
their portfolios. Since 1990, the Babcock & Brown group has completed aircraft
operating lease transactions with more than 40 airlines and operating lessees,
including transactions involving 130 aircraft. Between December 1994 and March
1998, the Babcock & Brown group arranged the re-lease of 37 aircraft owned by
its clients.
Babcock & Brown is headquartered in Dublin, Ireland and at March 31, 1998
had seven employees. The Babcock & Brown group is headquartered in San
Francisco. At March 31, 1998, the Babcock & Brown group had 275 employees in 14
office locations in Brisbane, Dublin, Connecticut, Hong Kong, Johannesburg,
London, Madrid, Melbourne, Milan, New York, Paris, San Francisco, Seattle and
Sydney.
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THE REFINANCING OF ALPS 94-1 AND ACQUISITION OF THE
AERFI TRANSFERRED COMPANIES
On July 15, 1998, AerCo purchased all of the outstanding capital stock of
ALPS 94-1 from the trustees of the ALPS 94-1 trust for a nominal amount. This
purchase price reflected the very limited economic entitlements of these
trustees as shareholders of ALPS 94-1.
AerFi also purchased all of the outstanding capital stock of AerCo Ireland,
AerCo Ireland II and AerCo USA (together, the "AerFi transferred companies")
from AerFi Group for a net purchase price equal to $0.3 million, calculated as
follows:
(1) the aggregate initial appraised value of the 10 AerFi transferred
aircraft ($213.2 million);
LESS THE SUM OF:
(2) the amount of cash security deposits held in respect of the 10 AerFi
transferred aircraft at July 15, 1998 (approximately $2.8 million);
and
(3) the amount of indebtedness of any Aerfi transferred company to AerFi
at July 15, 1998 (approximately $210.1 million).
On July 15, 1998, AerCo loaned ALPS 94-1 a portion of the net cash proceeds
from the offering and the issuance of the subclass D-1 and subclass E-1 notes to
AerFi for the purpose of immediately redeeming or repaying all of ALPS 94-1's
existing financial indebtedness and paying fees and other expenses payable by
ALPS 94-1 in connection with the refinancing of ALPS 94-1 and the offering.
ALPS 94-1, GECAS, former servicer to ALPS 94-1 and AerFi Group, also
reached an agreement to terminate the existing ALPS 94-1 servicing agreement on
July 15, 1998 in exchange for a termination fee. ALPS 94-1 agreed, upon
termination of the ALPS 94-1 servicing agreement to waive all claims it may have
against GECAS, its affiliates and their representatives. ALPS 94-1 also agreed
to indemnify GECAS, its affiliates and their representatives for any losses they
may have incurred in connection with the termination of the ALPS 94-1 servicing
agreement, the offering and the issuance of the AerCo Notes and the refinancing
of ALPS 94-1.
On July 15, 1998, AerCo loaned each AerFi transferred company a portion of
the net proceeds of the offering to immediately repay its indebtedness to AerFi
Group. All letters of credit, guarantees or similar arrangements securing
obligations of any lessee of the AerFi transferred aircraft were transferred to,
renewed, amended or reissued in the name of, an AerFi transferred company.
The trustees of the ALPS 94-1 trust made no representations, warranties or
indemnities in selling their shares to AerCo. AerFi Group made customary
representations and warranties, in the share purchase agreement for the
acquisition including representations relating to solvency, undisclosed
contingent liabilities and insurance. AerFi Group indemnified us for breaches of
their representations and warranties relating to the aircraft-owning companies
and aircraft which they sold to us. These representations and warranties survive
until July 15, 2001. Our potential recovery under them is limited to
approximately $185 million.
BANKRUPTCY CONSIDERATIONS
We have taken steps in structuring the transactions described in this
prospectus to ensure that our assets and liabilities are not consolidated with
those of AerFi if AerFi becomes the subject of an application for relief under
applicable bankruptcy or insolvency laws. ALPS 94-1 took similar steps in
relation to its acquisition of the original ALPS 94-1 aircraft from AerFi in
1994 and 1995 for the same purpose. These steps included:
- the creation of AerCo and ALPS 94-1 as separate legal entities outside
Ireland,
- the requirement that AerFi hold no more than the 5% of AerCo's capital
stock necessary to assist us and certain of our subsidiaries in
obtaining certain corporate tax benefits for Shannon, Ireland certified
companies,
31
<PAGE> 33
- the requirement that AerFi not control the composition of AerCo's board
of directors, and
- the inclusion in various transaction documents of provisions requiring
that our business and affairs and the business and affairs of our
subsidiaries are at all times identifiable and separately managed from
those of AerFi.
McCann FitzGerald, our Irish counsel, concluded in an opinion delivered at
the time the old notes were issued that on the basis of certain assumptions and
subject to certain qualifications and reservations:
- in any examination of AerFi Group or any of its affiliates, an Irish
examiner would not be able to contend successfully that an examiner
should be appointed to any member of AerCo group on the grounds that,
after the closing date, such member is a "related company" of AerFi
Group or such affiliate; and
- an Irish court should not treat AerFi or any of its affiliates, on the
one hand, and any member of AerCo group, on the other, as a single
entity in any winding up of AerFi Group or such affiliate and order
-- the pooling of any of the assets and liabilities of any member of
AerCo group with those of AerFi; or
-- the contribution of any of the assets of any member of AerCo group to
the repayment of the debts of AerFi.
In the context of liquidation, examination or receivership of AerFi Group
or any of its affiliates, a liquidator, receiver, examiner, creditor or
shareholder of AerFi Group or any of its affiliates could take the position that
the disposal of the shares of any of the AerFi transferred companies pursuant to
the share purchase agreements constituted improper transfers or fraudulent
conveyances and could therefore seek the invalidation of such sales and the
return to AerFi of such shares or proceeds of subsequent sales of the shares.
With respect to these issues, we have received an opinion of Irish counsel,
McCann FitzGerald, concluding that, on the basis of certain assumptions,
including as to the adequacy of consideration and subject to certain
qualifications and reservations set forth in such opinion, an Irish court would
not regard the completed sale of the shares of the AerFi transferred companies
pursuant to the share purchase agreements as improper transfers or fraudulent
conveyances and order any such assets to be returned to AerFi on such grounds.
AerFi and AerCo have taken appropriate steps to transfer the shares of the
AerFi transferred companies to AerCo. A liquidator, receiver, examiner, creditor
or shareholder of AerFi Group, any such seller or any relevant affiliate,
however, could seek to recharacterize the transfer of the shares of the AerFi
transferred companies as a pledge of collateral as security for a financing of
AerFi. A successful recharacterization of the share transfers as a pledge or
granting of security could:
- in certain circumstances result in the complete forfeiture of the rights
of AerCo group in the transferred aircraft or the shares of the AerFi
transferred companies, possibly resulting in AerCo group being
considered a general unsecured creditor of AerFi Group or the applicable
seller with a claim in an amount equal to the purchase price paid for
such aircraft or such shares, or
- in other circumstances result in AerCo group being a secured creditor of
AerFi Group or the applicable seller or of the relevant affiliate. AerCo
group, however, has received an opinion of McCann FitzGerald concluding
that, notwithstanding the uncertainty resulting from the lack of
substantive Irish case law on the issue of recharacterization, and
subject to the qualifications and reservations, including as to
difference of treatment of the sales for accounting purposes, and based
on the assumptions set forth in the opinion. The assumptions to the
opinion include, in addition to the assumption as to the adequacy of
consideration, the assumption that both AerFi and AerCo group will, so
far as permissible in accordance with current accounting standards, act
in a manner consistent with the shares having been sold, the sales of
the shares of AerFi transferred companies once completed would not be
recharacterized as a pledge of such assets to secure a loan from AerCo
group to AerFi.
32
<PAGE> 34
We can give you no assurance, however, that the circumstances and
assumptions upon which counsel have based their opinion will not change, that a
court of competent jurisdiction would not decide differently from the views
expressed in such counsel's opinions or that such opinions will prove to be
correct. Such opinions represent only the best judgment of counsel and are not
binding on the courts. In particular, such opinions depend on certain factual
assumptions and the occurrence of different facts could lead a court to reach a
different conclusion.
AerCo group will also take appropriate steps to structure the acquisition
of additional aircraft or shares in additional aircraft-owning subsidiaries of
any sellers, which may include AerFi, to minimize the risk of recharacterization
described above. The nature and magnitude of such risk will depend largely on
the financial condition of the relevant seller and the bankruptcy and insolvency
laws of the jurisdiction or jurisdictions applicable to it and its assets. There
can be no assurance that a liquidator, receiver, examiner, creditor or
shareholder of the relevant seller could not seek to recharacterize the
acquisition of additional aircraft as described above or could not otherwise
seek to challenge the rights of AerCo group in the additional aircraft or the
shares of the companies owning them.
33
<PAGE> 35
THE AIRCRAFT, RELATED LEASES AND COLLATERAL
APPRAISERS' REPORTS
AerCo group recently obtained appraisals of the aircraft as of January 18,
1999. On the basis of these appraisals, the average appraised base value of the
34 aircraft was approximately $896 million compared with $938 million at March
1, 1998, the date of the initial base value appraisals. The appraised value is
equal to the average of the opinions of the appraisers as to the base value of
each aircraft without taking into account the value of the leases, maintenance
reserves or security deposits.
The decrease in the appraisals since March 1, 1998 was approximately $22.6
million more than the expected decrease assumed by the aircraft depreciation
schedules that form part of the terms of the notes. The average decline in the
appraised base value of the fleet of 4.5% is based on an effective 11 months
depreciation, from March 1, 1998 to January 18, 1999. The decline of 2.1%
assumed in this prospectus is calculated on the basis of a six month period from
July 15, 1998, using the assumed depreciation rate of 4.1% per annum described
in "Description of the Notes -- Payment of Principal and Interest -- Principal
Amortization".
The valuation of our fleet included in the offering memorandum for the old
notes was not depreciated for the period between March 1, 1998, the date of the
initial base values and July 15, 1998, the closing date of the AerCo
transaction. This factor accounts for a substantial portion of the difference
between the appraisals as of January 18, 1999 and the value decline assumption
in the offering memorandum. In addition, the appraisals reflected decreases in
the values of Fokker 100s that are greater than we assumed, primarily as a
result of Fokker exiting the industry. We also experienced greater than assumed
decreases with respect to the values of A320-200s and B737-300/400/500s due
primarily to continued price discounting by Boeing and Airbus and with respect
to AerCo's A300B4-200 due to increased over supply of this aircraft type.
The appraisers have provided appraisals of the value of each of the
aircraft at normal utilization rates in an open, unrestricted and stable market
as of January 18, 1999, adjusted to account for the reported maintenance
standard of the aircraft. The appraisals were not based on physical inspection
of the aircraft. The appraisals explain the methodology used to determine the
values for the aircraft. Based on the appraisals, the aggregate base values
calculated by each of the three appraisers for the aircraft are $913.3 million
in the case of BK Associates, Inc., $919.5 million in the case of Aircraft
Information Services, Inc. and $855.0 million in the case of Airclaims Limited.
You should not rely on the appraised value as a measure of the realizable value
of any aircraft.
34
<PAGE> 36
PORTFOLIO INFORMATION
THE AIRCRAFT
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 lists the aircraft by type of aircraft both by
reference to the number of aircraft at January 18, 1999 and to the percentage of
appraised value at January 18, 1999.
<TABLE>
<CAPTION>
NUMBER OF ENGINE % OF AIRCRAFT BY
MANUFACTURER TYPE OF AIRCRAFT AIRCRAFT BODY TYPE STAGE APPRAISED VALUE
- ------------ ---------------- --------- ---------- ------ ----------------
<S> <C> <C> <C> <C> <C>
Boeing (65.47%)........................ B737-400 7 Narrowbody 3 19.65%
B757-200 3 Narrowbody 3 13.93
B767-300ER 2 Widebody 3 13.42
B737-300 5 Narrowbody 3 12.68
B747-200B 1 Widebody 3 3.57
B737-500 1 Narrowbody 3 2.21
Airbus (17.53%)........................ A320-200 5 Narrowbody 3 16.23
A300-B4-200 1 Widebody 3 1.30
McDonnell Douglas Corporation
(10.51%)............................. MD83 3 Narrowbody 3 7.06
DC8-71F 2 Narrowbody 3 3.45
Fokker N.V. (6.49%).................... F100 4 Narrowbody 3 6.49
----- ------
34 100.00%
===== ======
</TABLE>
35
<PAGE> 37
The following table lists the aircraft by lessee at January 18, 1999 both
by reference to the number of aircraft and to the percentage of the appraised
value at January 18, 1999.
<TABLE>
<CAPTION>
NUMBER OF % OF AIRCRAFT BY
LESSEE(1) AIRCRAFT APPRAISED VALUE
- --------- --------- ----------------
<S> <C> <C>
Spanair S.A................................................. 3 11.35%
Airtours International Airways Limited...................... 2 6.68
Linea Aerea Nacional Chile S.A.............................. 1 6.68
Asiana Airlines, Inc........................................ 2 5.92
Turk Hava Yollari A.O....................................... 2 5.73
Transportes Aereos Regionais S.A............................ 3 4.88
Philippine Airlines, Inc.................................... 2 4.78
Air 2000 Limited............................................ 1 4.71
China Southwest Airlines.................................... 1 4.65
Aerovias Nacionales de Colombia S.A. Avianca................ 1 4.58
Tower Air, Inc.............................................. 1 3.57
Monarch Airlines Limited.................................... 1 3.45
Canadian Airlines International Limited..................... 1 3.33
Aer Lingus Limited.......................................... 1 2.80
Compagnie Nationale Air France.............................. 1 2.77
China Aviation Supplies Corporation and Civil Aviation
Administration of China -- Yunnan Administration.......... 1 2.69
Pegasus Hava Tasimaciligi A.S............................... 1 2.62
Malev RT.................................................... 1 2.61
Gunes Ekspres Havacilik A.S................................. 1 2.60
British Midland Airways Limited............................. 1 2.58
Far Eastern Transport Corporation........................... 1 2.45
Air Pacific Limited......................................... 1 2.21
Aircraft International Leasing Limited...................... 1 1.77
BAX Global, Inc............................................. 1 1.68
Portugalia-Companhia Portuguesa de Transportes Aereos,
S.A....................................................... 1 1.62
Indian Airlines Limited..................................... 1 1.30
----- ------
34 100.00%
===== ======
</TABLE>
- ---------------
(1) Total number of lessees = 26
36
<PAGE> 38
The following table lists the aircraft by country at January 18, 1999
according to the number of aircraft and to the percentage of the appraised value
at January 18, 1999.
<TABLE>
<CAPTION>
% OF
NUMBER OF AIRCRAFT BY
COUNTRY(1) AIRCRAFT APPRAISED VALUE
- ---------- --------- ---------------
<S> <C> <C>
United Kingdom.............................................. 5 17.43%
Spain....................................................... 3 11.35
Turkey...................................................... 4 10.96
Chile....................................................... 2 8.45
China....................................................... 2 7.34
South Korea................................................. 2 5.92
United States............................................... 2 5.25
Brazil...................................................... 3 4.88
Philippines................................................. 2 4.78
Colombia.................................................... 1 4.58
Canada...................................................... 1 3.33
Ireland..................................................... 1 2.80
France...................................................... 1 2.77
Hungary..................................................... 1 2.61
Taiwan...................................................... 1 2.45
Fiji........................................................ 1 2.21
Portugal.................................................... 1 1.62
India....................................................... 1 1.30
----- ------
34 100.00%
===== ======
</TABLE>
- ---------------
(1) Total number of countries = 18
The following table lists the aircraft by region at January 18, 1999
according to the number of aircraft and to the percentage of the appraised value
at January 18, 1999.
<TABLE>
<CAPTION>
% OF
NUMBER OF AIRCRAFT BY
REGION AIRCRAFT APPRAISED VALUE
- ------ --------- ---------------
<S> <C> <C>
Developed Markets
Europe.................................................... 11 35.96%
North America............................................. 3 8.57
Emerging
Asia...................................................... 8 21.79
Latin America............................................. 6 17.90
Europe and the Middle East................................ 5 13.56
Others...................................................... 1 2.21
----- ------
34 100.00%
===== ======
</TABLE>
37
<PAGE> 39
The following table lists the aircraft by year of aircraft manufacture or
conversion to freighter at January 18, 1999 calculated by reference to the
number of aircraft and to the percentage of the appraised value at January 18,
1999.
<TABLE>
<CAPTION>
% OF
NUMBER OF AIRCRAFT BY
YEAR OF MANUFACTURE AIRCRAFT APPRAISED VALUE
- ------------------- --------- ---------------
<S> <C> <C>
1981........................................................ 1 3.57%
1983........................................................ 1 1.30
1988........................................................ 1 2.58
1989........................................................ 4 9.54
1990........................................................ 3 8.04
1991........................................................ 10 30.45
1992........................................................ 11 33.04
1993........................................................ 3 11.48
----- ------
34 100.00%
===== ======
</TABLE>
The following table lists the exposure of the aircraft by seat category at
January 18, 1999 calculated by reference to the number of aircraft and to the
percentage of the appraised value at January 18, 1999.
<TABLE>
<CAPTION>
% OF
NUMBER OF AIRCRAFT BY
SEAT CATEGORY AIRCRAFT TYPE AIRCRAFT APPRAISED VALUE
- ------------- ------------- --------- ---------------
<S> <C> <C> <C>
91-120 B737-500, F-100............................ 5 8.70%
121-170 A320-200, B737-300, B737-400, MD83......... 20 55.62
171-240 B757-200................................... 3 13.93
241-350 A300-B4-200, B767-300ER.................... 3 14.72
351 and above B747-200B.................................. 1 3.57
Freighter DC8-71F.................................... 2 3.45
----- ------
34 100.00%
===== ======
</TABLE>
38
<PAGE> 40
AERCO PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
DATE OF
AIRCRAFT ENGINE SERIAL MANUFACTURE/
REGION COUNTRY LESSEE TYPE CONFIGURATION NUMBER CONVERSION
- ------ ------- ------ -------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Asia..................... China China Southwest B757-200 RB211-535E4 26153 Aug-92
(Emerging) China Yunnan B737-300 CFM56-3C1 26068 Jun-92
India Indian Airlines A300-B4-200 CF6-50C2 240 May-83
Philippines PAL B737-300 CFM56-3B1 24465 Aug-89
Philippines PAL B737-300 CFM56-3B1 24677 Mar-90
South Korea Asiana Airlines B737-400 CFM56-3C1 25764 Jul-92
South Korea Asiana Airlines B737-400 CFM56-3C1 25765 Jul-92
Taiwan FEAT MD83 JT8D-219 49952 Dec-91
Europe................... France Air France A320-200 CFM56-5A1 85 Feb-90
(Developed) Ireland Aer Lingus B737-400 CFM56-3C1 24685 May-90
Portugal Portugalia F100 TAY650-15 11342 Aug-91
Spain Spanair B767-300ER PW4060 24999 Feb-91
Spain Spanair MD83 JT8D-219 49627 Apr-89
Spain Spanair MD83 JT8D-219 49790 Oct-89
United Kingdom Air 2000 B757-200 RB211-535E4 26158 Feb-93
United Kingdom Airtours A320-200 CFM56-5A3 299 Apr-92
United Kingdom Airtours A320-200 V2500-A1 362 Nov-92
United Kingdom British Midland B737-400 CFM56-3C1 23868 Oct-88
United Kingdom Monarch A320-200 CFM56-5A3 391 Feb-93
Europe................... Hungary Malev B737-300 CFM56-3C1 24909 Apr-91
(Emerging) Turkey Pegasus B737-400 CFM56-3C1 23979 Jan-89
Turkey Sun Express B737-300 CFM56-3C1 24908 Mar-91
Turkey THY B737-400 CFM56-3C1 24904 Feb-91
Turkey THY B737-400 CFM56-3C1 26066 Jun-92
Latin America............ Brazil TAM F100 TAY650-15 11341 Aug-91
(Emerging) Brazil TAM F100 TAY650-15 11350 Apr-92
Brazil TAM F100 TAY650-15 11351 Sep-91
Chile Lan Chile B767-300ER PW4060 24947 Mar-91
Chile Aircraft International DC8-71F CFM56-2C1 46040 Mar-91
Leasing Limited(1)
Columbia Avianca B757-200 RB211-535E4 26152 Aug-92
North America............ Canada Canadian A320-200 CFM56-5A1 403 Dec-93
(Developed) United States BAX Global DC8-71F CFM56-2C1 46064 Mar-92
United States Tower Air B747-200B JT9D-7Q 22496 Oct-81
Other.................... Fiji Air Pacific B737-500 CFM56-3C1 26067 Jun-92
<CAPTION>
APPRAISED
VALUE AT
JANUARY 18
REGION 1999
- ------ -------------
(U.S.$'000'S)
<S> <C>
Asia..................... 41,633
(Emerging) 24,099
11,648
20,736
22,103
26,720
26,285
21,983
Europe................... 24,800
(Developed) 25,091
14,496
60,437
20,493
20,780
42,170
29,537
30,347
23,132
30,937
Europe................... 23,366
(Emerging) 23,466
23,308
24,912
26,467
Latin America............ 14,160
(Emerging) 15,096
14,431
59,841
15,858
41,012
North America............ 29,791
(Developed) 15,040
31,996
Other.................... 19,785
--------
895,956
========
</TABLE>
- ---------------
(1) Aircraft International Leasing Limited is an indirect 100% subsidiary of Lan
Chile.
ACQUISITION OF ADDITIONAL AIRCRAFT
AerCo group may acquire additional commercial passenger or freight aircraft
from various sellers, including AerFi. Cash flows from any additional aircraft
and any additional leases will be available to satisfy AerCo's payment
obligations, on the notes and any additional notes. Any acquisition of
additional aircraft and issuance of additional notes will be subject to certain
conditions under the indenture. You should refer to "Description of the Notes --
Payment of Principal and Interest -- Indenture Covenants -- Limitation on
Indebtedness" and "-- Limitations on Aircraft Acquisitions" for additional
information on restrictions on the acquisition of additional aircraft.
39
<PAGE> 41
THE LEASES
GENERAL
All leases are managed by Babcock & Brown under the servicing agreement.
The following description relates only to the leases. Any additional leases
acquired in connection with the acquisition of additional aircraft and any
future leases entered into in connection with the re-lease of any aircraft may
differ from the description of the leases set forth below. However, any
additional leases or future leases must comply with the operating covenants
contained in the indenture.
The leases are all operating leases under which AerCo generally will retain
the benefit, and bear the risk, of the residual value of the aircraft at the end
of the lease. The lessees have agreed to lease the aircraft for a fixed term.
However, AerCo has granted purchase, extension or early termination options on
certain aircraft to the lessee or an affiliate of the lessee. Although the lease
documentation is fairly standardized in many respects, significant variations do
exist as a result of lessee negotiation.
LEASE PAYMENTS AND SECURITY
Each lease requires the lessee to pay periodic rentals during the lease
term. Certain of the leases require the lessee to pay periodic amounts as
maintenance reserves or to provide maintenance letters of credit or guarantees.
The lessees must make payments to the lessor without set-off or
counterclaim, and must gross-up payments under the lease where payments are
subject to certain withholding and other taxes. However, in certain cases, such
amount will be limited to the amount that would have been payable if the lease
had never been transferred from AerFi to AerCo. The leases also contain
indemnification of the lessor for certain taxation liabilities and, in all but
one case, taxation of indemnity payments. Indemnification for taxation
liabilities typically includes value added and stamp duty taxes, but excludes
income taxes or their equivalent. The lessees must also pay default interest on
any overdue amounts.
The lessees are liable through various operational indemnities for
operating expenses accrued or payable during the term of the lease. These
expenses 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. The lessees must
remove liens on the aircraft other than liens permitted under the leases.
Under all of the leases, the lessee provided security deposits for its
obligations. The lessee has provided cash security deposits in the case of 17
leases or, 52.61% of the leases by appraised value at January 18, 1999. The
lessee has provided letters of credit in the case of 10 leases representing
24.71% of the leases by appraised value at January 18, 1999. The lessee provided
a combination of cash security deposits and letters of credit in the case of the
remaining 7 leases or 22.68% of the leases by appraised value at January 18,
1999.
Under 10 of the leases, the lessor received general guarantees from third
parties for the lessee's payment obligations under the lease. In some cases, the
lessor also received guarantees of the lessee's performance obligations under
the lease. In the case of seven of the leases, these guarantees were issued by
the lessee's shareholder or affiliate. In the case of the leases to China
Southwest and Yunnan, a guarantee for each lessee's payment obligations was
issued by the Bank of China. In each case, the guarantee was subject to a
stipulated maximum amount. In the case of one lease, letters of comfort were
issued to the lessor by two of the lessee's shareholders.
RENTALS
Rentals under 32 of the leases -- 92.66% of the leases by appraised value
at January 18, 1999 -- are payable monthly in advance. Rentals under the
remaining two leases are payable quarterly in advance.
Rental payments on the leases are calculated either on a fixed or floating
rate basis. The rental payment of a lease, which is calculated on a floating
rate basis generally has a rental floor that is payable even if
40
<PAGE> 42
LIBOR is 0% per annum plus an amount which varies with LIBOR or varies itself.
The rental floor varies from lease to lease.
OPERATION OF THE AIRCRAFT
The lessees must operate the aircraft in compliance with all applicable
laws and regulations. The aircraft generally must remain in the possession of
the lessees, and the lessor must approve any subleases of the aircraft. The
lessees may enter into charter or "wet lease" arrangements with the aircraft
under most of the leases, as long as lessees do not relinquish possession or
operational control of the aircraft. A wet lease is a lease with crew and
services provided by the lessee. Under certain leases, the lessees may enter
into subleases to specified operators without the lessor's consent, if certain
conditions are met. Two of the lessees currently sublease their aircraft, BAX
Global to Air Transport International and Aer Lingus to Futura.
The lessees may subject the engines and other equipment or components to
removal or replacement and to pooling arrangements with permitted entities
without the lessor's consent but subject to conditions and criteria in the
relevant lease. The lessees may 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.
MAINTENANCE AND MAINTENANCE RESERVES
The leases contain detailed provisions specifying maintenance standards and
aircraft redelivery conditions. Lessees must provide monthly maintenance
reserves under approximately half of the leases. Under the balance of the
leases, the lessee or the lessor may be required to make certain adjustment
payments to each other if the aircraft or specified items at redelivery do not
meet the standards. During the term of each lease, the lessee must 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. Generally, the lessee performs the agreed maintenance
program. If the lessee has paid maintenance reserves, the payments are used to
reimburse the lessee for significant maintenance charges, including major
airframe and engine overhauls.
If the leases do not provide for maintenance reserves payments, the lessor
must rely on the lessee's credit and its ability to perform scheduled
maintenance throughout the lease term, return the aircraft in the condition
required by the lease, or make any payments required upon termination of the
lease.
Because many of our aircraft are roughly the same age and have similar
usage patterns, a large portion of the portfolio will come due for major
airframe and engine overhauls during 1999 and 2000. Depending on the level of
AerCo's maintenance receipts, the timing of the overhauls and the amount of
maintenance already done by the lessee, completing these overhauls could result
in significant cash outflows during the next two years.
LESSEES' OPTIONS
Purchase options for six of the aircraft or 23.57% of the aircraft by
appraised value at January 18, 1999 have been granted to lessees under the lease
or a separate purchase option agreement.
All of the purchase options are currently exercisable. The duration of some
purchase options depends on whether the lessee exercises a separate option to
extend the lease. There are no purchase options which are exercisable at prices
below the assumed note target prices.
Five of the leases -- 16.03% of the leases by appraised value at January
18, 1999 -- include options for the lessee to extend the lease term. One of the
leases, includes an option for the lessor to extend the lease term. The rent
payable during the extension period varies from lease to lease. Four of the
leases or 8.12% of the leases by appraised value at January 18, 1999, contain
provisions allowing early termination of the lease.
41
<PAGE> 43
COMPLIANCE WITH GOVERNMENTAL AND TECHNICAL REGULATION.
In addition to general requirements regarding maintenance of aircraft,
aviation authorities issue airworthiness directives ("ADS") requiring the
operators of aircraft to take particular maintenance actions or make particular
modifications to a number of aircraft of designated types. ADs normally specify
a period in which to carry out the required action or modification and generally
enough time is allowed to permit the implementation of the AD in connection with
scheduled maintenance of the aircraft or engines. The lessees usually bear the
cost of compliance with ADs issued by applicable aviation authorities and,
relevant manufacturers' recommendations. AerCo group may be required to
contribute a portion of such costs over a specified threshold. However, if a
lessee fails to perform ADs required on an aircraft, AerCo group would bear the
cost of compliance necessary for the aircraft to maintain its certificate of
airworthiness. In such circumstances, funds in the collection account and lessee
funded account will be available to mitigate the costs of compliance, although
such use would reduce the availability of such amounts to cover the cost of
scheduled maintenance. There can be no assurance that such funds will be
available at the time needed or that any funds available will be sufficient for
such purposes.
Other governmental regulations may apply to the aircraft, including
requirements relating to noise and emissions levels. Such regulations may be
imposed not only by the jurisdictions in which the aircraft are registered, but
also in jurisdictions where the aircraft operate. Chapters 2 and 3 of Chicago
Convention establish two progressively restrictive noise level standard that
correspond to the requirements for Stage 2 and Stage 3 aircraft. A number of
jurisdictions have adopted, or are in the process of adopting, noise regulations
which will require all aircraft to comply with the most restrictive of these
standards. Such regulations restrict the future operation of aircraft that are
not Stage 3 aircraft and will prohibit the operation of such aircraft in the
relevant jurisdictions early in the next century, 1999 in the case of the United
States. Since AerCo group has the ability to acquire Stage 2 aircraft, these
regulations may affect AerCo adversely. In addition, local municipalities may
have more stringent noise regulations than those applicable to Stage 3 aircraft.
Volume 2 of Annex 16 of the Chicago Convention also contains standards and
recommendations regarding limitations on vented fuel and smoke and gaseous
emissions for aircraft. While a number of countries have adopted regulations
implementing these recommendations, such regulations generally have been
prospective in nature, requiring only that newly manufactured engines meet
particular standards after a particular date. To the extent that these
regulations require modifications to the engines owned by AerCo group, they
would be treated similar to ADs under the leases.
Aviation authorities in Europe and North America have recently adopted
regulations requiring the installation of traffic collision avoidance systems,
automatic emergency locator transmitters and certain other systems. Depending on
whether the costs of complying with these regulations are borne by AerCo or the
lessees, installation of these systems could result in significant cash capital
expenditures by AerCo in 1999 and 2000.
INDEMNIFICATION AND INSURANCE OF THE AIRCRAFT
GENERAL
The lessees will bear responsibility through an operational indemnity and
carry insurance for any liabilities arising out of the operation of the
aircraft. The indemnity includes liabilities for death or injury to persons and
damage to property that ordinarily would attach to the operator of the aircraft.
In addition, the lessees are required to carry additional insurance that are
customary in the air transportation industry. Babcock & Brown monitors the
lessee's compliance with the insurance provisions of the leases. AerCo also have
its own contingent liability coverage. This will cover a liability that is in
excess of the coverage provided by a lessee's policy and where a lessee's policy
lapses. AerCo's contingent third party liability insurance will cover all of the
aircraft and its contingent hull and hull war risks insurance covers certain of
the aircraft. The amount of the contingent liability policies may not be the
same as required under the lease. The amount of third party contingent liability
insurance is subject to certain limitations imposed by the air transportation
insurance industry.
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<PAGE> 44
If any of the existing insurance policies are canceled or terminated and in
the case of the re-lease of an aircraft, AerCo or Babcock & Brown may engage
insurance experts to advise and recommend the appropriate amount of insurance
coverage AerCo should procure.
All insurance certificates contain a breach of warranty endorsement so that
the additional insured parties remain protected even if the lessee violates any
of the terms, conditions or warranties of the insurance policies, provided that
the additional insured party has not caused, contributed to or knowingly
condoned the breach.
LIABILITY INSURANCE
The lessees are required to have third party liability insurance for a
combined single limit in minimum amounts ranging between $350 million and $850
million for each aircraft. In general, liability coverage on each aircraft
includes third party legal liability, property damage legal liability, passenger
legal liability, baggage legal liability, cargo legal liability, mail and
aviation general third party legal liability.
In some jurisdictions, liabilities for risks that the lessees insure may
attach to AerCo group as owner of the aircraft regardless of whether AerCo is in
any way responsible for the loss for which liability is asserted. In addition,
claimants may assert claims against AerCo group on the basis of alleged
responsibility for a loss, even if the claim is not sustained. Under the leases,
the lessees are obligated to indemnify the lessor against claims. Covered claims
include the costs of defending against claims by third parties against them for
liabilities while the aircraft are owned by AerCo group and under lease to the
lessees.
The indemnified losses include both operating costs relating to the actual
operation of the aircraft 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 insurances.
AIRCRAFT PROPERTY INSURANCE
The lessees must carry other types of insurance that are customary in the
air transportation industry, including all risks aircraft hull and hull war
risks insurance and aircraft spares insurance. The value of the aircraft hull
and hull war risk insurance is usually stipulated in the lease. Aircraft spares
insurance is usually on a replacement cost basis. Both types of insurance are
subject to customary deductibles. In addition to the stipulated lease value
coverage obtained by the lessees, AerCo group purchases declining "total loss
only" coverage with respect to certain aircraft. As of January 18, 1999, the sum
of the stipulated loss value and the additional coverage for the aircraft in
place for all risks aircraft hull and hull war risks insurances was at least
107% of the appraised value of each aircraft. On average, the sum of such
coverages in place for each aircraft was approximately 129% of the appraised
value of each aircraft. In many cases, the lessor can increase the insured value
above the stipulated lease value consistent with industry practice with the
lessee paying any increased premium. Permitted deductibles range from $250,000
to $1,000,000; however, the deductible generally applies only in the case of a
partial loss. In the case of a total loss of an aircraft no deductible would be
applied against the insurance proceeds received.
The leases 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 air transportation insurance 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. Where insurance proceeds do cover a total loss, most leases require the
lessor to pay to the lessee the balance of the insurance proceeds received under
the hull all risks or war risks policy after deduction of all amounts payable by
the lessee to the lessor under the lease.
POLITICAL RISK REPOSSESSION INSURANCE
Under certain leases, the lessor may arrange separate political risk
repossession insurance for its own benefit, covering confiscation,
nationalization and requisition of title of any aircraft by the government of
the country of registry and denegation and deprivation of legal title and
rights. The political risk repossession
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<PAGE> 45
insurance also covers the failure of the authorities in that country to allow
de-registration and export of the aircraft, subject to the conditions of the
policies. Only 9.29% of the leases by appraised value of the aircraft concerned
at January 18, 1999 require the lessee to reimburse the lessor for any political
risk repossession insurance premiums.
THE LESSEES
As of January 31, 1999, there were 26 lessees in 18 countries.
REGIONAL CONCENTRATIONS
ASIA PACIFIC CONCENTRATION. At January 18, 1999, 21.79% of the aircraft by
appraised value at January 18, 1999 were leased by operators in "emerging"
markets in the Asia Pacific region, including China, the Philippines, South
Korea and India. One lessee, Asiana, leased 5.92% of the aircraft by appraised
value at January 18, 1999.
Trading conditions in Asia's civil aviation industry have been adversely
affected by the severe economic and financial difficulties experienced recently
in the region. The economies of the region have experienced acute difficulties
resulting in many business failures, significant depreciation of local
currencies against the dollar, downgrading of sovereign and corporate credit
ratings and internationally organized financial stability measures. One Asian
lessee recently filed for bankruptcy protection. Several airlines in the region,
including one lessee, recently announced their intention to reschedule their
aircraft purchase obligations, eliminate certain routes and reduce employees.
This downturn in the region's economies may undermine business confidence,
reduce demand for air travel and adversely affect the Asian lessees' operations
and their ability to meet their obligations.
LATIN AMERICAN CONCENTRATION. At January 18, 1999, 17.90% of the aircraft
by appraised value at January 18, 1999 were leased by operators in "emerging
markets" in Latin America, principally Brazil, Chile and Colombia. One lessee,
Lan Chile, leased 6.68% of the current portfolio by appraised value at January
18, 1999. The financial prospects for lessees in Latin America depends 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.
Most significantly, Brazil has experienced significant downturns in its
economy and financial markets, with large decreases in financial asset prices.
Since it devalued its currency on January 13, 1999, Brazil has seen dramatic
decreases in the value of its currency. One of the lessees representing 4.88% of
the aircraft by appraised value at January 18, 1999 operates three of the
aircraft in Brazil. Continued weakness in the value of the Brazilian real, as
well as general deterioration in the Brazilian economy, means that this lessee
may be unable to generate sufficient revenues in Brazilian currency to pay the
dollar-denominated rental payments under the lease. More importantly, financial
and economic problems in Brazil could spread throughout Latin America and other
"emerging" economies, having a similar effect on many of our other lessees.
Similarly, the Chilean economy has recently suffered adverse effects as a
result of the continuing economic difficulties in Asia and lower market prices
for certain of Chile's exported commodities, especially copper, woodpulp and
fishmeal. In the past, Asia has accounted for a significant portion of Chile's
exports. Copper is Chile's principal export product. Copper prices have declined
dramatically over the past year, primarily as a result of Asia's economic
difficulties as discussed above. Such economic developments, especially if they
continue or worsen, could lead to lower levels of economic activity in Chile
which could, in turn, adversely affect the operations of AerCo group's Chilean
lessee.
EUROPEAN CONCENTRATION. At January 18, 1999, 49.52% of the aircraft by
appraised value at January 18, 1999 were leased by operators based in Europe. Of
this amount, lessees of 35.96% of the aircraft are based in "developed" European
markets, principally the United Kingdom and Spain. Lessees of the remaining
13.56% of the aircraft were based in "emerging" European markets, principally
Turkey. One lessee, Spanair, leased 11.35% of the aircraft by appraised value at
January 18, 1999. As of January 18, 1999, 46.72% of the
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<PAGE> 46
aircraft by appraised value at January 18, 1999 were leased to charter operators
in the tourism industry, principally in the United Kingdom (17.43% of the
aircraft by appraised value at January 18, 1999).
The commercial aviation industry in Europe 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. As a
result, the financial prospects for European lessees will depend on the level of
economic activity in Europe and in the specific countries where they operate. A
recession or other worsening of economic conditions in any European country may
adversely affect the European lessees' ability to meet their financial and other
obligations. For example, the Russian economy has recently experienced severe
difficulties, including significant devaluation of the rouble against the
dollar. The downturn in Russia's economy may undermine business confidence and
reduce demand for air travel in other emerging market countries. Competitive
pressures from continuing deregulation of the airline industry by the EU may
also adversely affect European lessees' operations and their ability to meet
their obligations under the leases.
NORTH AMERICAN CONCENTRATION. At January 18, 1999, 8.58% of the aircraft
by appraised value at January 18, 1999 were leased by operators in North
America. As in Europe, the commercial aviation industry in North America is
highly sensitive to general economic conditions. Since airline travel is largely
discretionary, the industry has suffered severe financial difficulties during
economic downturns. Over the last several years, nearly half of the major North
American passenger airlines have filed Chapter 11 bankruptcy proceedings and
several major U.S. airlines have ceased operations.
PAYMENT HISTORY
Weakly capitalized airlines are more likely than well capitalized airlines
to seek operating leases. Therefore, many of the lessees are in a relatively
weak financial position and several of them have faced and continue to face
severe economic difficulties.
As of January 31, 1999, amounts outstanding for more than 30 days for
rental payments, maintenance reserves and other amounts due under the leases
equalled $3.66 million for 4 lessees who had a total of 5 aircraft on lease. The
outstanding amounts are net of agreed deferrals or other restructurings, default
interest and cash in transit.
As of January 31, 1999, a Brazilian lessee representing 4.88% of the
portfolio by appraised value at January 18, 1999 owed $0.50 million. Babcock &
Brown is in negotiations with the lessee regarding payment of its arrearages.
The outcome of these negotiations could include a substantial restructuring of
the leases, including changes in the lease rate and term.
PAL, the lessee of two B737-300 aircraft representing 4.78% of the
portfolio by appraised value at January 18, 1999, has recently suffered severe
financial difficulties. On June 19, 1998, PAL filed a petition for Approval of a
Rehabilitation Plan with the Philippine SEC and subsequently the Philippine SEC
appointed an Interim Receiver. PAL was instructed by the Philippine SEC to
submit a rehabilitation plan within thirty days. Following a number of
applications for extension of this time limit, PAL filed a rehabilitation plan
with the Philippine SEC on December 7, 1998 for approval. A revised plan was
filed on March 15, 1999.
It is unclear whether PAL will receive support for its proposed
rehabilitation plan from its creditors or whether it will be approved by the
Philippine SEC.
At January 31, 1999, $3.33 million was outstanding from PAL, with $3.30
million in arrears for more than 30 days. Babcock & Brown is in negotiations
with PAL regarding repayment of its arrearages. There can be no assurance,
however, that PAL will ultimately repay its arrearages or be able to pay future
lease rentals. AerCo group may encounter delays or difficulties in recovering
possession of the aircraft, which are currently operated within the Philippines,
or terminating such leases. If the aircraft are recovered, the technical costs
required to ensure the aircraft are in suitable condition for re-leasing may be
significant.
As of January 31, 1999, a North American lessee, representing 3.57% of the
portfolio by appraised value at January 18, 1999, owed $0.79 million in rent, of
which $0.33 million was in arrears for more than 30 days.
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<PAGE> 47
As ALPS 94-1 has done in the past, AerCo expects to respond to the needs of
lessees in financial difficulty including, restructuring the applicable leases
or agreeing lease deferrals. The restructurings will typically involve the
rescheduling of rental payments for a specified period. In addition, certain
restructurings may involve the voluntary early termination of a lease, the
replacement of aircraft with less expensive aircraft and the arrangement of
sub-leases from the lessee to another aircraft operator. In certain cases, it
may be necessary to repossess aircraft from defaulting lessees and re-lease the
aircraft to other lessees. The early termination of leases may lead AerCo to
incur swap breakage costs under its agreements with swap providers which could
be substantial. You should refer to "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Interest Rate Management" for
additional information on swap breakage costs.
Since 1995, ALPS 94-1 has entered into deferral and other restructuring
transactions with two of the lessees and one former lessee involving a total of
three aircraft. These restructurings are described below.
The Airbus A320-200 aircraft on lease to Airtours was, until November 1995,
leased to a U.K. charter operator. During 1994 and 1995, this lessee incurred
substantial losses. In July 1995 when approximately $0.70 million was due under
the lease, ALPS 94-1 agreed with the lessee and its parent company to terminate
the lease in November 1995. The lessee agreed to a termination fee of $500,000,
payable from the security deposit held by ALPS 94-1. In December 1995, the
parties entered into a restructuring agreement, which provided for the payment
of a L200,000 fee to settle all of ALPS 94-1's outstanding claims under the
first restructuring agreement. The amounts were payable in monthly installments
through October 1997. All installments have been paid under a bank letter of
credit.
Upon termination of this lease, the A320-200 aircraft was immediately
released to Airtours as part of a larger aircraft swap transaction, under which
Airtours terminated its lease of the MD83 aircraft owned by ALPS 94-1 and
entered into a seven-year lease for the A320-200 aircraft. ALPS 94-1 shortly
thereafter re-leased the MD83 aircraft to FEAT for three years. Although the
transfer of the two aircraft was achieved without either aircraft being
off-lease for any significant period, ALPS 94-1 incurred maintenance and other
expenses of approximately $0.20 million and $0.50 million in connection with the
redelivery of the A320-200 aircraft and the MD83 aircraft. Lost cash flow
attributable to the restructuring described above, including the subsequent
transfer of aircraft during the year ended June 30, 1996 was $0.60 million.
In December 1996, Canadian, lessee of an A320-200 aircraft approached ALPS
94-1 with proposals to reschedule its obligations as part of a general plan
designed to address its financial difficulties. After extensive negotiations,
ALPS 94-1 and Canadian entered into an agreement in May 1997 providing for the
deferral of operating lease rentals from December 1996 to February 1997. The
deferred payments have all been repaid together with interest. In addition,
Canadian has extended its lease for a further 61 months. The restructuring
agreement resulted in a loss of cash flow to ALPS 94-1 of approximately $0.90
million during the year ended June 30, 1997.
In early 1996, a Latin American airline which operates a Boeing B757-200
aircraft experienced significant periodic cash shortages as a result of a
seasonal drop in revenues. In April 1996, ALPS 94-1 agreed to the deferral of
approximately $0.90 million in rental and maintenance payments for January and
February 1996 to August 1996. The amounts deferred, together with default
interest and a deferral fee, were subsequently paid. In addition, in December
1997, this lessee prepaid 12 months' rental payments under the relevant lease.
Since January 1, 1999 this lessee has incurred significant short term
arrearages. Babcock & Brown is actively monitoring the situation.
Certain lessees have experienced periodic difficulties in meeting their
maintenance obligations under the leases. Such difficulties are caused by the
failure of the lessee to have in place a well established maintenance program,
adverse climate and other environmental conditions in the locations where the
aircraft are operated or financial and labor difficulties experienced by the
relevant lessee.
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DOWNTIME
As of January 31, 1999, none of the aircraft was off-lease. There can be no
assurance that ALPS 94-1 and AerFi's experience will be indicative of AerCo
group's and Babcock & Brown's ability to keep the aircraft and any additional
aircraft on-lease in the future. AerCo group and Babcock & Brown may be unable
to re-lease aircraft upon the expiration of leases as a result of a
deterioration in industry conditions, decreased demand for specific types of
aircraft or other factors.
The table below lists the leases that are scheduled to expire through 2003,
and also shows the number and type of aircraft that we must re-lease through
December 31, 2003. The table assumes that no lease will terminate early and that
there are no sales of aircraft or purchases of additional aircraft. More
aircraft may need to be re-leased if aircraft become available through early
lease terminations.
AERCO GROUP LEASE PLACEMENT REQUIREMENT AT JANUARY 18, 1999
<TABLE>
<CAPTION>
TO DECEMBER 31,
-----------------------------------------
AIRCRAFT TYPE 1999 2000 2001 2002 2003
------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
A300............................................. -- -- 1 -- --
A320............................................. 1 1 -- 1 1
B737............................................. 5 2 3 2 --
B747............................................. -- -- -- -- --
B757............................................. -- -- -- 1 1
B767............................................. -- 1 1 -- --
DC8.............................................. -- -- -- -- 2
F100............................................. -- -- -- 1 --
MD83............................................. -- -- -- 1 --
</TABLE>
DESCRIPTION OF THE LESSEES
The table below lists certain available information on the country of
domicile, government, airline or principal shareholders, fleet size and
composition and the first year of operation of each lessee. You should refer to
"-- Portfolio Information" above for additional tables detailing the exposure of
the portfolio as a percentage of appraised value at January 18, 1999 to each
lessee and the countries and geographic regions in which the lessees are
domiciled.
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET(1)
- ------ -------- --------- ------------------------------ --------
<S> <C> <C> <C> <C>
Aer Lingus.............. Republic of Ireland 1936 Government of Ireland (100%) 6 B737-400
8 B737-500
5 A330-300
1 L-1011-100
Airtours................ United Kingdom 1990 Airtours Plc (100%) 10 A320-200
4 B757-200
4 B767-300ER
Air 2000................ United Kingdom 1986 First Choice Holidays Plc (100%) 4A320-200
9 B757-200
</TABLE>
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<PAGE> 49
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET(1)
- ------ -------- --------- ------------------------------ --------
<S> <C> <C> <C> <C>
Air France.............. France 1933 Government of France (95%) 5 F100
7 B737-300
16 B737-500
17 B737-200A
4 B747-100
2 B747-200B
10 B747-200BC
10 B747-200F
2 B747-200SF
2 B747-300C
7 B747-400
6 B747-400C
5 B767-300ER
2 A300-B4-200
6 A310-200
4 A310-300
9 A319-100
13 A320-100
43 A320-200
6 A321-100
4 A321-200
3 A340-200
11 A340-300
6 Concorde
9 F.27-5000
Air Pacific............. Fiji 1951 Government of Fiji (72%) 1 B737-300
Qantas (17.5%) 1 B737-500
Air New Zealand (2%) 1 B747-200B
1 B767-300ER
Asiana.................. Republic of Korea 1988 Kumho Group (62%) 19 B737-400
Korean Development Bank (12.6%) 3 B737-500
Korean Long Team Credit Bank (6.4%) 12 B747-400
Swiss Bank Corp (19%) 8 B767-300
8 B767-300ER
1 A321-100
Avianca................. Colombia 1919 Private 3 B727 200
4 B757 200
3 B767 200ER
1 B767 300ER
10 F50
11 MD83
British Midland......... United Kingdom 1938 BBW Partnership (60%) 4 F100
SAS (40%) 9 Saab340
3 F70
8 B737-300
5 B737-400
13 B737-500
1 Jetstream 41
BAX Global.............. United States 1972 Bax Global Northern Air Freight 3 B727-200A
1997 (100%) 11 DC8-60
1979 11 DC8-70
Canadian................ Canada 1987 AMR (33%) 12 A320-200
41 B737-200
4 B747-400
9 B767-300ER
4 DC10-30
5 DC10-30ER
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET(1)
- ------ -------- --------- ------------------------------ --------
<S> <C> <C> <C> <C>
China Southwest......... People's Republic 1987 People's Republic of China (100%) 1 B707-300
of China 16 B737-300
11 B757-200
3 AN-24
5 TU-154
4 Y-12
FEAT.................... Taiwan 1957 China Development (controlled by the 2 B737 200A
KMT, Taiwan's ruling party) (14%) 3 B757-200
China Airlines (10%) 7 MD82
3 MD83
Indian Airlines......... India 1953 Government of India (100%) 1 Fairchild 228-200
7 B737-200A
1 B737-200AC
8 A300-B2-100
2 A300-B4-200
30 A320-200
Lan Chile............... Chile 1929 Grupo Guato (38.5%) 18 B737-200A
Grupo Pifiera (33.1%) 11 B767-300ER
Grupo Humas (19%) 1 B757-200QC
Grupo Ebler (8.4%)
Malev................... Hungary 1946 Government of Hungary (63.9%) 6 B737-200A
Alitalia (30%) 2 B737-400
2 B767-200ER
5 F70
4 B737-300
3 Tu-134
5 Tu-154
Monarch................. United Kingdom 1967 Cosmos Guide Holding International 4 A300-600ER
NV (100%) 5 A320-200
6 B757-200
1 DC10-30
1 A321-200
1 L-1011-1
Pegasus................. Turkey 1990 Yapi Kredit Bank (49%) 3 B737-400
Alper Elchin (21%)
Silkar and Net Holdings (30%)
PAL..................... Philippines 1941 Lucio Tan (34%) 11 A300-B4-200
Government (33%) 11 B737 300
10 F50
1 MD11ER
8 A330-300
4 A340-200
5 A340-300
4 A320-200
5 A340-300
3 B747-200B
4 B747-400
Portugalia.............. Portugal 1987 Groupo Espirito Saneto (61%) 6 F100
5 RJ145
1 RJ70
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET(1)
- ------ -------- --------- ------------------------------ --------
<S> <C> <C> <C> <C>
Spanair................. Spain 1987 SAS (49%) 2 B767-300ER
15 MD-83
1 MD-82
2 MD-87
1 MD-81
2 B757-200
Sun Express............. Turkey 1990 THY (60%) 3 B737-300
Condor (Lufthansa subsidiary) (40%) 2 B737-400
TAM..................... Brazil 1976 VASP (3.35%) 29 F100
Rolim Amao (66.6%) 9 F50
6 F27
6 Citation
Tower Air............... United States 1982 Tower Travel (75%) 5 B747-100
1 B747-100F
9 B747-200B
1 B747-200SF
THY..................... Turkey 1933 Republic of Turkey (98.7%) 7 A310-200
7 A310-300
5 A340-300
3 B727-200A
28 B737-400
2 B737-500
4 RJ70
9 RJ100
Yunnan.................. People's Republic 1992 China Southwest (50%) 14 B737-300
of China City of Kunming (Yunnan Province) 3 B767-300ER
(50%)
</TABLE>
- ---------------
(1) Source: Airclaims Limited CASE Database, February 15, 1998.
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<PAGE> 52
MANAGEMENT OF AERCO GROUP
Except as described in this prospectus, particularly upon an event of
default, neither you nor the trustee has a right to participate in AerCo's
management or affairs. Neither you nor the trustee can supervise the functions
relating to the leases and the re-lease of the aircraft, which are delegated to
Babcock & Brown under the servicing agreement.
DIRECTORS
AerCo's board of directors will have no more than five members. The holder
or holders of a majority in aggregate principal amount of AerCo's class E notes
have the right to appoint two directors while the class E notes are outstanding.
The remaining directors must be independent directors. The initial independent
directors are Mr. Frederick W. Bradley, Jr., Chairman of AerCo, Mr. Kenneth N.
Peters and Mr. G. Adrian Robinson. The succeeding independent directors will be
appointed by a majority of the then standing directors. If no independent
directors are serving on the board at any time, three new independent directors
will be appointed in accordance with AerCo's Articles of Association. Mr. Edward
Hansom and Ms. Rose Hynes were appointed directors by AerFi as holder of the
majority of the subclass E-1 notes. Any resolution of the board of directors
will require the affirmative vote of a majority of the independent directors.
Transactions and proceedings that relate to certain insolvency proceedings,
amendments to AerCo's Memorandum or Articles of Association, acquisition of
additional aircraft, mergers or the sale of all or substantially all of AerCo's
assets may only be approved by a unanimous vote of all directors.
The directors, their ages and principal activities are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICES HELD WITH THE REGISTRANT
- ---- --- --------------------------------
<S> <C> <C>
Frederick W. Bradley, Jr.................. 71 Director and Chairman
Kenneth N. Peters......................... 63 Director
G. Adrian Robinson........................ 49 Director
Edward Hansom............................. 40 Director
Rose Hynes................................ 40 Director
</TABLE>
Frederick W. Bradley, Jr. -- From 1969 until 1992, Mr. Bradley was a Senior
Vice President of Citibank N.A., in charge of the bank's global airline and
aerospace business, having joined Citibank in 1958. Mr. Bradley has served as a
director and Chairman of ALPS 94-1 since 1994. Mr. Bradley also serves as a
director and Chairman of Aircraft Lease Portfolio Securitisation 92-1 Limited.
Mr. Bradley is also a director of America West Airlines, Inc., First Citicorp
Life Insurance Co., and the Institute of Air Transport, Paris, France and is
president of the International Air Transport Association's (IATA) International
Airline Training Fund of the United States.
Kenneth N. Peters -- Mr. Peters was Assistant Treasurer of The Boeing
Company from 1985 to 1995 and was Vice President, Customer Financing at The
Boeing Company from 1995 until his retirement from The Boeing Company in 1997.
From 1960 to 1985, Mr. Peters held various positions with The Boeing Company
including the positions of Manager and Director of Customer Financing within the
Corporate Treasurer's Organization.
G. Adrian Robinson -- Mr. Robinson has been an Aerospace Consultant since
1992. From 1990 to 1992 Mr. Robinson was a Deputy General Manager of The Nippon
Credit Bank. Until 1989, he was a Managing Director, Special Finance Group of
Chemical Bank, which he joined in 1986. Mr. Robinson also serves as a director
of ALPS 94-1 and its subsidiaries and Aircraft Lease Portfolio Securitisation
92-1 Limited and its subsidiaries. Mr. Robinson also provides consulting
services from time to time to Air 2000, one of the lessees.
Edward Hansom -- Mr. Hansom is Chief Financial Officer of AerFi. He joined
AerFi in 1988 from the treasury division of Schroders. Prior to taking up his
current position in May 1997, Mr. Hansom was General Manager, Treasury of AerFi
Group.
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<PAGE> 53
Rose Hynes -- Ms. Hynes is General Counsel of AerFi. She joined AerFi Group
in 1988, having previously been a partner in an Irish law firm. Prior to taking
up her current position with AerFi in May 1997, she was Vice President,
Corporate Finance of AerFi. Ms. Hynes also serves as a director of Aer Lingus,
one of the lessees, and certain of its subsidiaries.
AerCo's directors are non-executive and AerCo does not and will not have
any employees or executive officers. Accordingly, the board of directors relies
upon Babcock & Brown, the administrative agent, the cash manager and the other
service providers for all asset servicing, executive and administrative
functions under the service provider agreements. Certain individuals other than
the directors listed above serve as directors of various subsidiaries of AerCo.
All directors are compensated for travel and other expenses incurred by
them in the performance of their duties. AerCo pays each independent director an
aggregate fee of $75,000 per annum for their services. The directors appointed
by the holder of a majority in aggregate principal amount of the class E notes
do not and will not receive remuneration from AerCo for their services.
Mr. Bradley, Mr. Peters and Mr. Robinson also act as directors of certain
AerCo group subsidiaries. Mr. Bradley, Mr. Peters and Mr. Robinson each receive
$1,000 for each day, or portion of a day, which they are required to devote to
the activities of those subsidiaries and AerCo, excluding board meetings.
AerCo knows of no arrangement, the exercise of which could result in a
change in control of AerCo.
BENEFICIAL OWNERSHIP OF AERCO
<TABLE>
<CAPTION>
NUMBER OF PERCENT
TITLE OF CLASS NAME AND ADDRESS SHARES OF CLASS
- -------------- ---------------- --------- --------
<S> <C> <C> <C>
Common Stock Mourant & Co. Trustees Limited,................... 19 Shares 95%
as trustee of AerCo Holding Trust
22 Grenville Street
St. Helier
Jersey, Channel Islands
AerFi Group plc................................... 1 Share 5%
Aviation House
Shannon,
Ireland
</TABLE>
Under the shareholders undertaking entered into on July 15, 1998 by Mourant
& Co. Trustees Limited as trustee of the charitable trust, the nominees, AerFi,
AerCo and the trustee, the charitable trust trustee and AerFi agreed that, as
long as the AerCo notes are outstanding, they will not, without the prior
written approval of the trustee and all the directors, transfer any part of the
capital stock held by them or any interest therein unless the transferee:
(1) in the case of the capital stock held by the nominees for the
charitable trust trustee, is a trustee of a trust formed for
charitable purposes substantially identical to those for which the
Charitable Trust is established; and
(2) enters into an agreement substantially identical to the shareholders
undertaking in favor of the trustee.
In consideration for the undertakings given by the charitable trust trustee
in the shareholders undertaking, the charitable trust trustee is entitled to
receive from AerCo an undertaking fee equal to $1,500 per annum. Under the
instrument of trust establishing the charitable trust, a certificate given by
the directors to the charitable trust trustee that its voting of the capital
stock in a specified manner is in the best commercial interests of AerCo shall,
for the purposes of the exercise of the charitable trust trustee's discretion,
be conclusive that any such action is in AerCo's best commercial interests.
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<PAGE> 54
THE SERVICER
Babcock & Brown and its affiliates cannot be held responsible for any
liabilities of AerCo or its affiliates, including any payments due to you on the
Notes.
OPERATING GUIDELINES
Babcock & Brown provides services to AerCo group under the servicing
agreement. Babcock & Brown does not have any fiduciary or other implied duties
to you or AerCo, and its obligations are limited to the express terms of the
servicing agreement. Babcock & Brown will act in accordance with applicable law
and with AerCo's directions and may exercise such authority as is necessary to
give it a practicable and working autonomy in performing the services.
Babcock & Brown must also comply with the following two contractual
standards in performing its services:
(1) It 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. We refer to this as the Babcock & Brown services
standard.
(2) If a conflict of interest arises regarding Babcock & Brown's
management, servicing or marketing of: (a) any two aircraft or (b) any
aircraft and any other assets owned, managed, serviced or marketed by
the Babcock & Brown group, Babcock & Brown is required to notify AerCo
and perform the services in good faith. If the two aircraft and other
assets owned, managed, serviced or market by Babcock & Brown are
substantially similar in terms of objectively identifiable
characteristics that are relevant for the particular services to be
performed, Babcock & Brown will not discriminate among the aircraft or
between any of the aircraft and any other aircraft then owned,
managed, serviced or marketed by Babcock & Brown on an unreasonable
basis. We refer to this as the Babcock & Brown conflicts standard.
All transactions to be entered into by Babcock & Brown on behalf of AerCo
group, other than with other persons within AerCo group, must be at arm's length
and on fair market value terms unless otherwise agreed or directed by AerCo. The
following transactions or matters with respect to the aircraft require AerCo's
specific written approval including:
- sales of or agreements to sell aircraft or any engine forming part of
the aircraft unless required by the lease;
- entering into new leases that do not comply with the operating
covenants;
- entering into amendments, renewals or extensions of existing leases that
do not comply with the operating covenants;
- terminating any lease for any aircraft having an aggregate depreciated
net book value over $100 million;
- entering into any contract for modification or maintenance of the
aircraft not provided for in the AerCo budget if:
-- the cost to AerCo is more than, the estimated cost of a heavy
maintenance check for the airframe and the engines and the available
maintenance reserves or other collateral under the related lease,
whichever is greater, or
-- the modification or maintenance is outside the ordinary course of
AerCo group's business.
- entering into any capital commitment or confirming any order or
commitment to acquire aircraft or engines;
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<PAGE> 55
- issuing any guarantee on behalf of any person within AerCo group other
than guarantees:
-- by one AerCo group member of the lease obligations of another, or
-- for trade payables incurred in the ordinary course of AerCo group's
business;
- entering into any agreements for services costing more than $50,000 to
be provided by third parties at AerCo group's cost, unless this is an
expense provided for in the budget; and
- entering into or amending or granting a waiver in any transaction with
Babcock & Brown or any of its affiliates on behalf of any person within
AerCo group.
LIMITATION ON LIABILITY
Babcock & Brown is not liable to any person, other than AerCo group to the
limited extent described below, for any losses relating to
- the sale, lease or purchase of our aircraft on less favorable terms than
might have been achieved at any time, so long as the transactions were
entered into on the basis of a commercial decision or recommendation of
Babcock & Brown in accordance with the Babcock & Brown services
standard;
- Babcock & Brown's obligation to apply the Babcock & Brown conflicts
standard in performing its services, except, where the losses are
finally adjudicated to have been caused directly by their negligence,
recklessness, wilful misconduct or fraud;
- the ownership, operation, maintenance, acquisition, leasing, financing,
refinancing or sale of any of our aircraft, or any action, or failure to
act on the part of any person at any time, prior to the effective date
of the servicing agreement;
- any action that AerCo, the cash manager or the administrative agent,
instructs Babcock & Brown to take, limit or terminate despite Babcock &
Brown's contrary recommendation;
- AerCo group's refusal to take any action that Babcock & Brown
recommends;
- circumstances where any person within AerCo group has received amounts
sufficient to cover such losses; or
- the gross negligence, recklessness, fraud or wilful misconduct of any
person within AerCo group.
INDEMNIFICATION
AerCo group will indemnify Babcock & Brown and its affiliates and
representatives on an after-tax basis for any losses that may be asserted
against them relating to:
- Babcock & Brown's performance under the servicing agreement;
- errors in judgment or omissions by Babcock & Brown or any action taken,
limited or terminated in accordance with AerCo's, the cash manager's or
the administrative agent's instructions, except where the losses are
finally adjudicated to have been caused by Babcock & Brown's negligence,
recklessness, fraud or wilful misconduct in performing its obligations;
or
- any of the circumstances under which Babcock & Brown would not be liable
to AerCo as described above.
Babcock & Brown will indemnify AerCo group on an after-tax basis for losses
arising from the performance of its services, where the losses are finally
adjudicated to have:
- been caused directly by the negligence, recklessness, fraud or wilful
misconduct of Babcock & Brown or any of its affiliates or delegates in
respect of its obligations to apply the Babcock & Brown services
standard or the Babcock & Brown conflicts standard in connection with
the performance of its services; or
- directly resulted from a breach by Babcock & Brown of the express terms
and conditions of the servicing agreement.
Babcock & Brown's obligation to indemnify AerCo excludes circumstances
where any person within AerCo group has already received an amount sufficient to
cover such losses and is limited to a maximum
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<PAGE> 56
amount of $21 million in the aggregate with respect to any and all losses,
except for losses arising from fraud on the part of Babcock & Brown, for which
Babcock & Brown will have unlimited liability.
AIRCRAFT SERVICES
Babcock & Brown provides a wide range of services to AerCo group,
including:
- lease marketing, such as remarketing, lease drafting, negotiation and
execution;
- initial aircraft asset management, such as rent collection, aircraft
maintenance, insurance, contract compliance and enforcement against
current lessees, and accepting delivery and redelivery of aircraft;
- current aircraft sales;
- arranging valuations and monitoring and advising AerCo on regulatory
developments;
- assisting AerCo to stay in compliance with certain covenants under the
indenture;
- providing AerCo with data and information relating to the our aircraft
and the commercial aviation industry;
- assistance with any public or private offerings and sale of refinancing
notes or additional notes;
- assistance with permitted tax-related dispositions or other permissible
tax-based financings;
- legal and other professional services relating to the lease, sale or
financing of the our aircraft, amendment modification or enforcement of
our aircraft lease; and
- periodic reporting of operational, financial and other information on
our aircraft and leases.
Babcock & Brown has agreed to:
- engage and maintain the necessary staff and supporting resources
required to perform its services;
- grant AerCo group and its agents, access to its information, programs,
records and personnel to enable AerCo group to monitor its compliance
with the servicing agreement and for general AerCo group business; and
- separate its own funds from the funds of any person within AerCo group.
BUDGETS
AerCo will adopt an annual and a three-year budget each year for all
aircraft. Babcock & Brown has agreed to use reasonable commercial efforts to
achieve the annual budget.
MANAGEMENT FEES
Babcock & Brown is paid an annual retainer fee of approximately 0.10% of
the initial appraised value of each aircraft in our fleet. The retainer fee is
payable monthly in arrears in equal installments and subject to pro-rata
reduction for any month in which we do not own all the aircraft currently in our
fleet. In calculating the retainer fee, the initial appraised value may not be
reduced below $250 million until all of the aircraft are sold. Babcock & Brown
also receives a monthly fee, equal to 1% of the aggregate rent paid for that
month or portion of a month that AerCo group owns the related aircraft which are
subject to Babcock & Brown servicing. Babcock & Brown will also receive three
incentive fees:
- a results-based incentive fee, based on a formula to be agreed upon by
Babcock & Brown and AerCo. If no agreement is reached, the fee will
equal 12.50% of any excess of (1) actual revenues available to repay
holders of AerCo's publicly and privately issued debt securities for any
year over (2) 95% of the target amount contained in the applicable
annual budget;
- a sales based fee of 1.25% multiplied by 90% of the initial appraised
value of any aircraft that is sold, net of transaction expenses; and
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<PAGE> 57
- a sales-based incentive fee equal to 10% of the excess of the net
proceeds of an aircraft sale over the target sales price for the
aircraft agreed by AerCo and Babcock & Brown. Babcock & Brown will be
reimbursed for various out of pocket expenses incurred in connection
with the performance of the services.
Babcock & Brown also will be reimbursed for certain expenses incurred in
connection with its performance of the services which in the aggregate may
constitute a significant additional component of AerCo's total overhead costs.
TERM AND TERMINATION
The servicing agreement is for an initial term of 10 years expiring on July
15, 2008. AerCo may extend the term of the servicing agreement to July 15, 2023
upon at least six months written notice to Babcock & Brown and subject to an
increase in the rental fee percentage.
Babcock & Brown may terminate the servicing agreement if:
- AerCo does not pay:
-- any servicing fees within five business days of a written delinquency
notice, or
-- any other amount payable by any person within AerCo group within 10
business days of a delinquency notice;
- any person within AerCo group violates any material term, covenant,
condition or agreement under the servicing agreement;
- an involuntary proceeding under applicable bankruptcy, insolvency,
receivership or similar law against AerCo, any of its subsidiaries or a
substantial part of the property or assets of any person within AerCo
group, continues undismissed for 100 days or an order or decree
approving any of the foregoing shall be entered or any such person goes
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 100 days;
- a voluntary proceeding is commenced under bankruptcy, insolvency,
receivership or similar law against AerCo or any of its subsidiaries,
AerCo or any of its subsidiaries consents to the institution of, or
fails 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;
- Babcock & Brown or its affiliates become liable for taxes, except income
taxes, arising from its performing services to AerCo, if:
-- Babcock & Brown cannot avoid the taxes using reasonable commercial
efforts, and
-- AerCo does not indemnify Babcock & Brown or its affiliates for the
taxes;
- directions given by AerCo or any of its subsidiaries are, or if carried
out would be, unlawful under applicable law.
AerCo may terminate the servicing agreement if:
- Babcock & Brown breaches any of its obligations under the servicing
agreement and fails to cure the breach after written notice from AerCo;
- Babcock & Brown ceases or gives notice that it will cease to be actively
involved in the aircraft advisory and management business;
- AerCo repays, refinances or defeases all of its public or private debt
securities in full;
- Babcock & Brown undergoes a change of control;
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<PAGE> 58
- an involuntary proceeding under bankruptcy, insolvency, receivership or
similar law, against Babcock & Brown or a substantial part of its
property or assets, continues undismissed for 120 days or an order or
decree approving any of the foregoing shall be entered or Babcock &
Brown goes 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 for any of the foregoing
being presented and not discharged within 120 days;
- a voluntary proceeding is commenced against Babcock & Brown under
bankruptcy, insolvency, receivership or similar law upon consent by
Babcock & Brown to the institution of, or failure by Babcock & Brown to
contest the filing of, any petition described above, or filing of an
answer admitting the material allegations of any such petition, or the
making of a general assignment for the benefit of its creditors;
- upon six months' written notice; and
- upon less than six months written notice, if Babcock & Brown is paid:
-- a retainer fee,
-- a rental fee based on rent budgeted to be received during the period
-- an incentive fee based on the achievement of an approved budget target
for a six-month period after written notice of termination is received,
and
-- payment of the termination fee set out below.
The termination fee shall be the following percentage of initial appraised
value as of the date of termination:
<TABLE>
<S> <C> <C>
On or after March 31, 1998 but prior to March 31, 2001...... 0.20%
On or after March 31, 2001 but prior to March 31, 2003...... 0.15%
On or after March 31, 2003 but prior to March 31, 2005...... 0.10%
Thereafter.................................................. Nil
</TABLE>
However, AerCo may terminate the servicing agreement upon less than six
months written notice and pay only 50% of the termination fee described above,
if:
- Babcock & Brown or any of its affiliates is retained to service a fleet
of commercial jet aircraft on or available for lease having an aggregate
appraised value exceeding the lesser of;
-- $3.50 billion in appraised value, or
-- 50% or more, based on appraised value of all commercial jet aircraft
then serviced by Babcock & Brown and its affiliates or;
- Babcock & Brown or any of its affiliates acquires or makes an equity
investment in any aircraft portfolio, securitization vehicle or other
entity that owns or leases commercial jet aircraft on or available for
lease where such investment represents more than 20% of the total equity
of such entity and the appraised value of the portfolio exceeds the
lesser of;
-- $2.50 billion in appraised value, and
-- the amount which represents 35% of all commercial jet aircraft --,
based on appraised value -- then serviced by Babcock & Brown and its
affiliates.
AerCo may terminate the servicing agreement for any aircraft to which any
of the following conditions apply:
- in the case of marketing for re-lease of an aircraft, such aircraft has
been off-lease and is reasonably available for re-lease for more than
180 days after expiry of the agreed lease marketing period; or
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<PAGE> 59
- Babcock & Brown fails, within a reasonable period of time not to exceed
180 days, to submit to AerCo a bona fide third party offer to purchase
an aircraft after written direction from AerCo to arrange such a sale;
or
- Babcock & Brown recommends a course of action for an aircraft or lease
to AerCo which AerCo does not approve and, after negotiation in good
faith, Babcock & Brown refuses to amend, withdraw or replace such
recommendation with one that is consistent with its obligations.
ASSIGNMENT OF SERVICING AGREEMENT
Babcock & Brown and AerCo 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
Babcock & Brown's fees and expenses rank senior in priority of payment to
all payments on the notes.
ADDITIONAL SERVICERS
AerCo may appoint Babcock & Brown to service additional aircraft on the
terms of the servicing agreement. AerCo may also appoint a third party to
service additional aircraft with confirmation by the rating agencies that this
will not result in the lowering or withdrawals of any ratings assigned to the
Notes. You should refer to "Description of the Notes -- Payment of Principal and
Interest -- Operating Covenants" for additional information on limitations on
AerCo's ability to appoint additional servicers for additional aircraft.
CORPORATE MANAGEMENT
ADMINISTRATIVE AGENT
The administrative agent provides administrative and accounting services to
the board of directors including:
- monitoring and reporting on the performance of AerCo group's service
providers to the board of directors on a quarterly basis;
- acting as liaison with the rating agencies;
- establishing and maintaining AerCo group's accounting ledgers;
- providing quarterly and annual draft accounts for AerCo group and
individual companies within AerCo group;
- preparing annual and three year budgets;
- authorizing payment of certain expenses;
- coordinating any amendments to the transaction agreements, other than
the leases;
- procuring, supervising and coordinating AerCo group's outside legal
counsel, accounting, tax and other professional advisors;
- preparing and coordinating reports to investors and the Commission;
- assisting AerCo group's tax advisors with the preparation and filing of
all required tax returns;
- assisting AerCo in developing and implementing its interest rate
management policy and developing financial models, cash flow projections
and forecasts and in making aircraft lease, sale and capital investment
decisions;
- advising AerCo on the appropriate levels of the liquidity reserve
amount; and
- assisting AerCo with the public or private offerings of refinancing
notes.
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<PAGE> 60
AerCo's board of directors may ask the administrative agent to provide
additional administrative services. However, the administrative agent is not
obligated to perform any additional services that could reasonably result in the
business of AerCo or any of its subsidiaries ceasing to be separate and readily
identifiable from, and independent of, the administrative agent, AerFi Group or
any of their respective affiliates.
The administrative agent receives a monthly administrative fee equal to 2%
of the rental payments for each month. The administrative fee must be at least a
minimum of $200,000 per year and will be adjusted for inflation. The
administrative agent will receive an additional fee for services provided in
connection with the public or private offering of securities by AerCo equal to
0.025% of the net proceeds of the offering. The administrative agent is
reimbursed for certain expenses incurred in performing its services under the
administrative agency agreement.
The administrative agent may resign on 60 days' written notice and AerCo
may remove the administrative agent on 120 days' written notice. However, the
administrative agent may not resign or be removed unless AerCo or a court of
competent jurisdiction has appointed a successor administrative agent.
CASH MANAGER
The cash manager provides cash management and related services to AerCo
group. The cash manager's duties include informing Babcock & Brown and the
administrative agent of the aggregate deposits in the accounts and any other
information that is required about the accounts. The cash manager is authorized
to invest funds held by AerCo group in the accounts other than the tax
defeasance account in certain prescribed investments on permitted terms.
The cash manager also calculates certain monthly payments and makes all
other calculations as required under the cash management agreement based on data
provided by the servicer on the aircraft and the leases. The cash manager also
provides information required by the trustee to provide reports to the
noteholders.
The cash manager receives a fee of $250,000 per year for its services to
AerCo group. The fee is subject to adjustment for inflation. The cash manager
will not be liable to AerCo group for any losses or taxes payable by AerCo group
unless the losses or taxes arise from the cash manager's own gross negligence,
simple negligence in the handling of funds, willful misconduct, deceit or fraud
or that of its officers, agents or employees. The cash manager will be
indemnified by the members of AerCo group for any loss, liability or tax
incurred by the cash manager, its officers, directors, agents and employees as a
result of the performance of services under the cash management agreement. AerCo
group will not indemnify the cash manager for losses caused by its own deceit,
fraud, willful default or negligence or that of its officers, directors, agents
and employees.
The cash manager may resign on 60 days' written notice and the security
trustee or AerCo group may remove the cash manager upon 120 days' written
notice. However, the cash manager may not resign or be removed unless AerCo or a
court of competent jurisdiction has appointed a successor cash manager.
COMPANY SECRETARY
The company secretary maintains company books and records, including minute
books and stock transfer records. It makes available telephone, telecopy, telex
and post office box facilities and will maintain a registered office in the
relevant jurisdictions.
Mourant & Co. Secretaries Limited acts as company secretary for members of
the AerCo group that are incorporated in Jersey.
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SELECTED CONSOLIDATED FINANCIAL DATA
FINANCIAL INFORMATION PRESENTED IN THIS PROSPECTUS
AerCo was formed on June 4, 1998 and did not conduct any business
operations until it acquired its aircraft portfolio and issued the old notes on
July 15, 1998. We have included historical financial information for AerCo
elsewhere in this prospectus.
We have extracted or derived the selected consolidated financial data set
forth below from the audited consolidated financial statements of ALPS 94-1, the
predecessor business of AerCo, for each of the fiscal years ended June 30, 1995
(as restated), 1996 (as restated), 1997 (as restated) and 1998. Arthur Andersen,
independent chartered accountants, audited the financial statements for 1995 (as
restated), 1996 (as restated) and 1997 (as restated). KPMG, independent
chartered accountants, audited the financial statements for 1998. We have
included the audited consolidated financial statements of ALPS 94-1 for 1996 (as
restated), 1997 (as restated) and 1998 elsewhere in this prospectus.
The selected consolidated financial data include the results of operations
and financial position relating to the 27 aircraft originally acquired by ALPS
94-1 from AerFi in August 1994, including:
- the Boeing 767-300ER aircraft that was purchased by AerFi from ALPS 94-1
prior to the closing of the offering of the old notes and was not among
the initial aircraft of AerCo.
- the A300-B4-200 aircraft up to April 28, 1998. AerFi acquired this
aircraft from ALPS 94-1 on that date. AerFi subsequently sold this
aircraft to AerCo at the time the old notes were issued.
We believe that the ALPS 94-1 selected consolidated financial data set
forth below is an appropriate presentation because:
- AerCo was formed mainly for the purpose of refinancing the aircraft
portfolio of ALPS 94-1
- Our initial portfolio included 26 of the 27 aircraft that ALPS 94-1
originally acquired from AerFi
- The original ALPS 94-1 aircraft represented 79% of our initial portfolio
by appraised value as at March 1, 1998
- Our ongoing aircraft leasing activities are largely the same as those
conducted by ALPS 94-1.
Such data is not indicative of, and will not be comparable with, the
consolidated financial results of AerCo group during periods since July 15,
1998.
We have included financial statements for the AerFi transferred aircraft
for the years ended June 30, 1997 and 1998 elsewhere in this prospectus. These
financial statements include information on the A300-B4-200 aircraft only from
April 28, 1998, the date AerFi acquired it. Arthur Andersen, independent
chartered accountants, audited the financial statements for 1997. KPMG,
independent chartered accountants, audited the financial statements for 1998. We
have presented these financial statements on the basis that the AerFi
transferred aircraft were operated separately from AerFi for the years
presented. You should note that the companies owning the AerFi transferred
aircraft did not conduct any independent business operations in the years
presented.
We have also included in this prospectus unaudited pro forma combined
financial information for AerCo group for the year ended June 30, 1998. Such pro
forma combined financial information gives effect, among other things, to the
issuance by AerCo of the notes, the refinancing of ALPS 94-1, the sale of the
Boeing 767-300ER and other transactions described in "Unaudited Pro Forma
Combined Financial Information".
ALPS 94-1
We have extracted or derived the ALPS 94-1 selected consolidated financial
data set out below from the ALPS 94-1 consolidated financial statements. ALPS
94-1 did not conduct any business operations prior to its acquisition of the
original ALPS 94-1 aircraft from AerFi in 1994. Accordingly, the financial data
for the
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<PAGE> 62
fiscal year ended June 30, 1995 only includes trading data for the period from
August 24, 1994 to June 30, 1995. These financial statements have been prepared
in accordance with U.K. GAAP which differ in certain significant respects from
U.S. GAAP. For a discussion of the principal differences and a reconciliation
from U.K. GAAP to U.S. GAAP of shareholders' equity and net income or loss at
and for the fiscal years ended June 30, 1996 (as restated), 1997 (as restated)
and 1998, see Notes 22 (as restated), 23 (as restated), 24 (as restated), 25 to
the ALPS 94-1 audited consolidated financial statements.
ALPS 94-1 CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------------------------
1995 1996 1997 1998
------------- ------------- ------------- -------------
(AS RESTATED) (AS RESTATED) (AS RESTATED)
($ THOUSANDS)
<S> <C> <C> <C> <C>
U.K. GAAP
Revenues
Aircraft leasing.............................. 88,050 102,460 101,434 100,682
Expenses
Depreciation.................................. (18,158) (17,978) (38,062) (37,826)
Additional depreciation....................... -- -- (34,385) --
Provision for permanent diminution in aircraft
value...................................... -- (12,000) -- (8,720)
Net interest expense.......................... (64,206) (73,576) (71,037) (69,785)
Other expenses................................ (3,702) (5,581) (5,053) (6,599)
Exceptional item -- termination fee........ -- -- -- (12,700)
Operating profit/(loss)......................... 1,984 (6,675) (47,103) (34,948)
Profit on sale of aircraft.................... -- -- -- 2,426
Reduction in indebtedness....................... -- -- 5,258 --
Profit/(loss) before taxes...................... 1,984 (6,675) (41,845) (32,522)
Taxes........................................... (69) (200) 143 (33)
Dividends....................................... (2) -- -- --
Net income/(loss)............................... 1,913 (6,875) (41,702) (32,555)
U.S. GAAP
Depreciation.................................... (16,442) (32,338) (32,339) (32,053)
Provision for permanent diminution in aircraft
value......................................... -- (12,000) -- (520)
Reduction in indebtedness....................... -- -- 5,258 --
Net loss........................................ (13,603) (21,590) (1,594) (20,808)
</TABLE>
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ALPS 94-1 CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
JUNE 30
--------------------------------------------------------
1995 1996 1997 1998
------------- ------------- ------------- --------
(AS RESTATED) (AS RESTATED) (AS RESTATED)
($ THOUSANDS)
<S> <C> <C> <C> <C>
U.K. GAAP
Aircraft, net of accumulated depreciation and
provision for permanent diminution in aircraft
value.......................................... 957,021 927,043 854,596 800,090
Total assets..................................... 1,039,938 1,021,356 950,031 890,873
Indebtedness................................... (976,494) (953,376) (919,157) (877,128)
Provision for maintenance...................... (29,405) (39,544) (46,247) (44,309)
Total liabilities................................ (1,038,025) (1,026,318) (996,695) (970,092)
Shareholders' equity/(deficit)................... 1,913 (4,962) (46,664) (79,219)
U.S. GAAP
Aircraft, net of accumulated depreciation and
provision for permanent diminution in aircraft
value.......................................... 811,149 766,811 734,472 691,713
Indebtedness..................................... (976,494) (953,376) (919,157) (877,128)
Shareholders' deficit............................ (161,191) (182,781) (184,375) (205,183)
</TABLE>
ALPS 94-1 CONSOLIDATED STATEMENT OF CASH FLOWS AND OTHER DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------------------
1995 1996 1997 1998
------------- ------------- ------------- -------
(AS RESTATED) (AS RESTATED) (AS RESTATED)
($ THOUSANDS)
<S> <C> <C> <C> <C>
U.K. GAAP
Cash paid in respect of interest.............. (51,147) (64,002) (59,872) (54,815)
Net cash provided by operating activities
(after payment of interest)................. 66,526 45,532 45,119 45,721
Net cash (used in)/provided by investing
activities.................................. (953,859) -- -- 10,386
Net cash provided by/(used in) financing
activities.................................. 967,496 (36,025) (43,494) (59,108)
Net movements in cash......................... 80,163 (25,803) (2,886) 134
</TABLE>
ALPS 94-1 SELECTED RATIOS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-----------------------------------------------------
1995 1996 1997 1998
------------- ------------- ------------- -----
(AS RESTATED) (AS RESTATED) (AS RESTATED)
($ THOUSANDS)
<S> <C> <C> <C> <C>
U.K. GAAP
Ratio of Earnings to Fixed Charges.............. 1.031 0.909 0.411 0.534
U.S. GAAP
Ratio of Earnings to Fixed Charges.............. 0.789 0.709 0.976 0.702
</TABLE>
- ---------------
In relation to "Ratios of Earnings to Fixed Charges" under both U.K. GAAP
and U.S. GAAP, you should note the following:
-- Earnings include pretax income from continuing operations plus fixed
charges. Fixed charges are the total of (1) interest, whether expensed
or capitalized, (2) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized and (3)
such portion of rental expense as can be demonstrated to be
representative of the interest factor in the particular case.
-- A ratio of less than one indicates that earnings are inadequate to cover
fixed charges. The amount by which fixed charges exceeded earnings (1)
for the years ended June 30, 1996 (as restated), 1997 (as
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restated) and 1998 under U.K. GAAP was $6.68 million, $41.85 million and $32.52
million, and (2) for the years ended June 30, 1995 (as restated), 1996 (as
restated), 1997 (as restated) and 1998 under U.S. GAAP was $13.53 million,
$21.39 million, $1.74 million and $20.78 million.
For a discussion of the differences between ALPS 94-1's results of
operations and financial position under U.S. GAAP compared with U.K. GAAP, see
Notes 22 (as restated), 23 (as restated), 24 (as restated) and 25 to the ALPS
94-1 audited consolidated financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Year Ended June 30, 1997 Compared With Year Ended June 30, 1996 --
Differences between U.K. GAAP and U.S. GAAP".
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth below (except the discussion under "-- Financial
Resources and Liquidity") is based on the ALPS 94-1 selected consolidated
financial data and therefore is limited to a discussion of historical financial
data with respect to the original ALPS 94-1 aircraft and the related leases.
Investors should note, however, that because the following discussion does not
cover historical data with respect to the AerFi transferred aircraft, it will
not necessarily be indicative of an analysis of the consolidated financial
results of AerCo.
Since ALPS 94-1 contracted to acquire the original ALPS 94-1 aircraft from
AerFi in August 1994, the market for aircraft on operating lease has experienced
generally favorable conditions. Consequently, leasing revenues and operating
cash flows have not been materially adversely affected by lessee defaults, bad
debt provisions or significant amounts of downtime. Operating cash flows in the
period 1995-98 did suffer, however, as a result of certain lessee rental
deferral and restructuring arrangements. For a description of these
arrangements, see "The Aircraft, Related Leases and Collateral -- The Lessees".
In addition, over the same period and despite the generally favorable industry
conditions, several of the lessees have been in arrears on their rental
payments. Notwithstanding any continuation of favorable industry conditions,
like ALPS 94-1, AerCo group will likely need to address the problems of lessees
in financial difficulty with lease reschedulings, rent deferrals and other
restructuring arrangements. Further, as and when the market for aircraft on
operating lease deteriorates cyclically, lease rentals and operating cash flows
can be expected to suffer as a result of increased lessee defaults, payment
deferrals, lease restructurings and aircraft repossessions and downtime. In such
circumstances, AerCo's ability to pay interest on, and repay principal of, the
Notes may be materially adversely affected.
The following discussion is based on the ALPS 94-1 consolidated financial
statements which were prepared under U.K. GAAP. U.K. GAAP differs significantly
in certain respects from U.S. GAAP. See Notes 22 (as restated), 23 (as
restated), 24 (as restated) and 25 to the ALPS 94-1 audited consolidated
financial statements and "-- Differences between U.K. GAAP and U.S. GAAP" below.
RESULTS OF OPERATIONS -- YEAR ENDED JUNE 30, 1998 COMPARED WITH YEAR ENDED JUNE
30, 1997 (AS RESTATED).
REVENUES
Revenue for the year ended June 30, 1998 was $100.7 million compared with
revenue for the year ended June 30, 1997 of $101.4 million. Rentals from
European and Asia Pacific carriers represented 45.3% and 29.2%, respectively, of
ALPS 94-1's leasing revenues in the year ended June 30, 1998, with two lessees
accounting for more than 10% of ALPS 94-1's leasing revenues (Lan Chile: 14% and
Spanair: 12%) compared with two lessees in the year ended June 30, 1997, (Lan
Chile: 14% and Spanair: 12%). At June 30, 1998, ALPS 94-1 had no aircraft
off-lease.
Rental rates on the seven new leases written by ALPS 94-1 since August 1994
have reflected the general trend in the commercial aviation market for operating
lease rentals, which increased slightly during 1995 and 1996 and have remained
relatively stable in 1997 and 1998. In 1996, 1997 and 1998, ALPS 94-1 entered
into new leases with respect to two aircraft (an MD83 and an A320-200), three
aircraft (one B767-300ER, one B737-400 and one F100), and one aircraft (an
A320-200), respectively. In 1996, the new lease terms written were 36 months and
84 months, respectively, and the lease rates with respect to these aircraft
were, overall, 2% higher than the previous lease rates. The new lease terms for
leases written in 1997 were for 84, 29 and 59 months, respectively, and the
lease rates with respect to these aircraft were, overall, in line with the
previous lease rates. The new lease term written in 1998 was for 6 months.
SALES
One aircraft, an A300-B4-200, was sold to AerFi on April 28, 1998,
realising a profit of $2.4 million. This aircraft was subsequently sold to AerCo
at the time the old notes were issued.
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DEPRECIATION AND PROVISION FOR PERMANENT DIMINUTION IN AIRCRAFT VALUES
The depreciation charge in the year ended June 30, 1998 amounted to
approximately $37.8 million compared to approximately $72.4 million for the same
period in 1997. Beginning on July 1, 1996, ALPS 94-1 has depreciated each
aircraft on a straight-line basis over 25 years from the date of manufacture to
a residual value of 15% of ALPS 94-1's historic cost. Prior to July 1, 1996,
ALPS 94-1 depreciated the carrying value of each aircraft at 2% per annum
increasing to 7% per annum beginning 15 years after the date of manufacture of
the aircraft to a nil residual value.
The changes in these estimates were considered necessary because of
developments in the industry at that time, including the bankruptcy of one major
manufacturer, the expected acquisition of McDonnell Douglas by Boeing,
significant manufacturer discounting of new aircraft and the announcement of a
new generation of Boeing aircraft. As a result of these developments, the
directors considered that (1) the allocation of cost should be revised to a
straight line basis (rather than the previous lower allocations in earlier
years) and (2) additional depreciation of $34.4 million in 1997, reflecting the
impact of adopting the revised estimates, should be charged reflecting the
permanent impairment in value of the aircraft because of the effect of industry
circumstances referred to above on the company's fleet. See "Statement of
Accounting Policies: Aircraft" in the ALPS 94-1 consolidated financial
statements for more information about this change in estimate.
In respect of the year ended June 30, 1998, the directors of ALPS 94-1
determined to make a provision of $8.7 million in respect of a permanent
diminution in the book value of ALPS 94-1's three F100 aircraft. The directors
arrived at such determination based on the bankruptcy of Fokker N.V. and the
discontinuation of its aircraft manufacturing operations, resulting in
significant reductions of values and lease rates for Fokker aircraft. The net
book value of these aircraft, net of the $8.7 million provision, at June 30,
1998 was $48.5 million.
NET INTEREST EXPENSE
Net interest expense amounted to $69.8 million in the year ended June 30,
1998 compared to $71.0 million in the same period ended June 30, 1997. The
decrease in net interest expense was primarily due to lower average debt in the
year ended June 30, 1998, including, in particular, a significant reduction in
the principal balances of the ALPS 94-1 subclass A-1 notes, subclass A-2 notes
and class D note. This reduction was partially offset by a marginally higher
interest rate accrued during the year to June 30, 1998, in addition to step-up
interest being charged on the ALPS 94-1 subclass A-2 notes and additional
interest being accrued on the ALPS 94-1 class E note. The average indebtedness
outstanding during the year ended June 30, 1998 and 1997 was $902.1 million and
$936.3 million.
Under the terms of the ALPS 94-1 class E note, interest accrues at a rate
of 10% per annum but only a portion of such interest ($3.1 million) has been
payable in cash in each of the periods under review. However, approximately
$15.4 million and $14.5 million in respect of accrued and unpaid interest of the
ALPS 94-1 class E note was capitalized during the years ended June 30, 1998 and
1997, respectively. Cash paid in respect of interest amounted to $54.8 million
in the year ended June 30, 1998 and $59.9 million in the year ended June 30,
1997, compared with net interest expense, which amounted to $69.8 million in the
year ended June 30, 1998 and $71.0 million in the year ended June 30, 1997, and
principally reflected class E note interest accrued but not paid. In addition,
since November 1997, under the terms of the ALPS 94-1 subclass A-2 notes,
step-up interest accrued at the rate of 2% per annum in addition to the fixed
coupon of 7.15% per annum on the subclass A-2 notes. This step-up interest
amount was not paid until the ALPS 94-1 notes were redeemed on July 15, 1998.
Net interest expense is stated after deducting interest income earned
during the relevant period. In the year ended June 30, 1998, ALPS 94-1 earned
interest income of $3.8 million compared with $2.9 million in the year ended
June 30, 1997.
In each of the periods under review, ALPS 94-1 has not been party to any
interest rate or other derivative agreements.
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<PAGE> 67
The new notes bear interest at floating rates while the subclass D-1 and
subclass E-1 notes which are held by AerFi bear a fixed rate of interest. The
aggregate principal amount of the subclass A-1, subclass A-2, subclass B-1 and
subclass C-1 Notes represents approximately 81% of AerCo's total indebtedness.
Accordingly, AerCo's exposure to movements in LIBOR is relatively greater than
for ALPS 94-1 and AerCo has adopted a hedging strategy to manage its exposure to
movements in LIBOR rates. See "-- Financial Resources and Liquidity -- Interest
Rate Management".
A large proportion of AerCo's indebtedness is represented by the notes and
the subclass D-1 notes which are issued on terms and conditions prevailing in
the market. To the extent that the weighted average interest cost on AerCo's
indebtedness is higher or lower than the cost of the ALPS 94-1 indebtedness
being refinanced, AerCo's net interest expense and cash paid in respect of
interest will be higher or lower, respectively, than that experienced by ALPS
94-1 historically.
OTHER EXPENSES
Other expenses consist of GECAS' servicer fees, insurance premiums
(political risk and directors' liability insurance), administrative agent fees,
other service provider costs and miscellaneous expenditure items. Other expenses
amounted to approximately $6.6 million in the year ended June 30, 1998 compared
with $5.1 million in the year ended June 30, 1997.
In each of the years ended June 30, 1998 and 1997, servicer fees payable to
GECAS were approximately $2.9 million. Substantially all of these amounts
represent asset based fees calculated as an annual percentage of agreed values
of aircraft under management. Since July 15, 1998, Babcock & Brown is servicer
of the AerCo aircraft as described in "Management of AerCo Group -- The
Servicer".
EXCEPTIONAL ITEMS
In the year ended June 30, 1998, the directors approved the refinancing of
ALPS 94-1 through the issuance of the notes by AerCo. The refinancing included
the early termination of the GECAS servicing agreement in respect of the
management of the company's assets in consideration for a termination fee of
$12.7 million. This amount was charged in the year ended June 30, 1998 and was
paid subsequent to the year end.
OPERATING LOSS
In the year ended June 30, 1998, ALPS 94-1 recorded an operating loss of
approximately $34.9 million compared with a loss of $47.1 million (as restated)
in the same period in 1997.
REDUCTION IN INDEBTEDNESS
Under the terms of the ALPS 94-1 class E note, if the directors of ALPS
94-1 recognized a permanent diminution in the value of aircraft, the recognition
resulted in a legal reduction in the principal balance of the class E note. The
amount of this reduction was equal to (1) the outstanding principal balance and
accrued and unpaid interest on the ALPS 94-1 class A-E notes less (2) the total
book value of the aircraft reflecting the permanent diminution in value. In
1998, there was no recognition of a permanent diminution in aircraft values
requiring a reduction in class E note indebtedness. In 1997 (as restated), there
was a reduction of $5.3 million reflecting a $12 million permanent diminution in
the value of ALPS 94-1's A300 aircraft. See "-- Results of Operations -- Year
Ended June 30, 1997 Compared with Year Ended June 30, 1996 -- Depreciation and
Provision for Permanent Diminution in Aircraft Value" and "-- Reduction in
Indebtedness" (as restated).
TAXES
ALPS 94-1 had a tax charge of approximately $0.03 million in the year ended
June 30, 1998, compared with a tax credit of $0.14 million in the year ended
June 30, 1997.
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NET LOSS
As a result of the above factors, ALPS 94-1 had a net loss of $32.6 million
in 1998 compared with a net loss of $41.7 million (as restated) in 1997.
RESULTS OF OPERATIONS -- YEAR ENDED JUNE 30, 1997 (AS RESTATED) COMPARED WITH
YEAR ENDED JUNE 30, 1996 (AS RESTATED)
REVENUES
Revenue for the year ended June 30, 1997 was $101.4 million compared with
revenue for the year ended June 30, 1996 of $102.5 million. As with 1996,
rentals from European and Asia Pacific carriers continued to represent more than
three-quarters of ALPS 94-1's leasing revenues in 1997. In 1997, two lessees
accounted for more than 10% of ALPS 94-1's leasing revenues (Spanair: 12%; and
Lan Chile: 14%). In 1996, one lessee accounted for more than 10% of leasing
revenues (Spanair: 12%).
In the previously issued financial statements of ALPS 94-1, lease revenue
was recognised as income as it accrued over the period of the lease. When future
rental increases were contracted under the terms of the lease, ALPS 94-1 accrued
income on the basis of the current rental rate rather than on a basis that
averaged the lease rentals over the total lease term.
The previously issued 1995, 1996 and 1997 financial statements of ALPS 94-1
have been restated to recognise income from operating leases on a straight line
basis over the period of the lease.
The impact of the restatement is to decrease lease revenue and increase net
loss in 1997 by $687,000 and increase lease revenue and reduce net loss in 1996
and 1995 by $438,000 and $1,247,000 respectively.
Since it acquired the ALPS 94-1 aircraft beginning in August 1994, ALPS
94-1's operations have been conducted in relatively favorable industry
conditions that have resulted in no requirements for bad debt provisions and
only minimal levels of downtime with no material adverse impact on leasing
revenues. There have been, however, certain significant deferral and other
restructuring transactions which, although having no material adverse impact on
revenues, adversely affected operating cash flows. These restructurings are
described below. The combined effect of these restructurings was to reduce cash
collections by $0.20 million and increase cash collections by $1.50 million in
the year ended June 30, 1997 and 1996, respectively. See "The Aircraft, Related
Leases and Collateral -- The Lessees -- Payment History".
In December 1995, ALPS 94-1 agreed with one former lessee, a U.K. charter
operator, and its parent company to the early termination of the lease of an
A320-200 aircraft. Upon termination of the lease, the A320-200 was immediately
re-leased to Airtours as part of a swap transaction pursuant to which Airtours
terminated its lease of an MD83 aircraft, which was immediately re-leased to
FEAT. In the year ended June 30, 1996, these transactions resulted in a loss of
cash flows to ALPS 94-1 of $0.60 million. Partially offsetting this loss, ALPS
94-1 received cash amounts of $0.20 million from the former lessee in the year
ended June 30, 1997.
In early 1996, ALPS 94-1 agreed with one Latin American lessee to the
deferral of two months' rental and one month's maintenance payments in the
amount of $0.90 million. These amounts together with late payment interest and a
deferral fee were received in August 1996.
In December 1996, ALPS 94-1 agreed to restructuring of the lease to
Canadian Airlines which resulted in a loss of cash flow to ALPS 94-1 of $0.90
million. These deferred amounts have since been repaid.
DEPRECIATION AND PROVISION FOR PERMANENT DIMINUTION IN AIRCRAFT VALUE
Depreciation expense in 1997 totaled approximately $72.4 million compared
with approximately $18 million in 1996. The increase in depreciation expense
reflects the increased depreciation rate for 1997 as a result of the adoption by
ALPS 94-1 of new depreciation estimates. See "Results of Operations -- Year
Ended June 30, 1998 Compared With Year Ended June 30, 1997 -- Depreciation and
Provision for Permanent Diminution in Aircraft Values" for more information
about this change in estimate.
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In 1996, the $12 million provision for permanent diminution in aircraft
values related to a particular aircraft type (A300-B4-200). No provision for
permanent diminution in aircraft values was required in 1997. The appraised
value of this A300-B4-200 aircraft at June 30, 1997 was $13.7 million compared
to the net book value at that date of $9.3 million.
NET INTEREST EXPENSE
Net interest expense amounted to approximately $71.0 million in 1997
compared with $73.6 million in 1996. Net interest expense reflects interest
payable on ALPS 94-1's class A-E notes net of amounts earned on permitted
investments of ALPS 94-1's cash balances. The decrease in net interest payable
in 1997 largely reflects a decrease in average indebtedness outstanding.
Approximately 50% of ALPS 94-1's class A-D notes by principal amount outstanding
at June 30, 1997 bears interest at a floating rate determined by reference to
one month LIBOR. The weighted average interest cost on ALPS 94-1's indebtedness
in 1997 was 7.40% compared with 7.50% in 1996. Average indebtedness outstanding
in 1997 was approximately $936.3 million compared with approximately $965.8
million in 1996 reflecting a combination of principal amortization on ALPS
94-1's class A-D notes, a $5.3 million reduction in the principal amount of the
class E note in accordance with its terms and a compounding of $36.4 million and
$21.9 million of accrued but unpaid interest on the class E note in 1997 and
1996, respectively.
Under the terms of the ALPS 94-1 class E note, interest accrues at the rate
of 10% per annum but only a portion of such interest ($3.1 million) has been
payable in cash in each of the years under review. Interest accrued, but not
paid in cash, is added to the principal amount of the ALPS 94-1 class E note.
Accordingly, approximately $14.5 million and $12.9 million in respect of accrued
and unpaid interest on the ALPS 94-1 class E note was capitalized during 1997
and 1996, respectively. The reduction in cash paid in respect of interest, which
amounted to $59.9 million in 1997 and $64 million in 1996, relative to net
interest expense, which amounted to $71.0 million in 1997 and $73.6 million in
1996, principally reflected ALPS 94-1 class E note interest accrued but not
paid.
In each of the periods under review, ALPS 94-1 has not been party to any
interest rate derivative agreements.
OTHER EXPENSES
Other expenses consist of GECAS's servicer fees, insurance premiums
(political risk and directors' liability insurance), administrative agent fees,
other service provider costs and miscellaneous expenditure items. Other expenses
amounted to approximately $5.1 million in 1997 compared with $5.6 million in
1996. For a breakdown of other expenses by type, see Note 13 to the ALPS 94-1
audited consolidated financial statements. The decrease in 1997 was largely
attributable to the negotiation of a lower political risk insurance premium in
1997 and the one-time payment in 1996 to Airtours in connection with the
termination of its lease of an MD83 aircraft and the immediate re-lease of the
A320-200 formerly on lease to a U.K. operator. See "The Aircraft, Related Leases
and Collateral -- The Lessees -- Payment History".
In each of 1997 and 1996, servicer fees payable to GECAS were approximately
$2.9 million. Substantially all of these amounts represent asset based fees
calculated as an annual percentage of agreed values of aircraft under
management.
OPERATING LOSS
In 1997 and 1996, ALPS 94-1 recorded an operating loss as a result of the
above factors. The operating loss of approximately $6.7 million in 1996 (as
restated) increased to approximately $47.1 million (as restated) in 1997,
largely as a result of the increased depreciation charges described above.
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REDUCTION OF INDEBTEDNESS (AS RESTATED)
Reduction of indebtedness of $5.3 million in 1997 (as restated) reflected
the legal reduction in the principal amount of the ALPS 94-1 class E note. This
writedown was the result of the recognition by the ALPS 94-1 directors at the
end of 1996 of a $12 million permanent diminution in the value of ALPS 94-1's
A300 aircraft. Under the terms of the class E notes, this reduction was equal to
(1) the outstanding principal balance and accrued and unpaid interest on the
ALPS 94-1 class A-E note less (2) the total book value of the aircraft
reflecting the permanent diminution in value. Although the directors recognized
the $12 million permanent diminution in value at the end of 1996, the resulting
$5.3 million reduction in class E note principal was not effective under the
terms of the class E note until 1997. In 1996 (as restated), there was no legal
reduction in class E note indebtedness.
TAXES
ALPS 94-1's tax credit of $0.14 million in 1997, compared to a charge of
approximately $0.20 million in 1996, reflected the approval by the Irish
authorities of the application of a lower tax rate for ALPS 94-1's Irish
subsidiary in respect of prior periods.
NET LOSS
As a result of the above factors, ALPS 94-1 had a net loss of $41.7 million
(as restated) in 1997 compared with a net loss of $6.9 million (as restated) in
1996.
DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP (AS RESTATED)
The principal differences between U.S. GAAP and U.K. GAAP that have
affected the results of operations and financial position of ALPS 94-1, relate
to the accounting treatment of aircraft cost and depreciation accounting.
Aircraft are stated at purchase cost under U.K. GAAP. Under U.S. GAAP
aircraft are stated at AerFi's amortized cost at the date of delivery to, and
acquisition by, ALPS 94-1. The difference between the purchase cost and AerFi's
amortized cost is treated as a distribution to AerFi. The impact is to reduce
the net book value of aircraft and shareholders' equity under U.S. GAAP compared
with U.K. GAAP.
For the years ended June 30, 1995 and 1996, ALPS 94-1 has provided for
depreciation of its aircraft under U.K. GAAP at rates calculated to write off
the cost of the assets to ALPS 94-1 over 25 years from the date of closing of
the ALPS 94-1 initial debt offering. The rate of depreciation in the first 15
years of an aircraft's life was 2% per annum and thereafter was 7% per annum.
Under U.S. GAAP during the years 1995 and 1996, the aircraft were depreciated on
a straight line basis so as to write off the cost of the assets over a period of
25 years from the date of delivery to ALPS 94-1 to a residual value of 15%.
Given the aircraft are all significantly less than 15 years old, depreciation
charges under U.S. GAAP were significantly higher for fiscal year 1996 than
under U.K. GAAP, thereby decreasing net income and shareholders' equity reported
under U.S. GAAP.
As discussed above, however, under "Results of Operations -- Year Ended
June 30, 1998 Compared With Year Ended June 30, 1997 -- Depreciation and
Provision for Permanent Diminution in Aircraft Value", ALPS 94-1 has adopted,
with effect from and including the fiscal year ending June 30, 1997, a revised
depreciation estimate under U.K. GAAP (which will also be adopted by AerCo for
periods after the closing date). This estimate is intended to write off the cost
of the aircraft over 25 years from the date of manufacture on a straight line
basis to a residual value of 15% of historic cost. Under U.S. GAAP, for all
periods, aircraft are now also depreciated on a straight line basis at a rate
designed to write off the cost of the assets to a residual value of 15% over a
period of 25 years from the date of manufacture.
For a discussion of these and other differences between U.K. GAAP and U.S.
GAAP, including certain income recognition and depreciation differences relating
to ALPS 94-1's initial acquisition of the aircraft from AerFi, see notes 22, 23,
24 and 25 to the ALPS 94-1 audited consolidated financial statements.
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In the previously issued financial statements of ALPS 94-1, the directors
adopted the true and fair override principle in respect of Financial Reporting
Standard 4 (FRS4), such that certain losses which would be borne by the class E
Noteholder, were released from the carrying value of the debt and credited to
the statement of operations under U.K. GAAP. Under U.S. GAAP the liability for
the principal amount remains until such time as the obligation is extinguished.
The restatement of previously issued financial statements of ALPS 94-1 for 1997
and 1996 under U.K. GAAP has eliminated any differences between U.K. GAAP and
U.S. GAAP concerning the accounting for indebtedness.
FINANCIAL RESOURCES AND LIQUIDITY
LIQUIDITY
Like ALPS 94-1, AerCo's primary source of liquidity is and will be rental
payments made by lessees under the lease agreements. The principal uses of cash
rental payments are and will continue to be, expenses related to the aircraft
and the servicing thereof, corporate expenses and the payment of interest on and
principal of indebtedness. Such indebtedness consists of the notes and the
subclass D-1 and subclass E-1 notes which are held by AerFi.
The cash balances (including short term investments in commercial paper) at
June 30, 1998 amounted to $88.3 million compared to $91.3 million at June 30,
1997. Under the terms of its indebtedness, ALPS 94-1 was required to maintain
cash balances in an amount equal to (1) the amount of lessee security deposits
($13.3 million at June 30, 1998; $15.2 million at June 30, 1997), (2) balance
sheet provisions for maintenance ($44.3 million at June 30, 1998; $46.2 million
at June 30, 1997) and (3) a contingency reserve amount ($18 million at June 30,
1998 and 1997). The terms of ALPS 94-1's indebtedness restricted the use of such
cash so that it was generally not available to service debt.
Following the purchase of its share capital by AerCo, ALPS 94-1 maintains
no significant cash balances of its own. AerCo group maintains cash balances in
an amount equal to the liquidity reserve amount, which was initially $40 million
plus security deposits of $15.5 million at December 31, 1998. The liquidity
reserve amount has been determined largely based on an analysis of historical
experience, assumptions regarding AerCo group's future experience and the
frequency and cost of certain contingencies in respect of the initial aircraft,
and is intended to provide liquidity for meeting the cost of maintenance
obligations and non-maintenance, aircraft-related contingencies such as removing
regulatory liens, complying with ADs, 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 or that
actual cash received by AerCo group will not be significantly less than that
assumed. Any significant variation may materially adversely affect AerCo's
ability to make payments of interest and principal on the notes. See
"Description of the Notes -- The Accounts" for more information about the
liquidity reserve amount.
During the next two years, AerCo may have to incur unusually high cash
expenditures for the purpose of airframe and engine overhauls and complying with
new regulatory requirements for aircraft operating in Europe and North America.
These payments could adversely effect AerCo's ability to make certain principal
payments on the notes, depending on their level and timing. For a description of
these maintenance and regulatory requirements, you should refer to "The
Aircraft, Related Leases and Collateral -- The Leases -- Maintenance and
Maintenance Reserves" and "-- Compliance with Governmental and Technical
Regulation.
OPERATING ACTIVITIES
Net cash provided by ALPS 94-1's operating activities in the year ended
June 30, 1998 amounted to $45.7 million compared with $45.1 million in the year
ended June 30, 1997. In the year to June 30, 1998 there was a prepayment of one
year's rentals in the amount of $5 million by one Latin American lessee which
was offset by a decrease of approximately $5.1 million in the amount of cash
paid in respect of interest of $54.8 million compared with $59.9 million in the
year to June 30, 1997. In 1999 and 2000, AerCo's net cash
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<PAGE> 72
provided by operating activities may be lower than that indicated by the
historical levels at ALPS 94-1 as a result of the potential maintenance and
regulatory compliance expenditures described above.
Net cash provided by ALPS 94-1's operating activities in 1997 of $45.1
million was comparable with $45.5 million provided in 1996. There was however a
reduction in cash paid in respect of interest of $4.1 million in 1997 to $59.9
million compared with $64 million in 1996. This reduction was offset by a
decrease in net cash inflows from maintenance payments and disbursements. In
1996, ALPS 94-1 received maintenance payments of $10 million more than it
disbursed to lessees, compared with only $6.7 million in 1997. In addition,
cashflows in 1997 were $0.4 million lower than in 1996 as a result of an outflow
of security deposits.
Also included within cash flow from operations in the years ended June 30,
1998 and 1997 was cash generated by permitted investments of ALPS 94-1's cash
balances. These cash balances have been significantly reduced since July 15,
1998 which has resulted in a corresponding reduction in cash flow generated to
AerCo. In the years ended June 30, 1998 and 1997, cash flow from permitted
investments amounted to approximately $4.7 million and $4.5 million,
respectively.
INVESTING AND FINANCING ACTIVITIES
Cash flows used in financing activities in the year ended June 30, 1998
reflect the repayment of $59.1 million of principal on the ALPS 94-1 subclass
A-1 and A-2 and class D notes by ALPS 94-1 compared with $43.5 million of
principal repaid on the ALPS 94-1 subclass A-1 and A-2 and class D notes by ALPS
94-1 in the year ended June 30, 1997. ALPS 94-1 used approximately $36 million
in 1996 for the same purpose. The net increase in the repayment of the ALPS 94-1
notes during 1998 is primarily as a result of the proceeds received from the
sale of the A300-B4-200 aircraft in April 1998. ALPS 94-1 has recorded no cash
flows used in investing activities since its purchase of aircraft in 1995, other
than $1.1 million in respect of maintenance work carried out on the A300-B4-200
aircraft during the year ended June 30, 1998.
INDEBTEDNESS
Upon the closing of the offering of the old notes, all of ALPS 94-1's
existing financial indebtedness was repaid. Following the offering, AerCo's
indebtedness consists of the notes, the subclass D-1 and subclass E-1 notes. In
order to repay the outstanding principal balance of the subclass A-1 notes
(initially $340 million) on or before their expected final payment date on July
15, 2000, AerCo will have to refinance such notes through the sale of
refinancing notes at such time. There can be no assurance that AerCo will be
able to sell refinancing notes in the amount and at the time required.
YEAR 2000
Many existing computer systems use only two digits to identify a year in
the date field. These systems were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. AerCo group has recently begun a process of assessing the potential impact
of the Year 2000 issue on its operations. Since all of its operational functions
have been delegated to the servicer, administrative agent and cash manager,
AerCo group has no information systems of its own. It may, however, suffer a
material adverse impact on its business and results of operations if information
technology upon which the servicer, administrative agent and cash manager rely
is not Year 2000 compliant.
Babcock & Brown has assessed, and continues to assess, its computer and
information systems to determine the extent of its exposure to Year 2000 risks.
Babcock & Brown believes that its computer and information systems are Year 2000
compliant. Babcock & Brown expects to complete all material Year 2000
modifications and replacements in early 1999. However, the potential
interruptions or costs incurred to upgrade or replace certain of Babcock &
Brown's computer and information systems may have a material adverse effect on
its ability to perform its services under the servicing agreement. Babcock &
Brown is also contacting the third parties with which it deals on our behalf to
determine the extent of their exposure to
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<PAGE> 73
Year 2000 risks and the status of their Year 2000 compliance efforts. The
administrative agent and cash manager are reviewing their Year 2000 exposure and
identifying the steps that will need to be taken to ensure that their systems
are Year 2000 compliant.
Aircraft and air traffic control systems also depend heavily on
microprocessors and software technology. If the systems employed by the aircraft
are not Year 2000 compliant, it could have an adverse effect on our business and
results of operations. Major manufacturers, including Boeing and Airbus, have
begun a Year 2000 review of the systems employed on their aircraft and are
expected to advise owners, operators and service providers of the steps to be
taken to address any Year 2000 problems that are identified. Among the aircraft
systems that have been identified as being susceptible to Year 2000 problems are
certain on-board aircraft management and navigation systems. The nature and the
extent of the risks posed by potential failure of aircraft and aircraft control
systems because of Year 2000 problems has not been fully determined because the
Year 2000 review efforts are still at an early stage. It is not clear whether or
to what extent manufacturers, owners or lessees will be responsible for the
costs necessary to bring aircraft systems into Year 2000 compliance.
AerCo group may also suffer an adverse impact on its business and results
of operations if its lessees, suppliers, financial institutions, technical
advisers and others with which it conducts business are not Year 2000 compliant.
Babcock & Brown circulated a survey to aircraft and engine manufacturers and the
lessees with which it deals on behalf of AerCo group to determine the extent of
such parties' exposure to Year 2000 risks and the status of their Year 2000
compliance efforts. The administrative agent has also circulated a survey to
those third parties with which it deals on behalf of AerCo Group to determine
the extent of such third parties' exposure to Year 2000 risks and the status of
their Year 2000 compliance efforts.
AerCo is currently not able to make any estimate of the amount, if any, it
may be required to spend to remediate Year 2000 problems. Such expenditures
could, however, have a material adverse impact on the ability of AerCo to make
payments on the notes.
Any losses that we may incur because of Year 2000 losses may not be covered
under existing insurance, because some insurers have taken the position that
Year 2000 losses may be denied under existing policies. In addition, the
international insurance markets have recently adopted recommendations to exclude
Year 2000 losses from future aviation policies, unless a specific endorsement is
purchased. Various insurers have stated that they will provide Year 2000
endorsements to those airlines which the insurers have identified as adequately
addressing the Year 2000 issues affecting that airline. Babcock & Brown is
currently in contact with AerCo group's lessees to see if they have obtained
Year 2000 endorsements.
INTEREST RATE RISK AND MANAGEMENT
The leasing revenues of AerCo will be generated primarily from rental
payments which are either fixed or floating. In some cases, leases carry fixed
and floating rental payments for different rental periods. In the case of
floating rate leases, an element of the rental varies in line with changes in
LIBOR, generally six-month LIBOR. See "The Aircraft, Related Leases and
Collateral -- The Leases" for more information regarding the terms of our
leases. As of January 18, 1999, leases with respect to approximately 62.50% of
the aircraft by appraised value at January 18, 1999 provided for fixed rate
rental payments and approximately 37.50% provided for floating rate payments.
In general, an exposure to interest rate risk relating to the notes when
AerCo's floating interest obligations under the notes do not correlate to the
mix of fixed and floating rate lease 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, subclass A-2,
subclass B-1 and subclass C-1 notes will bear floating rates of interest. The
mix of fixed and floating rental payments contains a higher percentage of fixed
rate payments than the percentage of fixed rate interest payments on the AerCo
notes. The effect of this gap is compounded by the fact that the reset periods
on floating rental payments are generally longer than the monthly reset periods
on the floating rate notes. AerCo group enters into interest rate swaps in order
to
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<PAGE> 74
correlate the contracted fixed and floating rental payments to the fixed and
floating interest payment on the notes.
Under the swaps, AerCo group pays fixed amounts and receives floating
amounts on a monthly basis. The swaps amortize on the basis of the expected
paydown schedule of the class A, B and C notes, the expiry dates of the leases
under which lessees are contracted to make fixed rate rental payments and the
LIBOR reset dates under the floating rate leases. At least every three months,
and in practice more frequently, the administrative agent seeks to enter into
additional swaps or sell at market value or unwind part or all of the swaps and
any future swaps in order to rebalance the fixed and floating mix of interest
obligations and the fixed and floating mix of rental payments. At January 31,
1999, AerCo group had unamortized swaps with an aggregate notional principal
balance of $730 million.
Additional interest rate exposure will arise to the extent that lessees
owing fixed rate rental payments default and interest rates have declined
between the contract date of the lease and the date of default. This exposure
can be managed through the purchase of options on interest rate swaps. However,
because of the credit quality of the lessees and the current interest rate
environment, AerCo does not currently intend to acquire any interest rate swap
options. If the credit quality of the lessees changes materially, or if the
interest rate environment warrants it, AerCo may decide to purchase interest
rate swap options, or enter into other derivative transactions such as credit
derivatives as a means of managing such risk.
Through the use of interest rate swap and other interest rate hedging
instruments, it is AerCo's policy not to be adversely exposed to material
movements in interest rates. We cannot assure you, however, that AerCo's
interest rate risk management strategies will be effective in this regard. Any
change to AerCo's policy with regard to its dealing in interest rate hedging
products is subject to periodic review by the rating agencies.
The directors of AerCo are responsible for reviewing and approving the
overall interest rate management policies and transaction authority limits. As
described below, the administrative agent, acting within the overall policies
and limits, approves specific hedging instruments. Counterparty risk is
monitored on an ongoing basis. Counterparties are subject to the prior approval
of the directors of AerCo. AerCo's counterparties consist primarily of the
affiliates of major U.S. and European financial institutions (which may include
special purpose derivative vehicles) whose credit ratings are consistent with
maintaining the ratings of the most senior class of AerCo notes then
outstanding.
In implementing its interest rate management policy described above, AerCo
seeks to manage its exposure to adverse changes in interest rates based on
regular reviews of its interest rate risk. Before each payment date, the
administrative agent, on behalf of AerCo, estimates future principal payments on
the notes based on a model of its cash flows for the purpose of estimating
required future interest obligations. Future fixed and floating rate lease
revenues are then estimated based on the current lease portfolio. The
administrative agent reviews this estimate whenever lease rates (whether fixed
or floating rate) are reset under the terms of the leases. This analysis
invariably indicates that AerCo is "short" floating rate revenues and thus is
adversely exposed to increases in LIBOR the benchmark interest rate for the
notes and the floating rate leases. After taking into account its available cash
balance, AerCo then enters into interest rate swaps to hedge against the
estimated amount of this shortfall. This interest rate swap portfolio is
reviewed regularly on the basis described above.
As an example, at December 31, 1998, the aggregate outstanding principal
balance of the notes was $781.6 million. As a result of the analysis described
above, the aggregate notional amount of our interest rate swap agreements (under
which we pay fixed rate amounts and receive floating rate amounts) was $735
million. AerCo also had at that date $40 million in short-term debt instruments
(that is, the liquidity reserve amount excluding $16 million in lessee security
deposits that AerCo holds). On this basis, if LIBOR increased by 10% from the
rate at that date, AerCo's monthly cash flows would have been reduced by
$55,000. This loss would be the same for every month that this increase in rates
persisted. You should note, however, that this analysis of our interest rate
risk does not take into account either lessee or swap counterparty credit risk.
Thus, our cash flow losses could be higher to the extent lessees or swap
counterparties do not meet their payment obligations to us.
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<PAGE> 75
The quantitative disclosure and other statements in this section are
forward-looking statements that involve risks and uncertainties. Although our
policy is to limit our exposure to changes in interest rates, we could suffer
higher cash flow losses than described above as a result of actual future
changes in interest rates. You should also note that our future exposure to
interest rate movements will change as the composition of our lease portfolio
changes or if we issue new subclasses of additional notes or refinancing notes
with different interest rate provisions from the notes. You should also refer to
"Risk Factors" for more information, about risks, especially lessee credit risk,
that could intensify our exposure to changes in interest rates.
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<PAGE> 76
UNAUDITED PRO-FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro-forma combined financial information set forth below
reflects pro-forma adjustments made to the ALPS 94-1 consolidated financial
statements and the financial statements for the AerFi transferred aircraft (on a
combined basis) for the year ended June 30, 1998 included elsewhere in this
prospectus that are intended to give effect to:
(1) the issuance of the AerCo notes,
(2) the refinancing of the existing financial indebtedness of ALPS 94-1,
(3) the sale by ALPS 94-1 of the Boeing 767-300ER aircraft to AerFi, and
(4) the other transactions described in "The Refinancing of ALPS 94-1 and
Acquisition of the AerFi Transferred Companies". We refer to these
transactions collectively as the "transaction".
As described below, such adjustments relate to, among other things,
historical indebtedness, net interest expense, selling, general and
administrative expenses and tax amounts. The unaudited pro-forma combined
financial information is presented on the basis that the initial aircraft have
been operated separately from ALPS 94-1 and AerFi for the year ended June 30,
1998.
AerCo, which acquired ALPS 94-1 and the AerFi transferred aircraft on July
15, 1998 was incorporated on June 4, 1998 with US$10,000 of authorized share
capital, and had no trading or other activities prior to that date. Accordingly,
separate data for AerCo is not presented in the pro-forma information below.
The unaudited pro-forma combined financial information has been prepared in
accordance with U.K. GAAP. U.K. GAAP differs in certain respects from U.S. GAAP.
A reconciliation from U.K. GAAP to U.S. GAAP of net assets/(liabilities) and net
loss for the year ended June 30, 1998 is presented below.
This unaudited pro-forma combined financial information should be read in
conjunction with and is qualified in its entirety by reference to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements of ALPS 94-1 and the AerFi
transferred aircraft, in each case included elsewhere in this prospectus.
The unaudited pro-forma combined financial information is provided for
illustrative purposes in conformity with the requirements of the Securities and
Exchange Commission and does not demonstrate what AerCo's results of operations
or financial position would have been had the transaction been completed on July
1, 1997 or predict results of operations or net assets for any future period or
at any future date.
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<PAGE> 77
The unaudited pro-forma combined statement of operations for the year ended
June 30, 1998 set forth below gives pro-forma effect to the transaction as if
the transaction had occurred on July 1, 1997.
AERCO GROUP
UNAUDITED PRO-FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30,
1998
<TABLE>
<CAPTION>
AUDITED HISTORICAL RESULTS
---------------------------
AERFI PRO-
TRANSFERRED FORMA
ALPS 94-1 AIRCRAFT PRO-FORMA NOTE 1 COMBINED
30-JUN-98 30-JUN-98 ADJUSTMENTS(1) REFERENCE 30-JUN-98
--------- ----------- -------------- --------- ---------
$M $M $M $M
<S> <C> <C> <C> <C> <C>
Revenues
Aircraft leasing................... 101 21 (8) (i) 114
Expenses
Depreciation....................... (38) (10) 6 (i)(ii) (42)
Provision for permanent diminution
in aircraft value............... (9) -- 9 (ii) --
Net interest expense............... (70) (7) (4) (iii) (81)
Exceptional item................... (13) -- -- (13)
Other expenses..................... (6) (5) (2) (iv) (13)
----- ----- ----- -----
Total expenses....................... (136) (22) 9 (149)
----- ----- ----- -----
Net loss before tax.................. (35) (1) 1 (35)
Profit on sale..................... 2 -- (2) --
Benefit for taxes.................. -- 1 1 (v) 2
----- ----- ----- -----
Net loss for the year................ (33) -- -- (33)
===== ===== ===== =====
</TABLE>
- ---------------
(1) Represents the adjustments to the combined historical statements of
operations of ALPS 94-1 and the AerFi transferred aircraft to account for
the transaction as if it had occurred on July 1, 1997, including:
(i) Leasing revenue and depreciation have been adjusted to reflect the
sale of one B767-300ER owned by ALPS 94-1 (in the period between
pricing and closing of the offering) as if the sale had occurred on
July 1, 1997. The resulting reductions to the aircraft leasing
revenue was $8 million and to the depreciation charge was $3 million.
(ii) The unaudited pro-forma combined statement of operations reflects
depreciation and provision for permanent diminution in the value of
the initial aircraft as if the transaction had occurred on July 1,
1997 at a cost equivalent to the appraised value at March 1, 1998 of
the initial aircraft ($952 million). The resulting adjustments to the
depreciation charge was a reduction of $3 million and with respect to
the provision for permanent diminution in the value of the initial
aircraft, a reduction of $9 million.
(iii) The unaudited pro-forma combined statement of operations reflects net
interest expense (including interest on the subclass E-1 notes) which
would have been incurred had the transaction occurred on July 1, 1997
and had the AerCo notes been issued on that date bearing interest at
the assumed rates set forth in "Description of the Notes --
Assumptions -- Interest, Expense and Operating Cost Assumptions".
Deferred transaction costs of $2 million are also charged in net
interest expense.
(iv) As part of the transaction, AerCo entered into the servicing agreement
with Babcock & Brown, the cash management agreement and the
administrative agency agreement with AerFi. The unaudited pro-forma
combined statement of operations reflects the assumed fees payable
under those agreements as calculated in accordance with the relevant
assumption set forth in "Description of the Notes -- Assumptions --
Interest, Expense and Operating Cost Assumptions".
(v) The unaudited pro-forma combined statement of operations reflects the
taxation effect of the above pro-forma adjustments.
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<PAGE> 78
The unaudited pro-forma combined statement of net assets set forth below
gives pro-forma effect to the transaction as if the transaction had occurred on
June 30, 1998.
AERCO GROUP
UNAUDITED PRO-FORMA COMBINED BALANCE SHEET AT JUNE 30, 1998
<TABLE>
<CAPTION>
AERFI
TRANSFERRED PRO-FORMA
ALPS 94-1 AIRCRAFT PRO-FORMA NOTE 2 COMBINED
30-JUN-98 30-JUN-98 ADJUSTMENTS(2) REFERENCE 30-JUN-98
--------- ------------ -------------- --------- ---------
$M $M $M $M
<S> <C> <C> <C> <C> <C>
Current assets
Cash...................................... 88 -- (27) (ii) 61
Due from AerFi............................ -- 24 (24) (iii) --
Accounts receivable....................... 3 1 (1) (iv) 3
----- ----- ----- -----
Total current assets........................ 91 25 (52) 64
Intangible assets
Goodwill.................................. -- -- 56 (vi) 56
Fixed assets
Aircraft.................................. 800 179 (27) (i) 952
----- ----- ----- -----
Total assets................................ 891 204 (23) 1,072
===== ===== ===== =====
Liabilities
Accrued expenses & other liabilities...... 36 9 (26) (iv) 19
Indebtedness.............................. 684 40 71 (v) 795
Indebtedness to AerFi..................... 193 48 (49) (v) 192
Provision for maintenance................. 44 6 -- 50
Security deposits......................... 13 3 -- 16
----- ----- ----- -----
Total liabilities........................... 970 106 (4) 1,072
Shareholders' equity and net liabilities.... (79) 98 (19) (vi) --
----- ----- ----- -----
891 204 (23) 1,072
===== ===== ===== =====
</TABLE>
- ---------------
(2) Represents the adjustments to the unaudited pro-forma combined balance sheet
and statement of net assets of ALPS 94-1 and the AerFi transferred aircraft
to account for the transaction and as if it had occurred on June 30, 1998.
(i) Aircraft has been adjusted by $27 million to reflect (a) the
reduction in the fleet of $66 million to reflect the sale of the
B767-300ER owned by ALPS 94-1 (in the period between the pricing and
the closing of the offering) as if the sale had occurred on July 1,
1997 and (b) an increase of $39 million to reflect the inclusion of
all remaining aircraft at the initial appraised value of $952
million.
(ii) The expected cash balances to be held by AerCo group on completion of
the transaction are $61 million equal to the initial liquidity
reserve amount of $40 million, accrued expenses of $5 million and
security deposits of $16 million (as of June 30, 1998). The reduction
in the cash balance reflects the net cash outflow as a result of the
refinancing transaction and reflects the use of the ALPS 94-1 cash to
repay existing noteholders of ALPS 94-1.
(iii) The receivable due from AerFi of $24 million corresponds to a portion
of the indebtedness of the relevant AerFi transferred aircraft that
was repaid to AerFi on completion of the transaction.
(iv) Accounts receivable and accrued expenses and other liabilities reflect
only the assets and liabilities related to the initial aircraft on
completion of the transaction.
(v) Adjustments have been made to reflect the settlement of the existing
indebtedness and the issuance of the AerCo notes. The resulting
pro-forma indebtedness of $795 million at June 30, 1998 reflects the
new debt profile of the notes net of capitalized funding costs of $5
million. Indebtedness to AerFi of $192 million reflects subclass D-1
and subclass E-1 notes.
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<PAGE> 79
The application of the proceeds from the issuance of the AerCo notes on a
pro forma basis may be summarized:
<TABLE>
<CAPTION>
$M $M
---- ----
<S> <C> <C>
PROCEEDS ON ISSUE OF NOTES
A - C notes (net)........................................... 795
D & E notes................................................. 192
----
987
SETTLEMENT OF INDEBTEDNESS
Indebtedness to AerFi....................................... (241)
Indebtedness................................................ (724)
----
(965)
OTHER MOVEMENTS
Receipt of amounts due from AerFi........................... 24
Net disposal of aircraft.................................... 27
Settlement of accounts receivable/payable................... (25)
Goodwill on acquisition..................................... (56)
Elimination of pre-acquisition reserves..................... (19) (49)
---- ----
(27)
----
NET MOVEMENT IN CASH
Opening cash ALPS 94-1...................................... 88
Closing cash AerCo combined................................. (61)
----
Proforma decrease in cash................................... 27
----
</TABLE>
As part of the refinancing transaction, the ALPS 94-1 class E notes,
together with accrued interest, in the amounts of $192 million was refinanced by
AerCo class D notes of $80 million and AerCo class E notes of $112 million.
(vi) The transaction whereby AerCo acquired ALPS 94-1 and the AerFi
transferred aircraft has been accounted for using acquisition
accounting under UK GAAP. The difference between the purchase
consideration of $119 million paid by AerCo to acquire ALPS 94-1 and
the AerFi transferred aircraft (as described below) and the fair value
of the net assets of these entities of $63 million gives rise to
goodwill of $56 million, which has been capitalized on the unaudited
pro-forma combined balance sheet. The pre-acquisition equity of ALPS
94-1 and the AerFi transferred aircraft of $19 million has also been
eliminated as a pro-forma adjustment in arriving at the unaudited
pro-forma combined balance sheet.
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<PAGE> 80
The calculation of goodwill arising on the acquisition by AerCo of ALPS
94-1 and the AerFi transferred aircraft for the purposes of the pro-forma
financial information under U.K. GAAP is as follows
<TABLE>
<CAPTION>
AERFI
TRANSFERRED
ALPS 94-1 AIRCRAFT TOTAL
30-JUN-98 30-JUN-98 30-JUN-98
--------- ----------- ---------
$M $M $M
<S> <C> <C> <C>
SHAREHOLDER'S DEFICIT AND NET ASSETS...................... (79) 98 19
FAIR VALUE ADJUSTMENTS
Difference between initial appraisal value and the UK.
GAAP carrying value of the aircraft acquired......... 5 34 39
Adjustment to deferred tax liability on AerFi
transferred aircraft................................. -- 5 5
------ ------ ------
FAIR VALUE OF NET ASSETS ACQUIRED......................... (74) 137 63
Purchase consideration.................................... 27 (146) (119)
------ ------ ------
GOODWILL ON ACQUISITION................................... (46) (9) (56)
====== ====== ======
</TABLE>
The purchase consideration paid by AerCo in respect of the acquisition of
ALPS 94-1 and the AerFi transferred aircraft is as follows:
The $146 million purchase consideration paid by AerCo in respect of the
acquisition of the AerFi transferred aircraft represents the amount of the
contracted purchase consideration to acquire the shares in the aircraft owning
entities for the AerFi transferred aircraft of $0.3 million plus $146 million to
acquire the net assets of the AerFi transferred aircraft.
Of the $146 million paid by AerCo in respect of its acquisition of the net
assets of AerFi transferred aircraft an amount of $27 million was utilised to
repay existing E Note indebtedness of ALPS 94-1 to AerFi giving rise to a net
purchase consideration of $119 million.
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<PAGE> 81
RECONCILIATION OF PRO-FORMA COMBINED FINANCIAL INFORMATION AS STATED IN
ACCORDANCE WITH
U.K. GAAP TO PRO-FORMA COMBINED FINANCIAL INFORMATION IN ACCORDANCE WITH U.S.
GAAP
The unaudited pro-forma combined financial information is prepared in
accordance with U.K. GAAP which differs in certain significant respects from
U.S. GAAP. The principal differences are set out below:
AERCO GROUP
UNAUDITED PRO-FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30,
1998
<TABLE>
<CAPTION>
U.K. GAAP U.S. GAAP
PRO-FORMA PRO-FORMA
COMBINED U.S. GAAP NOTE 3 COMBINED
JUNE 30, 1998 ADJUSTMENT(3) REFERENCE JUNE 30, 1998
------------- ------------- --------- -------------
$M $M $M
<S> <C> <C> <C> <C>
Revenues
Aircraft leasing.................... 114 -- 114
Expenses
Depreciation........................ (42) 2 (i) (40)
Net interest expense................ (81) -- (81)
Exceptional item.................... (13) -- (13)
Other expenses...................... (13) -- (13)
----- ----- -----
Total expenses........................ (149) 2 (147)
===== ===== =====
Net loss before tax................... (35) 2 (33)
Benefit for taxes................... 2 -- 2
----- ----- -----
Net loss for the year................. (33) 2 (31)
===== ===== =====
</TABLE>
AERCO GROUP
UNAUDITED PRO-FORMA COMBINED BALANCE SHEET AT JUNE 30, 1998
<TABLE>
<CAPTION>
U.K. GAAP U.S. GAAP
PRO-FORMA PRO-FORMA
COMBINED U.S. GAAP NOTE 3 COMBINED
JUNE 30, 1998 ADJUSTMENT(3) REFERENCE JUNE 30, 1998
------------- ------------- --------- -------------
$M $M $M
<S> <C> <C> <C> <C>
Current assets
Cash................................... 61 -- 61
Accounts receivable.................... 3 -- 3
Deferred financing costs............... -- 5 (ii) 5
----- ----- -----
Total current assets..................... 64 5 69
Intangible assets
Goodwill............................... 56 (56) (iii)
Fixed assets
Aircraft............................... 952 (141) (i) 811
----- ----- -----
Total assets............................. 1,072 (192) 880
===== ===== =====
Liabilities
Accrued expenses and other
liabilities......................... 19 -- 19
Indebtedness........................... 795 5 (ii) 800
Indebtedness to AerFi.................. 192 -- 192
Provision for maintenance.............. 50 -- 50
Security deposits...................... 16 -- 16
----- ----- -----
Total liabilities........................ 1,072 5 1,077
SHAREHOLDERS' DEFICIT
Ordinary shares........................ -- -- --
Accumulated deficit.................... -- (197) (iv) (197)
----- ----- -----
1,072 (192) 880
===== ===== =====
</TABLE>
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<PAGE> 82
- ---------------
(3) The U.S. GAAP adjustments in the unaudited pro-forma combined financial
information relate primarily to the accounting treatment of the following:
(i) Under U.K. GAAP, the initial aircraft are included at their fair
(i.e., appraisal) value at July 1, 1998 and depreciated from that
date. For U.S. GAAP purposes, transfer of assets and liabilities
between ALPS 94-1, AerCo and AerFi have been accounted for on a
historical cost basis because all such transfers of assets and
liabilities are among entities within a single consolidated group.
The U.S. GAAP adjustment of $141 million to aircraft relates to the
difference between the fair value of the aircraft and their
predecessor cost.
(ii) Under U.K. GAAP, the capitalized funding costs of completing the
transaction are disclosed as a reduction against the class A-C note
indebtedness. Under U.S. GAAP the capitalized funding costs are
disclosed separately as deferred financing costs.
(iii) Under U.K. GAAP, the difference between the fair value of the net
assets of ALPS 94-1 and the AerFi transferred aircraft and the
purchase consideration paid by AerCo to acquire these entities gives
rise to goodwill of $56 million which is capitalised on the unaudited
pro-forma combined balance sheet. No goodwill arises under U.S. GAAP
as the transaction is accounted for on an historical cost basis as a
transaction between entities under common control.
(iv) The U.S. GAAP adjustment to the shareholders' accumulated deficit of
$197 million represents
(a) the difference between the fair value of the aircraft acquired and
their predecessor cost of $141 million, and
(b) the difference of $56 million, between AerCo's purchase
consideration in respect of its acquisition of ALPS 94-1 and the
AerFi transferred aircraft of $119 million and the fair value of
the net assets of those entities of $63 million.
81
<PAGE> 83
SELECTED RATIOS(1)(2)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1998
-------------
(UNAUDITED)
<S> <C>
U.K. GAAP
Pro-forma combined Ratio of earnings to fixed charges(3).... 0.568
U.S. GAAP
Pro-forma combined Ratio of earnings to fixed charges(3).... 0.593
</TABLE>
- ---------------
(1) For a discussion of the differences between U.S. GAAP and U.K. GAAP in
respect of the unaudited pro-forma combined financial information, see
reconciliation of income as stated in accordance with U.K. GAAP to income
in accordance with U.S. GAAP set forth above.
(2) Earnings include pretax income from continuing operations plus fixed
charges. Fixed charges are the total of (a) interest, whether expensed or
capitalized, (b) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized and (c) such
portion of rental expense as can be demonstrated to be representative of
the interest factor in the particular expense.
(3) A ratio of less than one indicates that earnings are inadequate to cover
fixed charges. The amount by which fixed charges exceeded earnings for the
year ended June 30, 1998 was $35 million under U.K. GAAP and $33 million
under U.S. GAAP.
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<PAGE> 84
DESCRIPTION OF THE NOTES
The following description is a summary of the provisions of the 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. We have filed these agreements and
the servicing agreement, the administrative agency agreement and the cash
management agreement as exhibits to the registration statement which includes
this prospectus. The following discussion uses terms that have specific
definitions in the indenture and other transaction agreements. You should refer
to Appendix 1 for an index showing the definitions of these terms as they appear
in this prospectus.
GENERAL
We will issue the new notes under the indenture. The indenture will be
qualified under the Trust Indenture Act of 1939, as amended, upon effectiveness
of the registration statement. Bankers Trust Company is the trustee under the
indenture.
The terms of the new notes will be identical to the old notes, except for
transfer restrictions, registration rights and increased interest rate
provisions that appear only in the old notes.
The notes are solely obligations of AerCo and are not secured by the
aircraft. The notes do not represent obligations of any lessee, AerFi, the
trustee or Babcock & Brown.
RATINGS
Each subclass of notes is rated as of the date of this prospectus as
follows:
<TABLE>
<CAPTION>
RATING AGENCIES
-----------------------------------
MOODY'S STANDARD & POOR'S DCR
------- ----------------- ---
<S> <C> <C> <C>
Subclass A-1 notes....................................... Aa2 AA AA
Subclass A-2 notes....................................... Aa2 AA AA
Subclass B-1 notes....................................... A2 A A
Subclass C-1 notes....................................... -- BBB BBB
</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 or
principal in full on any subclass of the notes on the expected final payment
date (or on any other date prior to the final maturity date). The ratings do not
address the 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 hold notes because the
ratings do not comment as to market price or suitability for a particular
investor and may be subject to revision 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 other entity has an obligation to
support AerCo's obligations under the notes in any way.
FORM
GLOBAL NOTES
The new notes will be represented by global notes, each of which will be
issued in bearer form only. The global notes will be deposited with the
book-entry depositary. The book-entry depositary will issue to DTC or its
nominee certificateless depositary interests for each subclass of the new notes,
representing the principal amount of the global note for the subclass. Interests
in the new notes will therefore be shown only on, and transfers of book-entry
interests will be effected only through, records maintained in book-entry form
by DTC or its nominee and its participants (including Euroclear and Cedel). You
should refer to "Book-Entry Registration, Global Clearance and Settlement" for a
description of book-entry interests in the new notes may be held and transferred
and new payments on them will be distributed.
83
<PAGE> 85
DEFINITIVE NOTES
You will receive definitive notes in registered form without interest
coupons in exchange for your book-entry interests only if:
- DTC notifies the book-entry depositary that it is not willing or able to
act as depositary for the book-entry interests and the book-entry
depositary does not appoint a successor at AerCo's request within 90 days
of DTC's notice
- AerCo notifies the trustee that the book-entry depositary is no longer
willing or able to act as book-entry depositary and AerCo and the trustee
do not appoint a qualified successor within 90 days of AerCo's notice or
- after an event of default has occurred with respect to any class of
notes, holders representing 51% or more of the outstanding principal
balance of any subclass within that class notify AerCo, the trustee, the
book-entry depositary and DTC that continuing a book-entry system through
DTC is no longer in their 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.
You should be aware that, under current Irish tax law, the holder of a
definitive note may become subject to Irish income tax of currently 24% which
will be withheld on any payments of interest on the definitive notes as set
forth under "Tax Considerations -- Irish Tax Considerations". If definitive
notes are issued, AerCo will have no obligation to pay to any holder any
additional amounts for any Irish or other tax.
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 record date. Such distributions will be made by check
mailed to the address of such holder as it appears on the register maintained by
the trustee. A noteholder holding definitive notes representing at least
$1,000,000 of the principal balance of any subclass 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 the 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 the
co-registrar in Luxembourg upon presentation of the note or satisfactory
evidence of destruction, loss or theft. An indemnity satisfactory to the trustee
or the 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 with such
exchange or replacement and any other expenses (including the fees and expenses
of the trustee and the co-transfer agent and co-registrar) connected therewith.
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 all payments of interest,
principal and any premium on the notes of each subclass, so long as the trustee
or paying agent confirms that it has received the payment 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 on the payment date, then it will make the
payment to the noteholders on the next business day after the business day it
received the payment. The trustee or paying agent to the noteholders will make
each payment on any payment date other than the final payment date with respect
to any subclass of notes will be made as of the record date immediately
preceding such payment date. The final distribution with respect to any note,
84
<PAGE> 86
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, AerCo must appoint and maintain a paying agent in
Luxembourg.
The following table sets forth the expected weighted average life, the
expected final payment date and the final maturity date for each subclass of
notes.
EXPECTED WEIGHTED AVERAGE LIFE, EXPECTED FINAL PAYMENT DATES
AND FINAL MATURITY DATES OF THE NOTES
<TABLE>
<CAPTION>
EXPECTED
WEIGHTED
AVERAGE LIFE EXPECTED FINAL
SUBCLASS OF NOTES IN YEARS PAYMENT DATE FINAL MATURITY DATE
- ----------------- ------------ ----------------- -------------------
<S> <C> <C> <C>
Subclass A-1............................ 2.0 July 15, 2000 July 15, 2023
Subclass A-2............................ 3.8 December 15, 2005 July 15, 2023
Subclass B-1............................ 7.7 July 15, 2013 July 15, 2023
Subclass C-1............................ 10.5 July 15, 2013 July 15, 2023
</TABLE>
The "expected final payment date" for each subclass of notes means the date
on which the final payment of principal of and interest on such subclass of
notes is expected to be made based on the assumptions we describe below under
"-- Assumptions". The final maturity date for each subclass of notes means the
date on which all principal not previously paid is due and payable. The actual
final payment date for each subclass of notes is likely to occur earlier or
later than the expected final payment date as a result of numerous factors,
including that the assumptions are unlikely to correspond to actual experience.
AerCo may also redeem or refinance the notes before their expected final payment
date.
ASSUMPTIONS
The assumptions and tables set forth below represent possible revenue
scenarios designed to illustrate the payment characteristics of the notes. They
are not projections, estimates, forecasts or forward-looking statements. We
developed the tables by fixing certain of the assumptions and by varying other
assumptions and other factors which affect AerCo's revenues and costs and
expenses. The assumptions do not represent a complete list of factors which may
affect the revenues and costs and expenses of AerCo, but rather indicate those
factors which are likely to have a material effect on AerCo's performance in
future years. More severe stresses than we have included in the table may lead
to payments of principal on the notes being delayed or decreased or, in certain
cases, an event of default.
You should understand that the following tables are only an illustration of
some of the payment sensitivities of the notes to market and economic stresses.
We prepared these tables for inclusion in the offering memorandum for the old
notes based on information as of May 15, 1998. We have not updated or revised
the information presented to reflect changes occurring after May 15, 1998. For
example, we have sold one of the aircraft (an F100) since that date and LIBOR
rates have also changed since that time. We are not aware of any other changes
since that date that would cause the following data to be an unreliable
illustration of how the payment provisions of the notes operate. It is highly
likely that actual experience in the future will vary from the assumptions and
the possible revenue scenarios reflected in the tables. The principal factors
that could cause AerCo group's actual revenues to differ materially from such
scenarios are the stresses we describe below and the risks we describe under
"Risk Factors".
85
<PAGE> 87
REVENUE ASSUMPTIONS
We used assumptions (1) to (12) below to determine the assumed gross
monthly revenue of AerCo group before interest payments, principal payments,
swap payments, selling, general and administrative expenses and before lost
rental payments and expenditures required due to aircraft downtime, lessee
defaults, aircraft repossession costs, bad debts and operating costs incurred in
the ordinary course of the operating lease business. See Appendix 3 to this
prospectus for further data regarding assumed gross revenue.
(1) One month LIBOR remains constant at 5.75% per annum and the U.S.
Treasury rate used for premium calculations is 5.5%.
(2) Six month LIBOR (the most common reference rate for the floating rate
leases) remains constant at 5.75% per annum.
(3) Funds on deposit in the collection account and any other cash balances
held by AerCo group earn interest at a rate of one month LIBOR.
(4) - Aircraft coming off-lease in the future are re-leased at a monthly
rate that is a function of the current contracted monthly lease
rate as of May 15, 1998 for such aircraft of that age.
- Lease rates are assumed to remain constant at the monthly lease rate
for the first 60% of an aircraft's expected useful life, then
declining on a straight-line basis to 40% of such lease rate over the
remainder of its expected useful life.
- Any aircraft currently subject to a letter of intent is assumed to be
leased on the basis of the letter of intent.
- All types of aircraft in the portfolio are assumed to have an
expected useful life of 25 years, except that each of the two DC8-71F
aircraft are assumed to have an expected useful life of 15 years from
the date of its conversion to freighter service.
(5) Aircraft have no scrap value at the end of their expected useful life.
(6) AerCo group receives all contracted and assumed future payments in
respect of the leases on the due date.
(7) Future lease terms are five years.
(8) AerCo group grants no new purchase options to lessees and no existing
purchase options are exercised.
(9) AerCo group grants no new lease termination or extension options to
lessees and no existing termination or extension options are exercised.
(10) AerCo group sells no aircraft.
(11) AerCo group acquires no additional aircraft.
(12) AerCo group does not enter into any tax-related dispositions.
86
<PAGE> 88
Interest, Expense and Operating Cost Assumptions:
(13) AerCo issues notes in amounts and interest rates as set forth in the
following table and makes payments according to the order of priorities set
forth under "Description of the Notes -- Payment of Principal and Interest --
Priority of Payments".
<TABLE>
<CAPTION>
SUBCLASS AMOUNT ASSUMED INTEREST RATE
- -------- ----------- ---------------------
($MILLIONS)
<S> <C> <C>
Subclass A-1......................................... 340.000 1 Month LIBOR + 0.19%
Subclass A-2......................................... 290.000 1 Month LIBOR + 0.32%
Subclass B-1......................................... 85.000 1 Month LIBOR + 0.60%
Subclass C-1......................................... 85.000 1 Month LIBOR + 1.35%
Subclass D-1......................................... 80.000 8.50%
Subclass E-1......................................... 111.973 *
-------
991.973
=======
</TABLE>
- ---------------
* The class E note primary interest amount is 15%.
(14) Refinancing notes are issued and sold on the expected final payment
date of the subclass A-1 notes (and on expected final payment dates of any
refinancing notes) with the same priority, interest rate, issuance expenses and
redemption as the notes being refinanced and with maturities and amortization
schedules paid with the application of the Minimum, Scheduled and Supplemental
Principal Payment Amounts. Issuance expenses are 0.02% per month of the
outstanding principal balance.
(15) AerCo group realizes no actual liabilities in respect of contingent
liabilities of ALPS 94-1 or its subsidiaries or any of the AerFi transferred
companies.
(16) The servicer's fees are as described in "Management of AerCo group --
The Servicer". The servicer's incentive fees are assumed to be 1% of aggregate
lease rentals. The administrative agent's fee is as described in "Management of
AerCo group -- Corporate Management". Other selling, general and administrative
expenses, including fees of the cash manager, in the amount of $2 million per
annum are deducted from gross revenue.
(17) Gross revenues are reduced each year by 2% to account for operating
costs incurred in the ordinary course of the operating lease business including
insurance expenses, aircraft-related costs and leasing transaction expenses.
(18) Security deposits, modification payments and subordinated swap
payments are zero.
Assumed Case Stress Scenario:
(19) Gross revenues are reduced by 6% per annum for the following stresses:
lost rental payments and expenditures required because of aircraft downtime --
known in the industry as "aircraft on ground" -- lessee defaults, aircraft
repossession costs and bad debts.
The following stresses are presented for illustrative purposes and only
represent an example of a combination of stresses which result in approximately
a 6% reduction in gross revenues. Other stress combinations could result in
gross revenue reductions which exceed 6%.
<TABLE>
<S> <C> <C>
A: Weighted Average Portfolio Turnover: .......... 20% per annum (see Assumption (7))
B: Average Re-marketing Time: .................... 6 weeks (.115 years)
C: Weighted Average Default Rate: ................ 4% per annum
D: Average Repossession Time: .................... 18 weeks (.346 years)
E: Average Repossession Cost: .................... $650,000 per Aircraft
F: Weighted Average Bad Debt Expense: ............ 1% per annum
</TABLE>
87
<PAGE> 89
AOG = (A X B) + (C X (B + D))
Annual Repossession Expense = C X(E/Average Annual Gross Revenue per
Aircraft))
<TABLE>
<S> <C> <C>
Aircraft on Ground = (20% X .115 yrs) + (4% X (.115 yrs +
.346 yrs)).................................................. 4.2%
Annual Repossession Expense = (4% X 21%).................... 0.8
Bad Debt Expense............................................ +1.0
-----
Stress Related Gross Revenue Reduction...................... 6.0%
Operating costs (see Assumption (17))....................... +2.0
-----
Gross Revenue Reduction in the Assumed Case................. 8.0%
=====
</TABLE>
Increasing the above stresses would result in a greater reduction in annual
gross revenues. The following table shows the effect upon gross revenues of
doubling the severity of each stress (other than average repossession cost)
outlined in the above example (in each case holding other stresses unchanged).
<TABLE>
<CAPTION>
GROSS REVENUE
STRESS SEVERITY REDUCTION
- ------ -------- -------------
<S> <C> <C>
Portfolio Turnover...................................... 40% per annum 10.3%
Re-marketing Time....................................... 12 weeks 10.8%
Default Rate............................................ 8% per annum 10.7%
Repossession Time....................................... 36 weeks 9.4%
Bad Debt Expense........................................ 2% per annum 9.0%
</TABLE>
Actual experience will likely differ from the assumptions and the stresses.
Because of this, principal payments on certain notes will likely occur earlier
or later than assumed. These timing differences may be significant.
88
<PAGE> 90
PRINCIPAL REPAYMENTS UNDER THE ASSUMED CASE
The table below shows, for each payment date presented, the percentage of
the initial outstanding principal balance of the aggregate class A notes
(including refinancing notes) and the subclass A-1, subclass A-2, subclass B-1,
subclass C-1 and subclass D-1 notes expected to be outstanding on the payment
date based on 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 set forth in the table. AerCo may fail to pay
principal of any subclass of its notes prior to the final maturity date of such
subclass because it does not have the funds to make the payment according to the
priorities described under "-- Priority of Payments". Such a failure will not,
by itself, be an event of default.
PERCENT OF INITIAL OUTSTANDING PRINCIPAL BALANCE
OF THE NOTES BASED ON THE ASSUMED CASE
<TABLE>
<CAPTION>
AGGREGATE CLASS A
NOTES, INCLUDING
PAYMENT DATE OCCURRING IN JULY A-1 A-2 REFINANCING NOTES B-1 C-1
- ------------------------------ ---- ---- ----------------- ---- ----
<S> <C> <C> <C> <C> <C>
1998 (July 15)................................ 100% 100% 100% 100% 100%
1999.......................................... 100% 87% 94% 96% 100%
2000.......................................... 0% 74% 88% 91% 99%
2001.......................................... 0% 62% 82% 85% 97%
2002.......................................... 0% 48% 76% 79% 95%
2003.......................................... 0% 34% 70% 72% 92%
2004.......................................... 0% 20% 63% 64% 88%
2005.......................................... 0% 6% 57% 56% 83%
2006.......................................... 0% 0% 50% 48% 76%
2007.......................................... 0% 0% 42% 39% 69%
2008.......................................... 0% 0% 34% 31% 60%
2009.......................................... 0% 0% 27% 24% 51%
2010.......................................... 0% 0% 20% 16% 40%
2011.......................................... 0% 0% 14% 10% 28%
2012.......................................... 0% 0% 8% 4% 15%
2013.......................................... 0% 0% 4% 0% 0%
2014.......................................... 0% 0% 0% 0% 0%
Weighted Average Life......................... 2.0 3.8 7.8 7.7 10.5
</TABLE>
- ---------------
The weighted average life of a note equals:
P/I, where
P = the sum of the following amounts calculated for each payment date:
(A)-(Y), where
A = principal amount that is assumed to be paid on the payment date
Y = number of years from the date the note was issued to the payment
date
I = the initial principal balance of the note.
89
<PAGE> 91
DECLINING BALANCES OF THE NOTES AND ASSUMED PORTFOLIO VALUE
BASED ON THE ASSUMED CASE
LOGO
In each of the following tables, "assumed maturity" means the period
(expressed in years) from July 15, 1998 through the expected final payment date
of the relevant notes.
EFFECT OF INABILITY TO REFINANCE SUBCLASS A-1 NOTES
The table below is based on the assumptions, except that we have assumed
that no refinancing notes are issued. If no refinancings occur, the assumed
maturities (Exp) and weighted average lives (Avg) of the notes would be as set
forth below.
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
<TABLE>
<CAPTION>
ASSUMED MATURITY/
WEIGHTED AVERAGE LIFE
----------------------------------
ASSUMED CASE NO REFINANCINGS
-------------- ----------------
EXP AVG EXP AVG
----- ----- ------ ------
<S> <C> <C> <C> <C>
Subclass A-1.............................................. 2.0 2.0 15.8 11.3
Subclass A-2.............................................. 7.4 3.8 7.4 3.8
Subclass B-1.............................................. 15.0 7.7 15.0 7.7
Subclass C-1.............................................. 15.0 10.5 15.0 10.5
</TABLE>
MINIMUM REVENUE PERCENTAGE REQUIRED TO REPAY NOTES
The table below shows the minimum percentage of gross revenue that will be
necessary to repay all interest and principal on each subclass of notes by their
respective final maturity dates. If AerCo group received actual revenues below
the percentages of gross revenue indicated below and all of the other
assumptions occurred, AerCo would be unable to make the required payments on the
notes, which would constitute an event of default.
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<PAGE> 92
PERCENTAGE OF GROSS REVENUE NECESSARY TO REPAY THE
NOTES BY THE APPLICABLE FINAL MATURITY DATE ASSUMING ACTUAL
EXPERIENCE CORRESPONDS TO THE ASSUMED CASE UNTIL THE BEGINNING OF THE YEAR
STATED
<TABLE>
<CAPTION>
JULY 15, 1998 YEAR 3 YEAR 6 YEAR 10
------------- ------ ------ -------
<S> <C> <C> <C> <C>
Aggregate Class A Notes............................ 58.4% 57.4% 54.6% 48.7%
Subclass B-1 Notes................................. 65.8% 64.4% 60.8% 53.1%
Subclass C-1 Notes................................. 74.3% 72.9% 70.3% 61.2%
</TABLE>
EFFECT OF A PERMANENT CHANGE IN GROSS REVENUE
We have prepared the tables below based on the assumptions, except that we
have varied the revenue received by AerCo group from gross revenue by the
indicated percentages, beginning in years 3 and 6. If AerCo group received
actual revenues as indicated below and all of the other assumptions occurred,
then the assumed maturities and weighted average lives of the relevant
subclasses of notes would be as set forth below.
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN GROSS REVENUE, BEGINNING IN YEAR 3
<TABLE>
<CAPTION>
PERMANENT CHANGE IN GROSS REVENUE
+10% 0% -8%* -15% -20%
----------- ----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1......................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2......................... 6.3 3.4 7.4 3.8 7.4 3.8 8.5 3.9 8.5 4.3
Subclass B-1......................... 12.0 6.6 14.8 7.7 15.0 7.7 15.0 7.7 18.5 7.9
Subclass C-1......................... 12.9 10.1 15.0 10.5 15.0 10.5 15.0 10.5 19.8 13.6
</TABLE>
- ---------------
* Assumed case
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN GROSS REVENUE, BEGINNING IN YEAR 6
<TABLE>
<CAPTION>
PERMANENT CHANGE IN GROSS REVENUE
+10% 0% -8%* -15% -20%
----------- ----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1......................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2......................... 7.1 3.8 7.4 3.8 7.4 3.8 8.2 3.8 8.5 3.9
Subclass B-1......................... 12.0 6.7 14.8 7.7 15.0 7.7 15.0 7.7 15.0 7.7
Subclass C-1......................... 14.0 10.4 15.0 10.5 15.0 10.5 15.0 10.5 16.0 11.0
</TABLE>
- ---------------
* Assumed case
91
<PAGE> 93
EFFECT OF PERMANENT DECLINE IN PORTFOLIO VALUE
If the value of the portfolio, as adjusted for our appraisals, becomes
significantly less than the value of the portfolio based on the assumptions, the
Scheduled Principal Payment Amount payable to holders of the class A notes may
be increased. You should refer to "-- Principal Amortization" for a description
of how these amounts are determined. 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 assumed 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.
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN PORTFOLIO VALUE, BEGINNING IN YEAR 1
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS PERCENTAGE OF
EXPECTED 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-1.................................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2.................................... 7.4 3.8 7.4 3.8 6.8 3.3 6.0 3.2
Subclass B-1.................................... 15.0 7.7 15.0 7.7 15.0 7.7 15.0 7.3
Subclass C-1.................................... 15.0 10.5 15.0 10.5 15.0 10.6 15.0 10.8
</TABLE>
- ---------------
* Assumed Case
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN PORTFOLIO VALUE, BEGINNING IN YEAR 5
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS PERCENTAGE OF
EXPECTED 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-1.................................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2.................................... 7.4 3.8 7.4 3.8 6.8 3.6 6.6 3.6
Subclass B-1.................................... 15.0 7.7 15.0 7.7 15.0 7.8 15.0 7.8
Subclass C-1.................................... 15.0 10.5 15.0 10.5 15.0 10.6 15.0 10.9
</TABLE>
- ---------------
* Assumed Case
EFFECT OF CYCLICAL VARIATIONS IN GROSS REVENUE AND PORTFOLIO VALUE --
"RECESSION SCENARIOS"
Historically, the aviation industry has experienced cyclical swings in the
supply and demand for aircraft. Operating lease companies, such as members of
AerCo group, would be negatively affected by a decline in the demand for
aircraft. We have assumed that such a decline in demand or "recession" (as used
in this discussion) will result in a decline in aircraft values and an increase
in defaults and downtime, and a decline in operating lease rates. In that case,
gross revenues would decline.
We have prepared the following tables to show the effect on assumed
maturities and weighted average lives of the subclass B-1 and subclass C-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 the operations of AerCo group:
- Aircraft values would fall on the first day of the recession to a given
percentage of the assumed portfolio value. This decrease would trigger
an increase in scheduled principal payment amounts being paid if amounts
are available.
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<PAGE> 94
- After a period of two years following the first day of the recession,
gross revenues fall by a given percentage as aircraft are re-leased or
lessees default. This would result in less cash flow being available to
make payments of interest and principal on the notes.
- The recession lasts a given period of time. Afterwards, the adjusted
portfolio value returns to the assumed portfolio value on the first day
after the recession. Two years following the end of the recession, gross
revenues return to the assumed 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
it be assured that following a recession aircraft values and gross
revenues will return to assumed case levels. Because actual experience
will likely differ from these assumptions, the actual maturities and
weighted average lives of the notes will likely differ from what is shown
in the tables below.
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS B-1
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C>
Decline in Gross Revenues..................... 0% 8%* 10% 20%
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (July 15, 1998) 15.0 7.7 15.0 7.7 15.0 7.7 15.0 7.7
3 15.0 7.7 15.0 7.7 15.0 7.7 15.0 7.7
5 15.0 7.7 15.0 7.7 15.0 7.7 15.0 7.8
10 15.0 7.7 15.0 7.7 15.0 7.7 15.0 7.7
</TABLE>
- ---------------
* Assumed case
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS B-1
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C>
Decline in Gross Revenues..................... 0% 8%* 10% 20%
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (July 15, 1998) 15.0 7.7 15.0 7.7 15.0 7.7 15.0 7.8
3 15.0 7.7 15.0 7.7 15.0 7.7 15.0 7.9
5 15.0 7.7 15.0 7.7 15.0 7.7 15.0 7.9
10 14.8 7.7 15.0 7.7 15.0 7.7 15.0 7.7
</TABLE>
- ---------------
* Assumed case
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS C-1
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C>
Decline in Gross Revenues..................... 0% 8%* 10% 20%
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value..................... 100% 100%* 90% 80%
</TABLE>
93
<PAGE> 95
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (July 15, 1998) 15.0 10.5 15.0 10.5 15.0 10.5 15.0 10.5
3 15.0 10.5 15.0 10.5 15.0 10.5 15.0 10.6
5 15.0 10.5 15.0 10.5 15.0 10.5 15.0 10.7
10 15.0 10.5 15.0 10.5 15.0 10.5 15.0 10.5
</TABLE>
- ---------------
* Assumed case
ASSUMED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS C-1
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C>
Decline in Gross Revenues..................... 0% 8%* 10% 20%
Adjusted Portfolio Value as a Percentage of
Assumed Portfolio Value..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (July 15, 1998) 15.0 10.5 15.0 10.5 15.0 10.5 15.0 10.6
3 15.0 10.5 15.0 10.5 15.0 10.5 15.0 10.8
5 15.0 10.5 15.0 10.5 15.0 10.5 15.0 10.9
10 15.0 10.5 15.0 10.5 15.0 10.5 15.0 10.5
</TABLE>
- ---------------
* Assumed case
EFFECT OF PRINCIPAL ALLOCATION ACCORDING TO THE EXTENDED POOL FACTOR ONLY
FOR THE SUBCLASS A-2, SUBCLASS B-1, AND SUBCLASS C-1 NOTES
If available collections on a payment date are not sufficient to pay the
principal amount that is to be paid on a class of notes on that payment date
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 "--
Principal Amortization -- Allocation of Principal Among Subclasses".
We have prepared this table to show the effect of this allocation on the
assumed maturities and the weighted average lives of subclass A-2, subclass B-1
and subclass C-1 notes if:
- we issue additional notes to finance the acquisition of additional
aircraft BUT
- AerCo group's gross revenues are sufficient only to pay down the
principal of these subclasses according to paragraph (1) under "Payment
of Principal and Interest -- Allocation of Principal Among Subclasses of
Notes".
<TABLE>
<CAPTION>
SUBCLASSES OF NOTES EXP. AVG.
- ------------------- ---- ----
<S> <C> <C>
Subclass A-2................................................ 8.5 4.7
Subclass B-1................................................ 16.0 8.7
Subclass C-1................................................ 17.0 12.5
</TABLE>
PAYMENT OF PRINCIPAL AND INTEREST
GENERAL
The notes are direct obligations of AerCo and are not secured by the
aircraft. AerCo's only sources of payment for the notes and its other
obligations are:
- the payments made by the lessees under the leases;
- proceeds from any sales or other dispositions of its assets;
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<PAGE> 96
- net payments to AerCo received under AerCo's swap agreements (and any
other hedging instruments we may enter into);
- interest earned on the investment of cash balances; and
- net cash proceeds received from the sale of refinancing notes.
The notes are subordinated to expenses and other obligations of AerCo group
according to the order of priorities we described under "-- Priority of
Payments". Each class and subclass of the notes has the priority given to it
according to the priority of payments in the indenture. AerCo may make no
payment of principal, interest or any premium on any class of notes unless it
has made the required payments on the relevant payment date on each class of
notes that ranks prior to that class. The subordination provisions of the
indenture may not be amended or modified unless 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 AerCo under the more senior classes of notes have been
paid.
Under the leases, the lessee 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 certain limited amounts
that must be left on deposit for local legal reasons. Any amounts received by
AerCo group which are required to be segregated will be transferred to the
lessee funded account. Unsegregated amounts received by AerCo group will be
transferred directly to the collection account. On the basis of the 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 AerCo group to the
trustee, the swap providers, the service providers and the holders of the class
D and class E notes, in each case when and as due.
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 and 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 is paid in full. Each subclass of
notes will bear interest for each interest accrual period at the rate per annum
set forth on the cover page of this prospectus.
Interest on any subclass of notes is calculated on the basis of a 360-day
year and the actual number of days elapsed in an interest accrual period.
If AerCo does not repay the subclass A-1 notes in full on or before their
expected final payment date, additional interest will accrue on the subclass A-1
notes at the rate of 0.50% per annum. We refer to this additional interest as
step-up interest. AerCo 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
did not rate AerCo's ability to pay step-up interest. So long as the notes are
listed on the Luxembourg Stock Exchange, AerCo will publish the amount of
step-up interest that is payable in the manner required by the indenture and the
Luxembourg Stock Exchange.
REFERENCE AGENCY AGREEMENT
For the purpose of calculating the rate of interest payable on the notes,
AerCo has entered into a reference agency agreement with the trustee, Bankers
Trust Company as reference agent and the cash
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<PAGE> 97
manager. The reference agent determines LIBOR for each interest accrual period
following the initial 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 who 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 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.
Once it determines the interest rate, the reference agent will calculate
the interest amount for the interest accrual period as:
(I)(P) X N/360, where
<TABLE>
<S> <C>
I = interest rate for the interest accrual period
P = outstanding principal balance of the subclass at the
beginning of the interest accrual period, as estimated by
the reference agent
N = number of days in the interest accrual period.
</TABLE>
The reference agent's determination of LIBOR, the interest rate and the
interest amount for each such subclass of notes (in the absence of negligence,
wilful default, bad faith or manifest error) will be conclusive and binding upon
all parties.
The reference agent will give notice of applicable LIBOR, the payment date,
the interest rate for each subclass of notes for the relevant interest accrual
period and the amount of interest on each subclass of notes to AerCo, the
listing agent for the Luxembourg Stock Exchange and the cash manager.
Noteholders 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 cash manager
will determine such rate of interest or calculate such interest amount in
accordance with the provisions described above.
AerCo 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 notes. The reference agent may not be removed or resign its duties unless
a successor has been appointed.
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<PAGE> 98
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:
- the Minimum Principal Payment Amount
- the Scheduled Principal Payment Amount
- the Supplement Principal Payment Amount (only applicable to the class A
and class B notes)
- redeemed principal as described below in paragraphs (21) through (24)
under "-- Priority of Payments".
If AerCo issues any additional notes or refinancing notes, each issuance
will be a new subclass of the relevant class of notes.
MINIMUM PRINCIPAL PAYMENT AMOUNT. For each class of notes and the class D
notes, the "Minimum Principal Payment Amount" will equal the difference, if
positive, between the outstanding principal balance of such class and the
Minimum Target Principal Balance for such class on the payment date.
On each payment date, the "Minimum Target Principal Balance" for the class
A and class B notes will equal:
(MCP) X (APV), where
<TABLE>
<S> <C>
MCP = the "Minimum Class Percentage" as set forth in Appendices 5
and 6 to this prospectus
APV = the "Assumed Portfolio Value" for the payment date as
described below.
</TABLE>
In the case of the class A note 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 below), 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). If on any
payment date the outstanding principal balance of the class A notes (including
refinancing notes and additional notes) is greater than the Adjusted Portfolio
Value in respect of such payment date, then the Minimum Target Principal Balance
of the class A notes shall be equal to the Scheduled Target Principal Balance of
the class A notes.
For each payment date, the Minimum Target Principal Balance for the class C
and class D notes is set out in Appendices 7 and 8 to this prospectus.
For each payment date, the "Assumed Portfolio Value" for the initial
aircraft will equal the sum of the following products:
(IAV) X (DF1)/(DF2), where
<TABLE>
<S> <C>
IAV = the initial appraised value of each aircraft on the relevant
calculation date
DF1 = the depreciation factor for that aircraft on the calculation
date
DF2 = the depreciation factor for that aircraft on July 15, 1998.
</TABLE>
"Initial Appraised Value" means the average of the base values of each of
the aircraft, determined, in the case of the initial aircraft as of March 1,
1998 and, in the case of any additional aircraft, as of a date not more than six
months prior to the closing date for the issue of the relevant additional notes.
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<PAGE> 99
The depreciation factor equals: (1 - (kn)) X (1 + g)(n) but not less than
zero
Where, with respect to the initial aircraft:
<TABLE>
<S> <C>
n = age of the aircraft expressed in years
1
k =
-----------------------------------------
expected useful life
g = 0.02
</TABLE>
The depreciation factors produce a "depreciation curve" that assumes that
the value of an initial 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 additional aircraft and initial aircraft. Finally, AerCo group 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.
Scheduled Principal Payment Amount. For each class of notes and the class
D notes, the "Scheduled Principal Payment Amount" on any payment date will equal
the difference, if positive, between the outstanding principal balance of such
class (after giving effect to any payment of the Minimum Principal Payment
amount for such class) and the Scheduled Target Principal Balance for such
class.
On each payment date, the "Scheduled Target Principal Balance" for the
class A notes will equal:
(SCP) X (APV*), where
<TABLE>
<S> <C>
SCP = the "Scheduled Class Percentage" on the payment date (as
set forth in Appendix 5 to this prospectus)
APV* = EITHER the Assumed Portfolio Value on the payment date OR
105% of the Adjusted Portfolio Value on the payment date,
WHICHEVER IS LESS.
</TABLE>
For each payment date the Scheduled Target Principal Balance for the class
B notes will equal:
(SCP) X (APV), where
<TABLE>
<S> <C>
SCP = the Scheduled Class Percentage on the payment date (as set
forth in Appendix 5)
APV = the Assumed Portfolio Value on the payment date.
</TABLE>
For each payment date, the Scheduled Target Principal Balance of the class
C and class D notes is set out in Appendices 7 and 8 to this prospectus.
For each payment date, the "Adjusted Portfolio Value" will equal the sum of
the following amounts for each aircraft in the portfolio:
(Avg. BV) X (DF1)/(DF2), where
<TABLE>
<S> <C>
Avg. BV = the average base value of the aircraft as determined in
the most recent appraisal
DF1 = the depreciation factor for the aircraft on the
calculation date
DF2 = the depreciation factor for the aircraft on the date of
the most recent appraisal.
</TABLE>
Supplemental Principal Payment Amount. For the class A and class B notes,
the "Supplemental Principal Payment Amount" on any payment date will equal the
difference, if positive, between the outstanding principal balance of such class
(after giving effect to the payment of any Minimum Principal Payment Amount and
Scheduled Principal Payment Amount) and the Supplemental Target Principal
Balance for such class.
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<PAGE> 100
On each payment date, the "Supplemental Target Principal Balance" for the
class A and class B notes will equal:
(Supp. CP) X (APV), where
<TABLE>
<S> <C>
Supp. CP = the "Supplemental Class Percentage" on the payment date
(as set forth in Appendices 5 and 6)
APV = the Assumed Portfolio Value on the payment date.
</TABLE>
ALLOCATION OF PRINCIPAL AMONG SUBCLASSES OF NOTES
On the expected final payment date of the subclass A-1 notes, AerCo intends
to refinance 100% of the outstanding principal balance of the subclass A-1 notes
by issuing refinancing notes and selling such refinancing notes in the capital
markets. Failure to repay any subclass A-1 note in full at its expected final
payment date will not result in an event of default.
AerCo may also refinance any other subclass of notes, at any time, at the
redemption price that would be payable if AerCo were to have redeemed such notes
instead. See "-- Refinancing" and "-- Indenture Covenants -- Limitation on
Indebtedness" for a description of the redemption price.
The terms of the subclass A-2, subclass B-1, subclass C-1 and subclass D-1
notes will require amortization of their outstanding principal balance before
their expected final payment dates, if there are funds available in accordance
with the order of priorities set forth under "-- 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 but the amount of our available collections
is not sufficient to pay the amount payable to all subclasses of that class,
THEN the available amount will be allocated as follows:
(1) First, to each subclass in order of the subclass that was issued
first, the difference, if positive, between the outstanding principal
balance of each subclass and the following amount:
(EPF) X (IPB), where
<TABLE>
<S> <C>
EPF = the "Extended Pool Factor" for the subclass as set forth
in Appendix 10
IPB = the initial principal balance for the subclass at the time
it was issued.
</TABLE>
If two or more subclasses were issued on the same date, available
collections will be applied to each of those subclasses pro rata
according to the result of the above calculation for the subclass.
(2) Second, to each subclass, pro rata according to the amount of but not
more than the difference, if positive, between the outstanding
principal balance of each subclass (after giving effect to any payment
under clause (1) above) and the following amount:
(PF) X (IPB), where
<TABLE>
<S> <C>
PF = the "Pool Factor" for the subclass as set forth in
Appendix 9
IPB = the initial principal balance of the subclass at the time
it was issued.
</TABLE>
(3) Third, to each subclass with an expected final payment date on or
before the payment date, in order of the earliest issued subclass. If
there are two or more subclasses that were issued on the same date,
available collections 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 available
collections will be applied pro rata according to the outstanding
principal balances of the subclasses on the payment date after any
payments under clauses (1) and (2) above.
(4) Fourth, to each subclass with an Excess Amortization Date on or before
such payment date, pro rata according to the outstanding principal
balance of each such subclass after giving effect to any payment under
clauses (1), (2) and (3) above on the payment date.
(5) Fifth, to each subclass in order of the earliest expected final
payment date. If two or more subclasses have the same expected final
payment date, then available collections will be applied
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<PAGE> 101
pro rata to those subclasses according to the outstanding principal
balance of the subclass on the payment date (after any payments under
clauses (1), (2) and (3) above).
The "Excess Amortization Date" for each subclass of the notes and the
subclass D-1 notes is as set out below:
<TABLE>
<CAPTION>
SUBCLASS OF NOTES EXCESS AMORTIZATION DATE
- ----------------- ------------------------
<S> <C>
Subclass A-1................................................ July 15, 2000
Subclass A-2................................................ August 17, 1998
Subclass B-1................................................ August 17, 1998
Subclass C-1................................................ August 17, 1998
Subclass D-1................................................ July 15, 2010
</TABLE>
REFINANCING
AerCo may repay any subclass of the notes or the class D notes, in whole
but not in part, on any date with the proceeds of the issuance of any
refinancing note 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 or the class D notes will be equal to the
redemption price for such subclass 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 or the class D notes in accordance with the notice
provisions contained in the indenture. In connection with any refinancing, AerCo
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.
- the applicable refinancing date;
- the redemption price of the notes or the class D notes to be repaid
and the amount of accrued but unpaid interest payable;
- that notes or the class D notes of the subclass to be repaid must be
surrendered; and
- that, unless AerCo defaults in the payment of the redemption price
and any accrued and unpaid interest, interest on the subclass of
notes or the class D notes to be refinanced will cease to accrue on
and after the refinancing date. Once a notice of refinancing is
published, each subclass of notes or the class D notes to which it
applies will become due and payable on the refinancing date at their
redemption price, together with accrued and unpaid interest.
REDEMPTION
AerCo may redeem any subclass of the notes or the class D notes out of
available amounts, if any, on any payment date, in whole or in part, at the
redemption price plus accrued but unpaid interest. In addition, AerCo must on
each payment date redeem Notes or the class D notes to the extent of any
available collections in the manner described in "Principal Amortization" above
and "Priority of Payments" below at the redemption price plus accrued but unpaid
interest. Within each class or subclass of notes or the class D notes being
redeemed in part, the amount of the outstanding principal balance being prepaid
will be applied in each case pro rata among all notes or the class D notes of
such subclass.
The redemption price on the subclass A-1, subclass A-2, subclass B-1 and
subclass C-1 notes will be:
- IF THE REDEMPTION IS MADE WITH PROCEEDS FROM REFINANCING NOTES OR FROM
THIRD PARTIES OR OTHER THAN FROM AVAILABLE COLLECTIONS, the outstanding
principal balance of the subclass being redeemed multiplied by the
redemption premium set out in the table below.
- IF THE REDEMPTION IS MADE WITH AVAILABLE COLLECTIONS, the outstanding
principal balance of the subclass being redeemed.
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<PAGE> 102
The redemption price of the subclass D-1 notes will equal:
If AerCo redeems the subclass D-1 notes before July 15, 2003, the
redemption price will be EITHER:
- the discounted present value of the Scheduled Principal Payments and
interest from the redemption date to July 15, 2003 PLUS the following
amount:
(RP) X (OPB), where
<TABLE>
<S> <C>
RP = the applicable redemption premium
OPB = the assumed outstanding principal balance for July 15,
2003, discounted to the redemption date at the applicable
Treasury yield plus 1.00%
</TABLE>
OR
- the outstanding principal balance on the redemption date,
WHICHEVER IS HIGHER.
If AerCo redeems the subclass D-1 notes on or after July 15, 2003, the
redemption price will be the applicable redemption premium multiplied by the
outstanding principal balance on the redemption date.
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PREMIUM
- --------------- -------------------------------------------------------------
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
A-1 NOTES A-2 NOTES B-1 NOTES C-1 NOTES D-1 NOTES
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
After July 15, 1998................... 100.50% 101.00% 101.50% 102.50% --
On or after July 15, 1999............. 100.25% 100.75% 101.25% 102.25% --
On or after July 15, 2000............. 100.00% 100.50% 101.00% 102.00% --
On or after July 15, 2001............. 100.25% 100.75% 101.75% --
On or after July 15, 2002............. -- 100.25% 100.50% 101.50% --
On or after July 15, 2003............. -- 100.25% 100.25% 101.25% 105.25%
On or after July 15, 2004............. -- 100.25% 100.25% 101.00% 104.50%
On or after July 15, 2005............. -- 100.00% 100.25% 100.75% 103.75%
On or after July 15, 2006............. -- -- 100.25% 100.50% 103.00%
On or after July 15, 2007............. -- -- 100.25% 100.25% 102.25%
On or after July 15, 2008............. -- -- 100.25% 100.25% 101.50%
On or after July 15, 2009............. -- -- 100.00% 100.25% 100.75%
On or after July 15, 2010............. -- -- -- 100.25% 100.00%
On or after July 15, 2011............. -- -- -- 100.00% --
</TABLE>
"Treasury yield" means a per annum rate (expressed as a monthly equivalent
yield) determined to be the per annum rate equal to the semiannual yield to
maturity of the 5 3/4% United States Treasury Note maturing on August 15, 2003,
as published in the most recent H.15 (519).
H.15 (519) means the weekly statistical release with that number or any
successor publication, published by the Board of Governors of the Federal
Reserve System.
REDEMPTION FOR TAXATION PURPOSES. All payments of principal, interest and
premium, if any, made by AerCo in respect of the notes or the class D notes or
any inter-company payments supporting the obligations under the notes or the
class D 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.
Should such withholding or deduction be required by law, AerCo will not be
obliged to pay any additional amounts in respect of such withholding or
deduction.
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<PAGE> 103
IF at any time:
(a) AerCo is, 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 the class D notes; or
(b) AerCo is 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 the cost to AerCo of making payments in respect
of any subclass of notes or the class D notes or of complying with
its obligations under or in connection with the notes or the class
D notes;
(2) materially increase the operating or administrative expenses of
AerCo or the charitable trust which holds the ordinary share
capital of AerCo; or
(3) otherwise obligate AerCo or any of its subsidiaries to make any
material payment on, or calculated by reference to, the amount of
any sum received or receivable by AerCo, or by the cash manager on
behalf of AerCo as contemplated by the cash management agreement;
THEN AerCo will inform the trustee at such time of any such requirement or
imposition and shall use its or their best efforts to avoid the effect of the
same. AerCo 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 AerCo notes then outstanding.
IF, after using its best efforts to avoid the adverse effect described
above, AerCo or any of its subsidiaries has not avoided such effects, THEN AerCo
may, at its election, redeem the notes or the class D notes of any or all
subclasses to which such withholding or deduction applies in whole with accrued
and unpaid interest but without premium on any payment date. However, any such
redemptions may not occur more than 30 days prior to such time as the
requirement or imposition described in (a) or (b) above is to become effective.
METHOD OF REDEMPTION. If AerCo proposes to redeem any subclass of notes
with funds other than available collections, 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 the subclass. If a redemption is of less than all
of the notes of any subclass, notes of such subclass to be redeemed will be
repaid principal pro rata, to the extent funds are available in the case of any
redemption in whole, other than a redemption resulting from taxation reasons,
AerCo 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 AerCo redeems all or any part of a
subclass of notes with available collections as required by the priority of
payments, AerCo will send no notice of redemption.
Each notice of redemption will state
- the applicable redemption date,
- the trustee's arrangements for making payments due,
- the redemption price of the notes to be redeemed,
- 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
- in the case of redemptions in whole, that, unless AerCo defaults 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
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<PAGE> 104
payable on the redemption date at their redemption price, together with
accrued and unpaid interest thereon.
DEFEASANCE
AerCo at any time may terminate all of its obligations under the notes and
the indenture -- this is known as legal defeasance. Legal defeasance will not
apply to (1) relating to the defeasance trust and (2) obligations to register
the transfer or exchange of the AerCo notes, to replace mutilated, destroyed,
lost or stolen AerCo notes and to maintain a register for the AerCo notes.
Also, AerCo at any time may terminate its 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 clauses
(1), (2), (3), (4) and (5) (solely with respect to AerCo) set forth under "--
Events of Default and Remedies". This is known as covenant defeasance.
AerCo may exercise its legal defeasance options even if it has already
exercised the covenant defeasance option. If AerCo exercises its legal
defeasance options, payment of the AerCo notes may not be accelerated because of
an event of default. If AerCo exercises its covenant defeasance options, payment
of the AerCo notes may not be accelerated because of the events of default
described under "Events of Default and Remedies", other than clauses
(1),(2),(3),(4) and (5) (solely with respect to AerCo) set forth under "--
Events of Default and Remedies".
In order to exercise either defeasance option, AerCo 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 AerCo notes to redemption or maturity. AerCo must also
comply with other conditions, including delivering to the trustee an opinion of
counsel to the effect that holders of the AerCo 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 the 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 cash manager will withdraw all amounts on deposit
in the collection account and will distribute them according to 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;
(2) Second, the following amounts pro rata:
(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 pro rata according to the amount of
accrued and unpaid interest on such subclass of class A notes; and
(B) pro rata, to any swap provider, an amount equal to any payment,
other than subordinated swap payments due from AerCo under any
swap agreement;
(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 eligible credit facilities, and THEN, (2) 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;
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<PAGE> 105
(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", 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 pro rata 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", 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 pro rata 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", 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 pro rata 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", an amount equal to the Minimum Principal Payment Amount with
respect to the Class D Notes;
(11) Eleventh, (1) first, to any persons providing any credit facilities
that are not primary eligible credit facilities, any amounts then
payable under the terms of their credit facilities and THEN, 2 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", 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", 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", 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", an amount equal to the Scheduled Principal
Payment Amount with respect to the class D notes;
(16) Sixteenth, to the permitted accruals balance in the expense account,
an amount equal to permitted accruals in respect of any modification
payments;
(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, pro rata according to the amount of such accrued
and unpaid step-up interest;
(18) Eighteenth, to the holders of class A notes, in the order of priority
by subclass set forth under "-- Allocation of Principal Among
Subclasses of Notes", an amount equal to the Supplemental Principal
Payment Amount with respect to the class A notes;
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<PAGE> 106
(19) Nineteenth, to the holders of each subclass of the class E notes, the
class E note primary interest amount, pro rata according to the amount
due on each subclass of AerCo group class E 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", an amount equal to the Supplemental Principal
Payment Amount with respect to the class B notes;
(21) Twenty-first, to the holders of class A notes, in the order of
priority by subclass set forth under "Allocation of Principal Among
Subclasses of Notes" an amount equal to the redemption price of the
outstanding principal balance, if any, of the class A notes;
(22) Twenty-second, to the holders of class B notes, in the order of
priority by subclass set forth under "Allocation of Principal Among
Subclasses of Notes" an amount equal to the redemption price of the
outstanding principal balance, if any, of the class B notes;
(23) Twenty-third, to the holders of class C notes, in the order of
priority by subclass set forth under "Allocation of Principal Among
Subclasses of Notes" an amount equal to the redemption price of the
outstanding principal balance, if any, of the class C notes;
(24) Twenty-fourth, to the holders of class D notes, in the order of
priority by subclass set forth under "Allocation of Principal Among
Subclasses of Notes" an amount equal to the redemption price of the
outstanding principal balance, if any, of the class D notes;
(25) Twenty-fifth, pro rata, to swap providers in an amount equal to any
amounts then payable under the relevant swap agreements which are
subordinated in accordance with their terms;
(26) Twenty-sixth, to investors or other persons for obligations incurred
in connection with permitted tax-related dispositions, if any, that are
subordinated in accordance with the terms of the relevant permitted
tax-related dispositions an amount equal to the amount of such
subordinated tax-related disposition payments then payable;
(27) Twenty-seventh, to the holders of the class E notes, an amount equal
to all accrued and unpaid interest on the class E notes and an amount
equal to the cash portion of the Liquidity Reserve Amount then on
deposit in the collection account, pro rata according to the amount due
on each subclass of AerCo group class E notes;
(28) Twenty-eighth, to the holders of the class E notes, in the order of
priority by subclass set forth under "-- Allocation of Principal Among
Subclasses of Notes", an amount equal to the outstanding principal
balance of the class E notes; and
(29) Twenty-ninth, to the charitable trust trustee, all remaining amounts.
PRIORITY OF PAYMENTS FOLLOWING A DEFAULT NOTICE
If a default notice is delivered to AerCo or the cash manager or an event
of default described in clause (5) or (6) under "-- Events of Default and
Remedies" occurs and continues, the priority of payments described above will
not apply. Instead, 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, pro rata, 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) pro rata 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) pro rata 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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<PAGE> 107
(4) Fourth, pro rata 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, pro rata 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, pro rata 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, pro rata to the providers of any credit or liquidity
enhancement facilities in favor of AerCo other than primary eligible
credit facilities, such amounts as are required to make any payment
due under their facilities;
(8) Eighth, pro rata to any swap provider, such amounts as are required
to make any subordinated swap payments due to such swap provider
under any swap agreement;
(9) Ninth, pro rata to any investor or other person in respect of any
obligation incurred in connection with any permitted tax-related
disposition, such amounts as are required to make any subordinated
tax-related disposition payments due;
(10) Tenth, pro rata to the holders of each subclass of the class E notes
all accrued and unpaid interest on and all outstanding principal of
such subclass of class E notes; and
(11) Eleventh, to the charitable trust trustee, all remaining amounts.
INDENTURE COVENANTS
NO RELEASE OF OBLIGATIONS. AerCo 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 AerCo and its 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 intercompany loans, the cash management agreement, the
administrative agency agreement, the deposit 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:
AerCo may take or permit such actions and may permit such releases if it shall
have first obtained an authorizing resolution of the directors of AerCo
determining that such action, permitted action or release does not materially
adversely affect the interests of the noteholders and having given notice to the
rating agencies.
Despite the preceding paragraph, in any case:
(1) AerCo will not take any action which would result in any amendment or
modification to the conflicts standard or duty of care in such
agreements; and
(2) there must be at all times an administrative agent, a cash manager
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 and notice of such resignation is given to the rating
agencies, one or more servicers with respect to all aircraft in the
portfolio.
LIMITATION ON ENCUMBRANCES. AerCo 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 AerCo's or subsidiary's assets, excluding segregated
funds, including, without limitation, all shares of capital stock, all
beneficial interests in
106
<PAGE> 108
trusts, all ordinary shares and preferred shares, any options, warrants and
other rights to acquire such shares or interests and any indebtedness of any
subsidiary held by AerCo or a subsidiary).
However, AerCo 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 agency to any of the AerCo notes then outstanding, 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 AerCo from
such lease had such encumbrance not been created;
(4) encumbrances over any aircraft, leases or funds on deposit in the tax
defeasance account or investments held in that account created in
connection with any permitted tax-related disposition; or
(5) any other encumbrance the validity or applicability of which is being
contested in good faith in appropriate proceedings by AerCo or any of
its 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 (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 (so long as that 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 July 15, 1998, with respect to the initial aircraft, or,
in the case of any additional aircraft, on the date such aircraft is
acquired, or any aircraft agreement meeting the requirements of
clauses (3), (5) or (6) 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 AerCo, or any of its subsidiaries or the
security trustee; and
(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.
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<PAGE> 109
LIMITATION ON RESTRICTED PAYMENTS. AerCo 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 AerCo or any of its subsidiaries;
(2) purchase, redeem, retire or otherwise acquire for value any shares of
stock of AerCo or any of its subsidiaries held by and on behalf of
persons other than AerCo, any of its subsidiaries or other persons
permitted under the requirements of (2)(b) under the "Limitation on
the Issuance, Delivery and Sale of Stock" covenant;
(3) make any interest, principal or premium payment, if any, on the AerCo
notes or make any voluntary or optional repurchase, defeasance or
other acquisition or retirement for value of indebtedness of AerCo or
any of its subsidiaries that is not owed to AerCo or any of its
subsidiaries other than in accordance with, "-- Payment of Principal
and Interest"; or
(4) make an 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 or lease aircraft so long as written
notification of the organization or acquisition of each such
subsidiary shall have been given to each rating agency.
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 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 (3), (5) or (6)
of the second paragraph under "Limitations on Aircraft Sales" below so long as
AerCo group retains a security interest in the relevant aircraft until all such
obligations are discharged.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS. AerCo 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,
the stock of AerCo or such subsidiary, as the case may be;
(2) pay any indebtedness owed to AerCo or such subsidiary;
(3) make loans or advances to AerCo or such subsidiary; or
(4) transfer any of its property or assets to AerCo or any other
subsidiary thereof.
The foregoing restrictions shall not apply to any consensual encumbrances
or other restrictions:
(1) existing on July 15, 1998, in the case of the initial aircraft, or, in
the case of any 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 AerCo
Notes than those previously in effect; 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 AerCo or any subsidiary not otherwise
prohibited by the indenture. This covenant shall not prevent AerCo
or any subsidiary from creating, incurring, assuming or suffering
to exist any encumbrances that are not otherwise prohibited under
the indenture.
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LIMITATION ON ENGAGING IN BUSINESS ACTIVITIES. AerCo will not, and will
not permit any subsidiary to, engage in any business or activity other than:
(1) purchasing or otherwise acquiring aircraft assets both directly and
indirectly through the acquisition of aircraft-owning entities
(subject to the limitations set forth in the "Limitation on Aircraft
Acquisitions" covenant);
(2) owning (including, subject to the limitations set forth in the
"Limitation on Aircraft Acquisitions" covenant, acquiring additional
aircraft), 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 (including permitted tax-related
dispositions);
(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, any AerCo group member or any future
AerCo entity, in each case on such terms and in such manner as the
directors see fit and (whether or not AerCo, any member of the AerCo
group or any future AerCo entity 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) through (3) of this
covenant;
(5) financing or refinancing the business activities described in clauses
(1) through (3) of this covenant through the offer, sale and issuance
of any securities of AerCo, upon such terms and conditions as the
directors see fit, for cash or in payment or in partial payment for
any property purchased or otherwise acquired by AerCo group or any
future AerCo 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 AerCo or any of its
subsidiaries within limits determined by the directors 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).
However, AerCo shall not and shall not permit any of its subsidiaries
to, enter into any such hedging arrangements or other instruments
(a) that are primarily entered into for speculative purposes, or
(b) that are not U.S. dollar-denominated interest rate swaps,
swaptions, caps or floors;
without confirmation by the rating agencies that they will not lower or
withdraw any rating assigned by them to any AerCo notes outstanding;
(7) establishing, promoting and aiding in promoting, constituting, forming
or organizing companies, syndicates or partnerships of all kinds in
any part of the world for the purposes set forth in clauses (1)
through (3) above; so long as that written notification shall have
been given to each rating agency that such company, trust, syndicate
or partnership was set up in compliance with the indenture,
(8) acquiring, holding and disposing of shares, securities and other
interests in any such company, syndicate or partnership; and
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<PAGE> 111
(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
AerCo or any of its subsidiaries may think fit and paying the premiums
thereon.
LIMITATION ON INDEBTEDNESS. AerCo 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 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, the subclass D-1 and subclass E-1 notes.
(2) indebtedness under any refinancing notes or other indebtedness issued
in connection with the repurchase, acquisition, defeasance or
retirement for value of AerCo notes other than the class E 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, acquired, defeased or retired (determined at the date
of incurrence);
(b) taking into account such refinancing or repurchase, acquisition,
defeasance or retirement for value, AerCo receives prior
confirmation 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 AerCo 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 AerCo notes being so refinanced or repurchased, acquired,
defeased or retired plus any redemption premium and transaction
expenses relating thereto.
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<PAGE> 112
(3) indebtedness under guarantees by AerCo or any subsidiary of any other
member of AerCo group other than guarantees described in clause (5) so
long as no such indebtedness in respect of any member of AerCo group,
other than AerCo or any subsidiary of AerCo, may be incurred if it
would materially adversely affect the AerCo noteholders.
(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, AerCo
receives prior confirmation prior that the incurrence of such
indebtedness will not result in the lowering or withdrawal of any
rating assigned by any rating agency to any subclass of the AerCo
notes outstanding at such time and
(b) the net proceeds of such indebtedness shall be used only to finance
the permitted additional aircraft acquisition and
(c) such additional notes will be cross-collateralized with all AerCo
notes outstanding by the collateral under the security trust
agreement.
(5) indebtedness in respect of guarantees by AerCo or any subsidiary of
indebtedness incurred by any future AerCo entity other than a
subsidiary of AerCo in connection with a permitted additional aircraft
acquisition so long as:
(a) the future AerCo entity shall have guaranteed the AerCo notes;
(b) the indebtedness being guaranteed would be permitted pursuant to
clause (2) or (4) above if such indebtedness were incurred directly
by AerCo or any subsidiary in connection with such permitted
additional aircraft acquisition; and
(c) the indebtedness being guaranteed was issued by such future AerCo
entity under an indenture, the terms of which, including the
covenants and other obligations of such future AerCo entity are
substantially similar to those of the indenture.
(6) indebtedness to aircraft sellers under aircraft acquisition or similar
agreements.
(7) indebtedness under intercompany loans or any agreement between AerCo
or any of its subsidiaries and any other members of AerCo group. Any
indebtedness owed by any member of AerCo group to AerCo must be
evidenced by promissory notes that are pledged to the security trustee
and written notification must be given to each rating agency of the
incurrence of such Indebtedness.
(8) indebtedness of AerCo group under any credit or liquidity enhancement
facility provided in favor of AerCo group. Before entering into a
primary eligible credit facility, AerCo must receive confirmation from
the rating agencies that they will not lower or withdraw any rating
assigned by them to any subclass of AerCo notes outstanding.
(9) obligations to each investor or other person in respect of the cash
proceeds in the tax defeasance account and any subordinated
tax-related payments under to the related permitted tax-related
disposition and any related assignment and assumption agreements and
documents related thereto.
As used in this prospectus, "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 such 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.
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<PAGE> 113
The term "guarantee" does 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. AerCo 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.
However, AerCo and any of its subsidiaries will be permitted to sell,
transfer or otherwise dispose of, directly or indirectly;
(1) any engines owned on July 15, 1998 or, in the case of any additional
aircraft, owned on the date such aircraft is acquired, or any
replacements or parts installed in or attached to any aircraft other
than engines; or
(2) one or more aircraft or an interest in aircraft:
(a) under a purchase option or other similar agreements existing on
July 15, 1998, in the case of the initial aircraft, or, in the case
of additional aircraft, on the date such aircraft is acquired;
(b) within or among AerCo and its subsidiaries without limitation, and
among AerCo or any of its subsidiaries and any other member of
AerCo group if such sale, transfer or disposition, as the case may
be, would not materially adversely affect the AerCo noteholders, so
long as that written notification shall have been 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) in order to receive insurance proceeds in connection with an event
of loss;
(e) under an aircraft agreement that is designed to allow a person
unrelated to AerCo or any other member of the AerCo group to
realize tax benefits associated with the aircraft or other assets
being sold; such a permitted tax-related disposition will be
permissible so long as AerCo receives confirmation prior to
entering into such agreement that the performance of such agreement
will not result in the lowering or withdrawal of any rating
assigned by any rating agency to each subclass of AerCo notes
outstanding at such time and all obligations of AerCo or any other
member of AerCo group other than the obligation to pay the tax
defeasance amount under such agreement or to any person providing
credit support for such obligations are payable only under
subordinated tax-related disposition payments as set forth under
"-- Priority of Payments"; or
(f) pursuant to an aircraft agreement and, in any one calendar year,
not exceeding 10% of the adjusted portfolio value, so long as:
(1) the directors unanimously confirm that each such sale does not
materially adversely affect AerCo and the AerCo 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 AerCo group
in respect of such aircraft 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 agreement at the
weighted average cost of funds of AerCo group based on the cost of funds on the
preceding payment date (excluding for such purpose any interest paid or accrued
on the class E notes other than the class E notes interest amount, but taking
into account any swap agreements).
The "note target price" of an aircraft means 103% of the aggregate
outstanding principal balance of class A, class B, class C and class D notes,
together with any accrued but unpaid interest and any related swap breakage
costs, allocable to such aircraft on the date of the sale agreement or purchase
option date, as the
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<PAGE> 114
case may be. On any date, the outstanding principal balance of class A, class B,
class C and class D notes allocable to an aircraft will equal:
(ABV)/(APV) X (OPB), where
<TABLE>
<S> <C>
ABV = the adjusted base value of the aircraft
APV = the Adjusted Portfolio Value
OPB = the outstanding principal balance of the class A, B, C and D
notes on the most recent payment date.
</TABLE>
"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 AerCo or its subsidiaries or any other
member of AerCo group to purchase an aircraft under 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 sales 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:
(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 of 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. AerCo will not, and will not permit
any of its subsidiaries, to purchase or otherwise acquire any aircraft other
than the initial aircraft or any interest therein except as described below.
AerCo 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 AerCo notes have
been paid;
(c) the acquisition does not result in a concentration default; and
(d) after giving effect to such acquisition:
- no more than 90% of the portfolio by appraised base value
consists of Stage 3 narrowbody aircraft and regional jets,
- no more than 50% of the portfolio consists of Stage 3 widebody
aircraft and
- no more than 15% of the portfolio consists of Stage 2 aircraft;
and turboprop aircraft,
unless the directors of AerCo 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 AerCo notes
outstanding; or
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<PAGE> 115
(2) act as sponsor of a future AerCo entity other than a subsidiary of
AerCo that would fund an acquisition of aircraft assets with
indebtedness guaranteed by AerCo pursuant to the "Limitation on
Indebtedness" covenant as described above; so long as that, if such
acquisition of aircraft assets had been consummated directly by AerCo,
such acquisition would have been permitted pursuant to the foregoing
clause (1).
A "permitted additional aircraft acquisition" means a transaction described
in clause (1) or (2) above.
LIMITATION ON MODIFICATION PAYMENTS AND CAPITAL EXPENDITURES. AerCo 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.
AerCo 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 July 15, 1998 to any single aircraft, do not
exceed the aggregate amount of funds that would be necessary to
perform one incidence of 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 AerCo group and approved by the directors;
(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 according to the
indenture or is otherwise allowed to be paid as permitted
indebtedness; and
(4) the aggregate amount of all modification payments made by members of
AerCo group, taken as a whole, pursuant to this covenant after July
15, 1998, including the modification payment in question, shall not
exceed 5% of the aggregate initial appraised value of all aircraft
acquired by AerCo group.
LIMITATION ON CONSOLIDATION, MERGER AND TRANSFER OF ASSETS. AerCo 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 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 AerCo or any subsidiary, unless:
(1) the resulting entity is a special purpose corporation, the charter of
which is substantially similar to the memorandum and articles of
association of AerCo 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 AerCo notes do not give
rise to any withholding tax payments less favorable to the holders of
the AerCo 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 AerCo, the
surviving successor or transferee entity shall expressly assume all of
the obligations of AerCo in the indenture, the AerCo notes and each
other related document;
(3) the directors shall have obtained confirmation in advance 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 AerCo notes;
(4) immediately after giving effect to such transaction, no event of
default shall have occurred and be continuing; and
(5) AerCo 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
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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:
(1) within and among AerCo and any of its subsidiaries and among AerCo
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 AerCo notes;
(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 AerCo notes in accordance with the terms thereof as
described under "-- Redemption" or "--Defeasance", respectively.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. AerCo 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 AerFi or
any affiliate of AerCo or any subsidiary, except upon fair and reasonable terms
no less favorable to AerCo 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 pursuant to the terms of the related documents;
(2) any transaction within and among AerCo or any of its subsidiaries and
any other member of the AerCo group, except that no such transaction,
other than between AerCo and any of its subsidiaries, shall be
consummated if it would materially adversely affect the holders of the
AerCo notes;
(3) the payment of reasonable and customary regular fees to, and the
provision of reasonable and customary liability insurance in respect of,
directors;
(4) any permitted additional aircraft acquisition or any transaction
complying with the "Limitation on Aircraft Sales" covenant;
(5) any payments of the types referred to in clauses (1) or (2) of the
"Limitation on Restricted Payments" covenant and not prohibited
thereunder; and
(6) entering into any transaction effected as part of a single transaction
providing for the redemption or defeasance of the AerCo notes according
to their terms as described under "-- Redemption" or "-- Defeasance",
respectively.
LIMITATION ON THE ISSUANCE, DELIVERY AND SALE OF STOCK. AerCo will not:
(1) issue, deliver or sell any shares, interests, participations or other
equivalents (however designated, whether voting or non-voting, other
than such shares, interests, participations or other equivalents
existing on July 15, 1998) in equity, including without limitation, all
ordinary shares of AerCo; or
(2) sell, or permit any subsidiary, directly or indirectly, to issue,
deliver or sell, any shares, interests, participations or other
equivalents (however designated, whether voting or non-voting, other
than such shares, interests, participations or other equivalents
existing on July 15, 1998) in equity except:
(a) to the charitable trust trustee (or its nominees);
(b) issuances or sales of shares of stock of foreign subsidiaries of
AerCo to nationals in the jurisdiction of incorporation or
organization of such subsidiary, as the case may be, to the
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extent required by applicable law or necessary in the determination
of the Directors to avoid an adverse tax consequence in any such
jurisdiction;
(c) the pledge of shares in AerCo's subsidiaries pursuant to the
security trust agreement;
(d) the sale, delivery or transfer of any stock of any member of AerCo
group in connection with the redemption or defeasance of the AerCo
Notes, in accordance with the terms set forth under "-- Redemption"
or "-- Defeasance", respectively;
(e) the sale of any stock 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 any stock of any AerCo
group member to or for the benefit of any other AerCo group member;
so long as notification is given to the rating agencies.
In addition, under the terms of the shareholders undertaking, the
charitable trust trustee and AerFi Group have agreed that while the AerCo notes
are outstanding they will not, without prior written approval of the trustee and
all of the directors, take any action in their capacity as shareholders of AerCo
to alter the share capital or issue any additional shares of AerCo.
BANKRUPTCY AND INSOLVENCY. AerCo:
(1) will promptly provide the trustee and the rating agencies with notice
of the institution of any proceeding by or against AerCo 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 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; and
(2) will not, without an affirmative unanimous written resolution of the
directors take any action to waive, repeal, amend, vary, supplement or
otherwise modify its charter documents.
In addition, under the terms of the shareholders undertaking, the
charitable trust trustee and AerFi Group have agreed that while the AerCo notes
are outstanding they will not, without prior written approval of the trustee and
all of the directors, take any action in their capacity as shareholders of
AerCo:
(1) to cause AerCo to institute any proceeding seeking liquidation or
insolvency or similar proceeding;
(2) in the case of any such proceeding instituted against AerCo, to
authorize or consent to such proceedings;
(3) to terminate AerCo's corporate existence;
(4) to waive or amend the memorandum and articles of association of AerCo;
or
(5) to transfer any part of the capital stock of AerCo or any interest
therein, unless the transferee:
(a) in the case of the capital stock held by the nominees for the
charitable trust trustee, is a trustee of a trust formed for
charitable purposes substantially identical to those for which the
charitable trust is established; and
(b) enters into an agreement substantially identical to the
shareholders undertaking in favor of the trustee.
OPERATING COVENANTS
CONCENTRATION LIMITS. Unless the directors obtain prior written
confirmation from each of the rating agencies that no lowering or withdrawal of
the then current rating of any subclass of AerCo notes will result,
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AerCo will not permit any of its subsidiaries to lease or re-lease any aircraft
if entering into such proposed lease would cause the portfolio,
For purposes of this restriction, the portfolio:
- excludes any aircraft that is to be disposed of within one year from the
effective date of the lease under a binding aircraft agreement (other
than any aircraft that AerCo has a binding agreement to acquire and that
the directors reasonably expect will be acquired within 180 days from the
effective date of the agreement),
- but includes any aircraft in which a member of AerCo group retains an
interest in, including a right to lease rentals, finance lease payments,
installment purchase payments or other payments,
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.
<TABLE>
<CAPTION>
LESSEE CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(2)
---------------------
<S> <C>
Single Lessees rated BBB/Baa2 (or the equivalent) or
better................................................ 15%
Other Single Lessees................................... 10%
Five largest Lessees................................... 35%
</TABLE>
<TABLE>
<CAPTION>
COUNTRY CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(2)
---------------------
<S> <C>
United States.......................................... 25%
Countries rated BBB/Baa2 (or the equivalent) or
better(1)............................................. 20%
Other.................................................. 15%
</TABLE>
<TABLE>
<CAPTION>
REGION CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(2)
---------------------
<S> <C>
Developed Market Region(3)............................. 50%
Emerging Market Region(3).............................. 25%
Other(3)............................................... 20%(4)
Asia/Pacific(3)........................................ 55%
</TABLE>
--------------------
(1) 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.
(2) Percentage to be obtained by dividing the aggregate most recent
appraised values of all aircraft operating or to be operated by lessees
habitually based in the applicable country or region by the aggregate
most recent appraised values of all aircraft then owned by AerCo group.
(3) The designations of Emerging Markets and Developed Markets are as
determined and published by Capital International Perspective S.A. from
time to time based on, among other things, gross domestic product
levels, regulation of foreign ownership of assets, applicable regulatory
environment, exchange controls and perceived investment risk. The
current designations are as set out below:
<TABLE>
<CAPTION>
REGION COUNTRY
------ -------
<S> <C>
Developed Markets
Europe....................... EU (except Greece and Luxembourg), Norway and Switzerland
North America................ Canada and United States
Pacific...................... Australia, Hong Kong, Japan, New Zealand and Singapore
</TABLE>
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<TABLE>
<CAPTION>
REGION COUNTRY
------ -------
<S> <C>
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,
Russia 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)
</TABLE>
(4) In addition, within the "Other" designation, no more than 10% of the
most recent appraised value of the portfolio shall be leased to lessees
habitually based in "Other" countries 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 "Other"
countries in Africa.
In addition, the indenture will not permit AerCo or any subsidiary to lease
aircraft operated or to be operated by lessees domiciled in certain countries
without procuring political risk insurance. The list of prohibited countries and
countries for which political risk insurance is required may be modified from
time to time upon the approval of the rating agencies.
The indenture contains no limitations on the country or region where any
sublessees of aircraft operated or to be operated are domiciled if:
(1) such sublease is permitted under the relevant lease (including by
reason of consent or waiver, if applicable) or renewed lease (including
by reason of consent or waiver, if applicable); and
(2) the relevant lessee is either a signatory to a lease or a renewed
lease.
COMPLIANCE WITH LAW, MAINTENANCE OF PERMITS. AerCo 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:
- during any period when such aircraft is undergoing maintenance,
modification or repair;
- 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; in that case, AerCo 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;
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(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, notification or storage, or
by virtue of any requisition, seizure, or confiscation of the aircraft, other
than seizure or confiscation arising from a breach by AerCo or a subsidiary of
such covenant; so long as:
(1) no member of AerCo group consents or has consented to such third party
event; and
(2) the member of AerCo 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 the 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. AerCo will, no earlier than 90 nor later than 30
days prior to March 31 of each year, deliver to the trustee and each rating
agency 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 to be
dated within 30 days prior to its delivery to the trustee.
MAINTENANCE OF ASSETS. AerCo 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 requirements of 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:
(1) no member of AerCo group consents or has consented to the third party
event; and
(2) the member of AerCo 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
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, CASH MANAGER AND ADMINISTRATIVE AGENT. AerCo will
notify the trustee, cash manager and administrative agent as soon as AerCo 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 and AerCo will notify the trustee of any breach of the share purchase
agreement by AerFi Group.
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LEASES. AerCo shall adopt and will agree to cause the servicer to use, and
will adopt and will agree to cause any additional servicer, including any
servicer appointed for any additional aircraft or to replace the servicer of the
initial aircraft, 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 such additional servicer as a starting point in the negotiation of
future leases with persons who are not members of AerCo group.
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 servicer's 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 AerCo group or a future AerCo
entity.
The following provisions apply to changes to the servicer's pro forma
lease:
- If the directors determine, in an annual review of the servicer's pro
forma lease that any revision to the servicer's pro forma lease made from
time to time since the preceding review by the directors is substantially
inconsistent with the core lease provisions set forth in the indenture so
as to have a material adverse effect on the noteholders, then the
directors shall direct the servicer not to include such revision in the
servicer's pro forma lease.
- In making this determination, the directors may take into account the
revision and the risk that the aircraft might not be able to be leased on
the basis of the servicer's pro forma lease.
- If the directors determine that any such revision to the servicer's pro
forma lease will not have a material adverse effect on the noteholders,
then the directors shall amend the core lease provisions.
- The directors will then notify the rating agencies of any future lease
entered into the terms of which are materially less favorable from the
point of view of the lessor than any of the leases to lessees with
similar credit ratings then in effect, including without limitation, such
changes to the core lease provisions.
AerCo shall not enter into, and shall not permit any AerCo group member to
enter into, any future lease the rental payments under which are denominated in
a currency other than U.S. dollars without obtaining confirmation by the rating
agencies that they will not lower or withdraw any rating assigned by them to any
class of AerCo notes outstanding.
OPINIONS. AerCo 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 AerCo 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 of registration of such aircraft, or within a
commercially reasonable period thereafter, the servicer or additional servicer,
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 if receiving
such legal opinions is consistent with the reasonable commercial practice of
leading international aircraft operating lessors.
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INSURANCE. AerCo 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 U.S. 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, as amended from time to time
with the approval of the rating agencies; 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 by the directors with the approval 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 U.S. dollars, for such
aircraft.
For a period commencing 60 days after July 15, 1998 to one year from July
15, 1998, any period may be extended for up to one year if so requested in
writing by any rating agency, AerCo shall, upon request from any rating agency,
obtain political risk insurance with respect to aircraft leased to lessees
habitually based in countries other than developed markets that are specified by
each such rating agency.
Such insurance may be subject to commercially reasonable deductibles 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) of any insurance maintained for 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, AerCo 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 AerCo, or which
AerCo 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. AerCo 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 from time to time.
INDEMNITY. AerCo will, and will cause each of its subsidiaries to include
in each lease between a member of the AerCo group and a person who is not a
member of the AerCo 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.
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EVENTS OF DEFAULT AND REMEDIES
Each of the following events will be an event of default with respect to
any class of AerCo notes, except as specified below:
(1) failure to pay interest on the AerCo 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 on any AerCo 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 AerCo 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 AerCo to comply with any of the covenants, obligations,
conditions or provisions binding on it under the indenture or the
AerCo notes (other than a payment default for which provision is made
in clause (1), (2) or (3) above) if such failure or such breach
materially adversely affects the holders of such class of AerCo notes
and continues for a period of 30 days or more after written notice has
been given to AerCo 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 AerCo notes of the
senior class of AerCo notes outstanding;
(5) a court having jurisdiction in the premises enters a decree or order
for:
(a) relief in respect of AerCo, or any subsidiary which owns or leases
aircraft having an aggregate base value of more than 2% of the
adjusted portfolio value at that time 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;
(b) appointment of a receiver, liquidator, examiner, assignee,
custodian, trustee, sequestrator or similar official of AerCo, or
any subsidiary that is significant as described in paragraph (a)
above; or
(c) the winding up or liquidation of the affairs of AerCo, 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) AerCo 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 AerCo, or any significant subsidiary or for all
or substantially all of the property and assets of AerCo, 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 AerCo or
any subsidiary or any other member of AerCo group and either:
(a) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order; or
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(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:
- 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
- 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 AerCo cease to be in full force and
effect without replacement documents having the same terms being in
full force and effect.
If an event of default other than an event of default under (5) or (6)
above with respect to the senior class of AerCo notes then outstanding 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 AerCo notes, shall, give a default notice to AerCo and
the cash manager declaring the outstanding principal balance of the AerCo 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 AerCo notes to be due and payable and before the exercise of any
other remedies under the indenture, holders of a majority of the outstanding
principal balance of the senior class of AerCo notes, by written notice to
AerCo, the senior trustee and the cash manager, may rescind and annul such the
declaration referred to above 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 AerCo
notes, and the principal of and premium, if any, on the AerCo 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 AerCo 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 AerCo 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;
(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; and
(4) the class E 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,
the class C notes and the class D notes have been paid in full.
The trustee shall provide each rating agency with a copy of any default
notice it receives.
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
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exercise any right or power under the indenture or the cash management 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 AerCo 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 AerCo. 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
The senior trustee will have sole discretion as to whether to direct the
cash manager 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.
MODIFICATION AND WAIVER
If the trustee receives a request for its consent to an amendment,
modification or waiver under the indenture, the AerCo notes or any related
document relating to the AerCo notes, the trustee shall mail a notice of such
proposed amendment, modification or waiver to each noteholder requesting
direction from the noteholders 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 AerCo notes (acting as a single
class), modifications may be made to the AerCo notes or the Indenture except
that any modification of the provisions:
- 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 AerCo notes,
or
- reducing the percentage of the aggregate outstanding principal balance
of any subclass of AerCo notes required to approve any such amendment or
waiver, or
- altering the manner or priority of payment of such subclass of AerCo
notes,
is not permitted without the consent of any swap provider and the holder of each
outstanding AerCo note affected. The senior trustee may also waive any event of
default. Any such modification approved by the required holders of any subclass
of AerCo notes will be binding on the holders of the relevant subclass of AerCo
notes and each party to the indenture. This provision shall not prevent AerCo or
any subsidiary from amending any lease if such amendment is otherwise permitted
by the indenture.
The subordination provisions contained in the indenture may not be amended
or modified without the consent of each swap provider, each holder of the class
of AerCo notes affected and each holder of any class of notes ranking senior to
such AerCo notes.
Without the consent of each noteholder, no amendment or modification of the
indenture or the cash management agreement may, among other things:
(1) modify the provisions of the indenture or the cash management
agreement with respect to account payment instructions and the payment
thereunder by the cash manager, or
(2) result in the sale of AerCo's assets other than pursuant to the
provisions of "Indenture Covenants".
In no event shall the provisions relating to the priority of the expenses,
swap payments or swap breakage costs in the indenture be amended or modified.
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NOTICES TO NOTEHOLDERS
Except as provided below, any notice to the noteholders (in the case of
definitive notes or global notes) will be valid if given:
(1) by publication in the Luxemburger Wort or, if such newspaper shall
cease to be published 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 such newspaper shall
cease to be published or timely publication is not 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
book-entry interests are held by Euroclear and/or Cedel Bank, delivery
of the relevant notice to DTC, Euroclear and/or Cedel Bank for
communication by them to noteholders.
The trustee may approve some other method of giving notice to the
noteholders if, in its opinion:
(1) the method is reasonable, having regard to the number and identity of
the noteholders and/or to market practice then prevailing,
(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 interest rate and the amount of any repayment of
principal on any notes pursuant to any optional redemption 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. Any such notice shall be deemed to have been given on the first day on
which requirements for such notification shall have been met.
GOVERNING LAW AND JURISDICTION
The indenture and the cash management agreement are governed by and
construed in accordance with the laws of the State of New York. In the indenture
and the cash management agreement, AerCo 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 in connection with the notes and cash management agreement
and have each designated a person in The City of New York to accept service of
any process on its behalf.
THE SUBCLASS D-1 NOTES
The subclass D-1 notes are direct obligations of AerCo under the indenture.
They were issued in an aggregate principal amount of $80 million in fully
certificated form. The subclass D-1 notes will accrue interest for each interest
accrual period at a rate of 8.50% per annum, payable monthly in arrears on each
payment date. The subclass D-1 notes have been rated BB or the equivalent by one
or more nationally recognized statistical rating agencies.
All of the subclass D-1 notes were initially issued to AerFi Group in a
transaction exempt from the registration requirements of the Securities Act.
AerCo has granted to AerFi Group registration rights with respect to the
subclass D-1 notes owned by it. Under the registration rights agreement, AerFi
Group has the right to require AerCo to file a registration statement with the
Commission to register the resale of the
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subclass D-1 notes under the Securities Act. If AerCo issues any additional
notes, AerCo also expects to issue at the same time one or more additional
subclasses of class D notes, which may be initially issued to AerFi Group or its
subsidiaries on the basis described above or to other purchasers in transactions
that are either registered under the Securities Act or exempt from the
registration requirements.
Holders of the class D notes will not be permitted to give a default notice
with or to exercise any remedy if any such event of default occurs until all
amounts owing under each other class of the notes have been paid in full.
THE SUBCLASS E-1 NOTES
The subclass E-1 notes are direct obligations of AerCo under the indenture.
They were issued in an aggregate principal amount of approximately $112 million.
The subclass E-1 notes were initially issued to AerFi Group in a transaction
exempt from the registration requirements of the Securities Act. If AerCo issues
any additional notes, AerCo also expects to issue at the same time one or more
additional subclasses of class E notes.
Under the subordination provisions of the indenture and the subclass E-1
notes, payments on the subclass E-1 notes, other than the class E note primary
interest amount are subordinated to all payments of interest and principal on
the notes and the class D notes (as set forth in "-- Priority of Payments").
Holders of the subclass E-1 notes will not be permitted to give a default notice
or to exercise any remedy if an event of default occurs until all amounts owing
under each other class of the AerCo notes have been paid in full.
The subclass E-1 notes will accrue interest for each interest accrual
period at a rate of 20% per annum, payable monthly in arrears on each payment
date. The stated interest rate on the subclass E-1 notes is adjusted by
reference to the U.S. Consumer Price Index. Except for the class E note primary
interest amount as described below, no interest is payable on the subclass E-1
notes until all of the interest, principal and premium, if any, on the AerCo
notes have been repaid in full.
The class E note primary interest amount will be paid at the rate of 15%
per annum on the initial principal balance of the subclass E-1 notes. It will be
paid on each payment date only to the extent that AerCo group has available
collections sufficient to make such payment after paying or providing for each
of the items ranking prior to such payment in the order of priority described
under "-- Priority of Payments". To the extent that available collections are
insufficient to pay the class E note primary interest amount on any payment
date, the unpaid portion of the class E note primary interest amount will not be
payable as part of the class E note primary interest amount on any later payment
date. The class E note accrued interest amount will accrue interest at the rate
described above and will be payable in the order of priority described under "--
Priority of Payments" at the twenty-seventh priority level.
Principal of the subclass E-1 notes will not be payable until the
outstanding principal balance of the AerCo notes and the class D notes is
reduced to zero.
The terms of the subclass E-1 notes require, among other things, that the
subclass E-1 noteholders pay over to the cash manager any money (including
principal or interest) paid to them in the event that the cash manager, acting
in good faith, determines subsequently that such monies were not paid in
accordance with the priority of payment obligations described above under "--
Priority of Payments" or as a result of any other mistake of fact or law on the
part of the cash manager in making such payment.
Under AerCo's articles of association, the holder or holders of a majority
in aggregate principal amount of the class E notes have the right to appoint two
of AerCo's directors while the class E notes are outstanding. AerFi Group, as
holder of a majority of the initial aggregate principal amount of the class E
notes, appointed Edward Hansom and Rose Hynes as directors.
THE CASH MANAGEMENT AGREEMENT
The following is a summary description of the cash management agreement it
is not complete. We urge you to read the cash management agreement, which we
have filed as an exhibit to the registration statement.
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Each payment of cash in respect of any subclass of notes and all other
payments to be received by AerCo or made by AerCo pursuant to the indenture will
be directed by the cash management agreement.
The cash management agreement appoints the cash manager (1) to establish
and administer the accounts described below (2) to prepare reports with respect
to such performance and (3) to perform certain other specified administrative
tasks on behalf of AerCo. The cash manager shall ensure that the proceeds of the
AerCo assets are deposited in the collection account.
THE ACCOUNTS
The cash manager, acting on behalf of the security trustee, has established
the following accounts:
(1) the collection account;
(2) the lessee funded account;
(3) the initial rental accounts;
(4) the expense account;
(5) the aircraft purchase account;
(6) the refinancing account; and
(7) the defeasance/redemption account.
Each of the collection account, the rental accounts, the expense account,
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 agency.
Where required by the terms of the relevant leases, 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 & 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 name 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 limited conditions set forth in the
cash management agreement, the security trustee will delegate such authority
over the accounts to the cash manager. The security trustee will not be
responsible for the acts or omissions of the cash manager.
For as long as any AerCo notes remain outstanding, funds on deposit in the
accounts (other than the tax defeasance account) will be invested and reinvested
by the cash manager at AerCo's written direction (or, following delivery to
AerCo or the cash manager 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 or aircraft agreements in the case of such funds in the lessee
funded account, be deposited in the collection account and treated as
collections.
RENTAL ACCOUNTS
The lessees will make all payments under the leases directly into the
applicable rental accounts. The cash manager will transfer all funds deposited
into the rental accounts into the collection account as collections
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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 AerCo group, including:
(1) rental payments;
(2) 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;
(3) the liquidity reserve amount as described below deposited into the
collection account on July 15, 1998 and on the closing date of any
acquisition of additional aircraft;
(4) 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 AerCo subsidiary, whether by way of
distribution, dividend, repayment of a loan or otherwise and any
proceeds received in connection with any allowed restructuring;
(5) net proceeds of any aircraft sale or amounts received under any
aircraft agreement;
(6) proceeds of any insurance payments in respect of any aircraft or any
indemnification proceeds;
(7) certain amounts transferred from the lessee funded account to the
collection account;
(8) net payments to AerCo under any swap agreement;
(9) 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);
(10) the portion of the purchase price or other net proceeds from any
permitted tax-related disposition that is not required to be retained
in the tax defeasance account; and
(11) any other amounts received by any member of the AerCo 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
cash manager on the calculation date. The portion of the required expense amount
that has not been paid directly by the cash manager to expense payees will be
transferred into the expense account on each payment date and the cash manager
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 cash manager
will also transfer amounts in respect of expenses and costs that are not
regular, monthly recurring expenses 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.
LIQUIDITY RESERVE AMOUNT
All collections received by AerCo will either be transferred to another
account as described above and below, paid to the appropriate third party on
behalf of AerCo or held in the collection account as a part of the cash portion
of the liquidity reserve amount. The liquidity reserve amount is the minimum
balance AerCo must maintain in the collection account under the indenture. The
liquidity reserve amount is intended to provide liquidity for AerCo group to
meet its aircraft maintenance obligations and its lessee security deposit
repayment obligations and to provide for certain other contingencies that may
arise in the course of AerCo group's activities. The liquidity reserve amount
may be funded with cash in the collection account and with letters of credit,
guarantees or other credit support instruments provided by, or supported with
credit support
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instruments provided by, a person whose short-term unsecured debt is rated P-1
by Moody's, A-1+ by Standard & Poor's and D-1+ by DCR. There are currently no
eligible credit facilities in place.
The initial liquidity reserve amount is equal to $40 million plus the
amount of security deposits AerCo and its subsidiaries holds of currently $16
million. The 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 board in light of significant changes in, the condition of the
aircraft, the terms and conditions of future leases, the financial condition of
the lessees or prevailing industry conditions. AerCo must obtain confirmation in
advance in writing from the rating agencies that any proposed reduction in the
liquidity reserve amount will not result in a lowering or withdrawal by the
rating agencies of their respective ratings of any subclass of AerCo notes.
If the balance of cash on deposit in the collection account, together with
the amount available for drawing under any eligible credit facilities, should
fall below the liquidity reserve amount at any time, AerCo 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 accrued and unpaid interest on the class D notes
under "-- Priority of Payments" and any permitted accruals other than those for
modification payments. Except as described below, the balance of funds in the
collection account, 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. The balance of funds in the collection
account, 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 AerCo may continue to make payments of all accrued and
unpaid interest on any subclass of the most senior class of notes then
outstanding to avoid an event of default, and, on the final maturity date of any
subclass, principal of such subclass of the most senior class of notes then
outstanding to avoid an event of default.
Amounts drawn under any eligible credit facility will either be repayable
at the third level in the priority of payments, as set forth in "Description of
the Notes -- Priority of Payments", or at the eleventh level in the priority of
payments, as set forth in "Description of the Notes -- Payment of Principal and
Interest -- Priority of Payments". We refer to the eligible credit facilities
payable at the third level in the order of priorities as "primary eligible
credit facilities". Those repayable at the eleventh level we refer to as
"secondary eligible credit facilities".
At such time as 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.
THE LESSEE FUNDED ACCOUNT
Under the terms of the leases, certain lessee security deposits and
supplemental rent payments to provide for maintenance reserves may be required
to be segregated from other AerCo funds. Amounts we receive from lessees in
respect of such security deposits and maintenance obligations will be held in
the lessee funded account. Amounts on deposit in the lessee funded account will
be accounted for, and, if required by any lease, segregated, on a per lease
basis. Funds on deposit in the lessee funded account will be used to make
certain maintenance and security deposit repayment related payments, 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. These funds will not be
used to make payments in respect of the notes at any time, including after the
delivery of a default notice. In 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.
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THE EXPENSE ACCOUNT
On each payment date, the cash manager 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 cash manager to expense payees, the required expense amount will
be deposited into the expense account. In addition, in the period between
payment dates, the cash manager 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, AerCo
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
AerCo's various service agreements. All available collections remaining in the
collection account will be used by the cash manager to make payments on the
AerCo notes, in accordance with the priority of payments established therefor
under "-- Priority of Payments".
THE TAX DEFEASANCE ACCOUNT
If AerCo enters into any permitted tax-related disposition, one or more tax
defeasance accounts may be established. The tax defeasance account will be
established at either:
(1) the bank where the collection account, the lessee funded account and
the expense account are held, or
(2) a bank whose credit rating is equal to or greater than the credit
rating of the most senior class of AerCo notes outstanding.
The purchase price for, or other proceeds from, any permitted tax-related
disposition will be deposited in the tax defeasance account. On each payment
date, the cash manager will withdraw from the funds deposited in the tax
defeasance account an amount equal to the excess, if any, of (1) such purchase
price or other proceeds over (2) the amount necessary to meet the obligations of
AerCo under the head lease or other relevant aircraft agreement such that the
ability of AerCo and the lessee of such aircraft to perform their respective
obligations and receive their respective benefits under the relevant lease is
not impaired. We will deposit this amount in the collection account.
THE TRUSTEE
AerCo will pay the fees and expenses of the trustee. AerCo will also
indemnify and hold the trustee harmless against, any loss, liability or expenses
incurred by the trustee other than through its own wilful misconduct, bad faith
or negligence or by reason of a breach of any of the trustee's representations
or warranties in the indenture.
The trustee may resign for any subclass of AerCo notes at any time upon at
least 90 days' prior written notice. If the trustee resigns, AerCo must appoint
a successor trustee for the subclass of AerCo notes. Noteholders of each
subclass may have divergent or conflicting interests from the noteholders of
other subclasses. Therefore, the trustee may be forced to resign if a conflict
of interest arises on the part of the trustee in respect of one or more subclass
of notes.
If the trustee ceases to be eligible to continue as trustee with respect to
any subclass of AerCo notes, becomes incapable of acting as trustee or becomes
insolvent, AerCo may remove the trustee. In addition, in that case, any AerCo
noteholder of the applicable subclass who has been a AerCo noteholder in good
faith for at least six months may, on behalf of itself and all other AerCo
noteholders of the same subclass, petition any court of competent jurisdiction
for the removal of such trustee and the appointment of a successor trustee.
Holders evidencing not less than a majority in aggregate outstanding principal
balance of any subclass of AerCo notes may also at any time remove the trustee
with respect to the subclass without cause by delivering written notice of such
removal in writing to AerCo, the cash manager and the trustee. Any resignation
or removal of the trustee and appointment of a successor trustee will not become
effective until acceptance of
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the appointment by the successor trustee. As a result of these provisions, it is
possible that a different trustee could be appointed to act as the successor
trustee with respect to each subclass of AerCo notes. All references in this
prospectus to the trustee should be read to include the trustee and any
successor trustee appointed in the event of such a resignation or removal.
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REPORTS TO NOTEHOLDERS
On each payment date and any other date for distribution of any payments on
each subclass of outstanding notes the trustee will include a monthly report,
with the following information:
<TABLE>
<S> <C> <C>
(1) For each payment date:
(a) the balances on deposit on the calculation date
immediately preceding the prior payment date,
(b) the aggregate amounts of deposits and withdrawals
between such calculation date and the calculation date
immediately preceding the payment date, and
(c) the balances on deposit in the expense account,
collection account, the aircraft purchase account, and
lessee funded account on the calculation date
immediately preceding such payment date.
(2) Analysis of expense account activity:
(a) Balance on preceding calculation date,
(b) Net transfer to the expense account between the prior
calculation date and the current calculation date,
(c) Payments between prior calculation date and the current
calculation date:
(-) Payments on prior payment date
(-) Other payments,
(d) Balance on relevant calculation date.
(3) Analysis of collection account activity
(a) Balance on preceding calculation date:
- Required expense amount, including on preceding payment
date
- Net transfer to lessee funded accounts during period
- Collections during period
- Transfer from the aircraft purchase account
- Transfer from the tax defeasance account
- Drawings under credit or liquidity enhancement facilities
- Aggregate note payments
- Swap payments/receipts
- Repayments of drawings under credit or liquidity
enhancement facilities,
(b) Balance on relevant calculation date separately stating
the components of the liquidity reserve amount,
(c) Analysis of current payment date distributions.
(4) Payments on the Notes:
(a) Floating rate notes, by subclass:
- Applicable LIBOR for the current interest accrual period
- Applicable margin for the current interest accrual period
- Applicable interest rate for the current interest accrual
period
- Interest amount payable
- Step-up interest
- Opening outstanding principal balance
- Minimum Principal Payment Amount
- Scheduled Principal Payment Amount
- Supplemental Principal Payment Amount
- Redemption amount
-- amount allocable to principal
-- amount allocable to premium
- Closing outstanding principal balance,
</TABLE>
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<TABLE>
<S> <C> <C>
(b) Fixed rate notes, by class and, if applicable, subclass:
- Applicable interest rate,
- Interest amount payable.
(5) Floating rate note information for next interest accrual
period,
by subclass:
(a) Applicable LIBOR,
(b) Applicable margin,
(c) Applicable interest rate.
(6) Payments per $100,000 initial outstanding principal balance
of notes
by subclass:
(a) Opening outstanding principal balance,
(b) Total principal payments,
(c) Closing outstanding principal balance,
(d) Total interest,
(e) Total premium.
</TABLE>
Following effectiveness of the registration statement, we will furnish any
monthly reports and quarterly reports to the Commission in a report on Form 6-K.
We expect to furnish the quarterly reports within 45 days of the end of each of
our fiscal quarters.
After the end of each calendar year, the trustee will furnish to each
person who was a holder of any subclass of notes during the year, a statement
containing the sum of the amounts determined under clause (6) above for the
subclass for the calendar year or the applicable portion of the calendar year.
The trustee will also include any additional information that you may request as
being necessary for the preparation of your U.S. federal income tax returns, if
the information is available to the trustee. So long as the notes of any class
or subclass are registered in the name of DTC or its nominee, the report and any
other items will be prepared on the basis of information supplied to the trustee
by DTC and the DTC participants, and will be delivered by the trustee to the DTC
participants to be available for forwarding by the DTC participants to you as
described above.
The trustee will publish following each payment date and other date
specified above in a daily newspaper in Luxembourg a notice that the monthly and
quarterly reports and the other information described above will be available
for review at the main office of the listing agent for the notes in Luxembourg,
Banque Internationale a Luxembourg S.A., 69 route d'Esch, L-1470 Luxembourg. The
daily newspaper is expected to be the Luxemburger Wort. The Luxembourg Stock
Exchange will receive notice promptly following each payment date. In addition,
the trustee will provide the information to Bloomberg Financial Markets promptly
following each payment date for publication on the BLOOMBERG.
If the notes are ever issued as definitive notes, the trustee will prepare
and deliver the information described above to each holder of record of a
definitive note.
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AVAILABLE INFORMATION
AerCo has filed with the Securities and Exchange Commission a registration
statement on Form F-4 including all amendments, exhibits and schedules, for the
new notes. This prospectus is part of the registration statement. When the
registration statement becomes effective, AerCo will become subject to the
information reporting requirements of the Securities Exchange Act of 1934, as
amended as applicable to "foreign private issuers". As a foreign private issuer,
AerCo will be exempt from provisions of the Exchange Act which prescribe the
furnishing and content of proxy statements to shareholders and which relate to
short swing profits reporting and liability. AerCo will also make certain
monthly and quarterly reports available to holders of the notes. You should
refer to "Reports to noteholders" for a listing of what will be contained in the
report. Any reports and other information filed by AerCo with the Commission may
be inspected and copied at the public reference facilities maintained by the
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 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 Commission maintains a Web site
(http://www.sec.gov) that contains reports and other information, including the
registration statement filed by AerCo.
This prospectus does not contain all the information in the registration
statement and the related exhibits and schedules, certain portions of which have
been omitted as permitted by the rules and regulations of the Commission. If you
need additional information with respect to AerCo and the securities offered by
this prospectus, please refer to the registration statement and the exhibits
filed or incorporated as a part of the registration statement, which are on file
at the offices of the Commission and may be obtained upon payment of the fee
prescribed by the Commission, or may be examined without charge at the offices
of the 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 Commission.
This prospectus contains forward-looking statements that involve risks and
uncertainties. The actual results of AerCo group could differ materially from
those discussed. Factors that could cause or contribute to such differences
include those discussed under "Risk Factors" and elsewhere in this prospectus.
The old notes were listed on the Luxembourg Stock Exchange on July 15,
1998, and the new notes will be listed upon issuance, subject only to notice of
issuance. The constitutive documents of AerCo and the legal notice relating to
the issuance of the notes have been deposited with the Registrar of the District
Court in 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" are available at the
office of the listing agent in Luxembourg: Banque Internationale a Luxembourg,
69, route d'Esch, L-1470 Luxembourg. Financial information regarding AerCo will
be included in AerCo's Quarterly Reports on Form 6-K and Annual Reports on Form
20-F and will be available at the office of the Listing Agent in Luxembourg
after the respective reports are filed with the Commission.
Unless otherwise stated, all monetary amounts are expressed herein in
United States dollars. Various percentages set out in this prospectus have been
rounded and accordingly may not total exactly.
Until , 1999, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
No person has been authorized to give any information or to make any
representations other than as contained herein, and, if given or made, such
information or representation must not be relied upon as having been authorized
by AerCo. This prospectus does not constitute an offer to sell or a solicitation
of an offer to buy by any person in any jurisdiction in which it is unlawful for
such person to make such an offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall under any
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circumstances create any implication that the information contained herein is
correct as of any time subsequent to its date.
The consent of the Jersey Financial Services Commission under the Control
of Borrowing (Jersey) Order 1958, as amended has been obtained to the issue of
the old notes and new notes by AerCo.
When this document is circulated there will have been delivered a copy
thereof to the Registrar of Companies in Jersey in accordance with Article 6 of
the Companies (General Provisions) (Jersey) Order 1992 and the consent of the
Registrar of Companies to its circulation will have been given and not
withdrawn. It must be distinctly understood that, in giving these consents,
neither the Registrar of Companies nor the Jersey Financial Services Commission
takes any responsibility for the financial soundness of AerCo or for the
correctness of any statements made, or opinions expressed, with regard to it.
AerCo has taken all reasonable care to confirm that the information
contained in this prospectus is true and accurate in all material respects and
that there are no material facts the omission of which would make misleading any
statement herein, whether of fact or opinion.
AerCo is aware that the foregoing paragraph has no effect on its
responsibilities and obligations under the U.S. Securities Act.
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BOOK-ENTRY REGISTRATION, GLOBAL CLEARANCE AND SETTLEMENT
BOOK-ENTRY REGISTRATION; DEPOSIT AGREEMENT
We will deposit the global notes with Bankers Trust Company, as book-entry
depositary under the deposit agreement. The book-entry depositary will issue
certificateless depositary interests for each subclass of new notes to DTC or
its nominee, representing the aggregate principal amount of the global note for
that subclass. Until book-entry interests are exchanged for definitive notes,
the certificateless depositary interests held by DTC may not be transferred
except as a whole by DTC to its nominee or by a nominee of DTC to DTC or another
of its nominees or by DTC or any such nominee to a successor of DTC or a nominee
of such successor.
Book-entry interests will be shown only on, and transfers of book-entry
interests will be effected only through, records maintained in book-entry form
by DTC or its nominee and its participants, including Euroclear and Cedel.
So long as the book-entry depositary is the holder of the global notes, the
book-entry depositary will be considered the sole holder of the global notes for
all purposes under the indenture. Until book-entry interests are exchanged for
definitive notes, all references in this prospectus to actions by noteholders
will refer to actions taken by the book-entry depositary upon instructions of
DTC or its nominee, acting in accordance with the procedures of DTC. All
references in this prospectus to distributions, notices, reports and statements
to noteholders will refer to distributions, notices, reports and statements to
the book-entry depositary for further distribution to DTC and DTC participants,
including Euroclear and Cedel, in accordance with the deposit agreement and the
procedures of DTC and DTC participants. Holders of book-entry interests will be
entitled to receive definitive notes in exchange for book-entry interests only
in the limited circumstances described in "Description of the Notes -- Form --
Definitive Notes". Accordingly, each person owning a book-entry interest must
rely on the procedures of the book-entry depositary and DTC and, if such person
is not a participant in DTC, on the procedures of the participant through which
such person owns its interest, to exercise any rights and obligations of a
holder under the Indenture.
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
Not later than 10 days after receipt by the book-entry depositary of notice
of any solicitation of consents or request for a waiver or other action by the
book-entry depositary as noteholder, the book-entry depositary will mail to DTC
a notice containing:
- the information as is contained in the notice,
- a statement that at the close of business on a specified record date DTC
will be entitled to instruct the book-entry depositary as to the
consent, waiver or other action, if any, pertaining to the
certificateless depositary interests or the global notes, and
- a statement as to the manner in which such instructions may be given.
Upon the written request of DTC, which shall have solicited instructions
from the registered owners of book-entry interests in accordance with its rules
and procedures, the book-entry depositary shall take such action regarding the
requested consent, waiver or other action on the global notes in accordance with
any instruction set forth in such request. The book-entry depositary will not
exercise any discretion in the granting of consents or waivers or the taking of
any other action on the certificateless depositary interests or the global
notes.
REPORTS
The book-entry depositary will immediately, and no later than 10 days from
receipt, send to DTC a copy of any notices, reports and other communications
received relating to AerCo or the notes.
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ACTION BY BOOK-ENTRY DEPOSITARY
Subject to certain limitations, upon the occurrence of a default with
respect to the notes, or in connection with any other right of a holder of notes
under the indenture or the deposit agreement, if requested in writing by DTC,
the book-entry depositary will take any such action as shall be requested in
such notice.
CHARGES OF BOOK-ENTRY DEPOSITARY
AerCo has agreed to pay all charges of the book-entry depositary under the
deposit agreement. AerCo has also agreed to indemnify the book-entry depositary
against certain liabilities incurred by it under the deposit agreement.
AMENDMENT AND TERMINATION
The deposit agreement may be amended by agreement between AerCo and the
book-entry depositary. The consent of DTC will not be required for any amendment
to the deposit agreement:
- to cure any inconsistency, omission, defect or ambiguity in such
agreement;
- to add to the covenants and agreements of the book-entry depositary or
AerCo;
- to evidence succession of another person to AerCo in accordance with the
indenture;
- to effectuate the assignment of the book-entry depositary's rights and
duties to a qualified successor;
- to comply with the Securities Act, the Exchange Act, the U.S. Investment
Company Act of 1940, as amended, or the Trust Indenture Act of 1939, as
amended; or
- to modify, alter, amend or supplement the deposit agreement in any other
manner that is not adverse to DTC or the owners of book-entry interests.
Except as listed above, no amendment that adversely affects DTC or the
owners of book-entry interests may be made to the deposit agreement or the
book-entry interests without the consent of DTC or the owners of book-entry
interests corresponding to a majority in principal amount at maturity of the
notes.
Upon the issuance of definitive notes in exchange for all of the global
notes and satisfaction of certain other conditions, the deposit agreement will
terminate. The provisions of the deposit agreement may be terminated upon the
resignation of the book-entry depositary if no successor has been appointed
within 90 days as described under "-- Resignation or Removal of Book-Entry
Depositary" below.
RESIGNATION OR REMOVAL OF BOOK-ENTRY DEPOSITARY
The book-entry depositary may resign at any time by written notice to AerCo
and the trustee, any resignation to take effect when AerCo appoints a successor
book-entry depositary and the successor book-entry depositary's acceptance of
the appointment. If at the end of 90 days after delivery of the notice, AerCo
has not appointed a successor book-entry depositary and the successor book-entry
depositary has not accepted the appointment, the book-entry depositary may
terminate the deposit agreement.
OBLIGATIONS OF BOOK-ENTRY DEPOSITARY
The book-entry depositary will assume no obligation or liability under the
deposit agreement other than to use good faith and reasonable care in the
performance of its duties.
GLOBAL CLEARANCE AND SETTLEMENT
DTC
Transfers of book-entry interests between DTC participants will occur in
accordance with DTC rules. Transfers between participating organizations whose
securities are held by Cedel Bank and participants in
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Euroclear will occur in accordance with the applicable rules and operating
procedures of Cedel and Euroclear.
Cedel Bank and Euroclear will hold omnibus positions of book-entry
interests on behalf of their participants through customers' securities accounts
in Cedel Bank's and Morgan Guaranty's names on the books of their depositaries
which, in turn, will hold such positions in customers' securities accounts in
the depositaries' names on the books of DTC. Citibank, N.A. will act as
depositary for Cedel Bank and Morgan Guaranty Trust Company of New York will act
as depositary for Euroclear.
Cross-market transfers between persons holding through DTC participants and
through Cedel participants will be effected by DTC in accordance with DTC rules
on behalf of Cedel or Euroclear by its depositary. Cross-market transactions
between persons holding through DTC participants and Euroclear participants will
be effected in accordance with DTC rules on behalf of Euroclear by its
depositary. However, any cross-market transactions will require delivery of
instructions to Cedel or Euroclear by the counterparty in accordance with its
rules and procedures and within its established deadlines. If the transaction
meets its settlement requirements, Cedel Bank or Euroclear will deliver
instructions to its 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 normal procedures for same-day funds settlement
applicable to DTC. Cedel participants and Euroclear participants may not deliver
instructions directly to the Depositaries.
Because of time-zone differences, credits of book-entry interests received
in Cedel Bank or Euroclear as a result of a transaction with a DTC participant
will be made during the securities settlement processing day dated the business
day following the DTC settlement date. Such credits or any transactions in such
book-entry interests settled during such processing will be reported to the
relevant Cedel participant or Euroclear participant on such business day. Cash
received in Cedel Bank or Euroclear as a result of sales of book-entry interests
by or through a Cedel 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 Cedel or Euroclear cash account only as of the business day
following settlement in 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 under 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,
eliminating the need for physical movement of certificates. DTC participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may in the future include certain other organizations. Indirect
access to the DTC system 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. Owners of
book-entry interests who are not DTC participants but desire to purchase, sell
or otherwise transfer ownership of, or other interests in, the book-entry
interests may do so only through DTC participants. Indirect participants are
required to effect transfers through a DTC participant.
Payments on the book-entry interests will be made to DTC and are the
responsibility of AerCo. Owners of book-entry interests will receive all
distributions on the book-entry interests from the trustee or other paying agent
through DTC participants and indirect participants. Disbursement of any payments
to DTC participants will be the responsibility of DTC and disbursement of any
payments to the owners of book-entry interests 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 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 owners
of book-entry interests 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. Unless definitive notes are exchanged for book-entry
interests, owners of book-entry interests, noteholders will be permitted to
exercise the rights of holders under the indenture only indirectly through DTC
and DTC participants.
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Under the rules, regulations and procedures governing DTC and its
operations, DTC is required to make book-entry transfers of book-entry interests
among the DTC participants on whose behalf it acts with respect to book-entry
interests and to receive and transmit distributions on the book-entry interests.
DTC participants and indirect participants with which holders have accounts for
the book-entry interests similarly are required to make book-entry transfers and
receive and transmit any payments on behalf of their book-entry interests. The
DTC rules provide a mechanism by which holders will receive payments and will be
able to transfer their interests.
DTC has advised AerCo that it will take any action permitted to be taken by
a holder on each subclass of book-entry interests under the Indenture only at
the direction of one or more DTC participants to whose accounts that class or
subclass of book-entry interests is credited. Additionally, DTC has advised
AerCo that it will take such actions with respect to any percentage of the
outstanding principal amount of any subclass of book-entry interests only at the
direction of and on behalf of the DTC participants whose holders own such
outstanding principal amount. DTC may take conflicting actions with respect to
different classes or subclasses of Notes to the extent that such actions are
taken on behalf of DTC participants whose holdings include such different
subclasses of book-entry interests.
DTC'S YEAR 2000 EFFORTS. DTC management is aware that some computer
applications, systems, and the like for processing data that are dependent upon
calendar dates, including dates before, on and after January 1, 2000, may
encounter Year 2000 problems. DTC has informed its participants and other
members of the financial community that it has developed and is implementing a
program so that its systems, as they relate to the timely payment of
distributions to securityholders, book-entry deliveries, and settlement of
trades within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform its services properly is also dependent
upon other parties, including issuers and their agents, as well as third party
vendors from whom DTC licenses software and hardware, and third party vendors on
whom DTC relies for information or the provision of services, including
telecommunication and electrical utility service providers. DTC has informed its
participants and members of the financial community that it is contacting third
party vendors from whom DTC acquires services to emphasize the importance of
their services being Year 2000 compliant and determine the extent of their
efforts for Year 2000 remediation of their services. In addition, DTC is
developing any contingency plans as it deems appropriate.
According to DTC, the information above has been provided to its
participants and members of the financial community for informational purposes
only and is not intended to serve as a representation, warranty, or contract
modification of any kind.
CEDEL
Distributions on book-entry interests held through Cedel will be credited
to cash accounts of Cedel participants in accordance with Cedel's rules and
procedures, to the extent received by its depositary. Cedel will take any other
action permitted to be taken by a noteholder under the indenture on behalf of a
Cedel participant only in accordance with its rules and procedures and subject
to its depositary's ability to effect such actions on its behalf through DTC.
EUROCLEAR
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law.
The Euroclear 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 class or subclass in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator
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acts under the Euroclear terms and conditions only on behalf of Euroclear
participants, and has no record of or relationship with persons holding through
Euroclear participants.
Distributions on book-entry interests held through Euroclear will be
credited to the cash accounts of Euroclear participants in accordance with the
Euroclear terms and conditions, to the extent received by its depositary. The
Euroclear Operator will take any other action permitted to be taken by a
noteholder under the Indenture on behalf of a Euroclear participant only in
accordance with the Euroclear terms and conditions and subject to its
depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the procedures described
above in order to facilitate transfers of book-entry interests among
participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform those procedures and may be discontinue them at
any time.
CUSIP, ISIN AND COMMON CODE NUMBERS
The book-entry interests in the new notes have been accepted for clearance
through Euroclear and Cedel. The CUSIP numbers, International Securities
Identification Numbers and the Common Code Numbers are set forth in the table
below.
<TABLE>
<CAPTION>
SUBCLASS CUSIP ISIN CCN
- -------- --------- ------------ ---------
<S> <C> <C> <C>
Subclass A-1....................................... 00764PAE0 US00764PAE07 9629319
Subclass A-2....................................... 00764PAF7 US00764PAF71 9629327
Subclass B-1....................................... 00764PAG5 US00764PAG54 9629335
Subclass C-1....................................... 00764PAH3 US00764PAH38 9629343
</TABLE>
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TAX CONSIDERATIONS
IRISH TAX CONSIDERATIONS
The following summary is based on an opinion of McCann FitzGerald on
principles of Irish taxation law. These principles depend on interpretation of
current law, regulations, rulings and decisions and Irish Revenue practice, and
reliance on Irish Revenue confirmations obtained prior to the issue of, and in
connection with the old notes, all of which are subject to change. Any such
change may be applied retroactively and may adversely affect the principles of
Irish tax on which the opinion is based. This summary does not address all Irish
tax principles that may apply to all categories of potential investors, some of
which may be subject to special rules.
IRISH INCOME AND WITHHOLDING TAXES ON PAYMENTS ON THE NOTES
In the opinion of McCann FitzGerald, there will be no withholding or
deduction for Irish taxes on principal and interest paid by AerCo on the global
notes or any payment of the principal and interest on the book-entry interests.
The foregoing opinion, insofar as it relates to interest, is based on certain
assumptions, including that the notes, including the global notes are listed on
the Luxembourg Stock Exchange or on another stock exchange which is recognized
for relevant purpose of Irish law and that interest on the global and book-entry
notes is paid by a paying agent outside of Ireland.
The issuance of definitive notes may cause interest payments to be subject
to Irish withholding tax at the standard income tax rate currently 24%. If any
Irish withholding tax is imposed, noteholders and holders of book-entry
interests should note that AerCo will not make any additional payments for any
withholding tax. In this regard, Ireland has tax treaties with a number of
jurisdictions which, under certain circumstances, reduce the rate of Irish
withholding tax on payments of interest to persons resident in those
jurisdictions. A holder of a definitive note who is entitled to the benefit of
Article 11 of the income tax treaty between the United States and Ireland (the
"Treaty") (such a holder a "U.S. Holder") will normally be eligible to recover
in full any Irish tax withheld from payments of interest to which such U.S.
Holder is beneficially entitled by making a claim under the Treaty on the
appropriate form. Alternatively, a claim may be made by a U.S. Holder in advance
of a payment of interest. If the claim is accepted by the Irish Revenue, it will
normally authorize subsequent payments to that U.S. Holder to be made without
withholding for Irish tax.
Noteholders who are not ordinarily resident in Ireland will not be subject
to Irish income tax on interest paid by AerCo on the notes so long as the
interest payments are made by AerCo in the course of carrying on relevant
trading operations under its Shannon certificate. For additional information on
these Shannon certified operations and their termination in 2005 and factors
which might lead to their earlier termination, see "Irish Taxation of the AerCo
group" below. After December 2005 or on earlier termination of AerCo Shannon
certified operations, the exemption from Irish tax described above currently
enjoyed by noteholders who are not ordinarily resident in Ireland will
terminate, absent a change in law in the intervening period.
Interest payments made by AerCo have an Irish source and whether or not
paid gross are, under existing Irish tax law, chargeable to Irish income tax by
self-assessment, subject, however, to such relief as may be afforded by the
provisions of any applicable double tax treaty. However, as a matter of
practice, the Irish tax authorities do not pursue collection of any such
liability for Irish tax for persons who are not resident in Ireland except where
such persons:
- receive payments of interest through a person (including a trustee) or
in the name of an agent or branch in Ireland having the management and
control of the interest; or
- seek to claim relief and/or repayment of tax deducted at source in
respect of taxed income from Irish sources; or
- are chargeable to Irish corporation tax on the income of an Irish branch
or agency or to income tax on the profits of a trade carried on in
Ireland to which the interest is attributable.
The termination of the legislative provisions dealing with Shannon
certified operations on December 31, 2005 will not affect the exemption from
Irish withholding tax described above.
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TAXATION OF CAPITAL GAINS
Capital gains tax is chargeable at the rate of 20% on taxable capital gains
with allowance being made for inflation adjusted acquisition costs and
enhancement expenditure. The notes are chargeable assets for Irish capital gains
tax purposes. However, non-resident holders are only liable for capital gains
tax on the disposal of the notes where the notes are unquoted and derive their
value or the greater part of their value from land and buildings or mineral
rights situated in Ireland.
IRISH CAPITAL ACQUISITION TAX
Irish capital acquisitions tax (CAT) on individuals applies to gifts and
inheritances where the donor is domiciled in Ireland at the date of the gift or
inheritance or to the extent that the property of which the gift or inheritance
consists is situated in Ireland at the date of the gift or inheritance. The
donee is primarily liable to pay the CAT. Persons who are secondarily liable
include the donor, his personal representative and an agent, trustee or other
person in whose care the property constituting the gift or inheritance or the
income from the property is placed. All taxable gifts and inheritances received
by an individual since June 2, 1982 [December 1, 1988] are aggregated and only
the excess over a certain tax-free threshold is taxed. The tax-free threshold
depends on the relationship between the donor and donee and the aggregation of
all previous gifts and inheritances. The current tax-free threshold amounts are:
- IRL12,860 for gift and inheritances between persons who are not related
to one another,
- IRL25,720 for gifts and inheritances received from a brother, sister or
from a brother or sister of a parent or from a grandparent, and
- IRL192,900 for gifts and inheritances received from a parent.
Gifts and inheritances between spouses are exempt from CAT. CAT is charged
at progressive rates ranging from 15% to 30% for gifts and from 20% to 40% for
inheritances. The Notes may constitute property situated in Ireland for CAT
purposes. There is no gift and inheritance tax convention between the United
States and Ireland. Although an estate tax convention between the two countries
was ratified in 1951, estate duty was abolished in Ireland in 1975, and it is
not clear whether the estate tax convention is applicable to Irish gift and
inheritance taxes that replaced the former estate duty.
PROBATE TAX
A 2% Irish probate tax is payable on the value of any notes passing under
the will or intestacy of an individual. No probate tax is payable on
inheritances from spouses. Since probate tax was only introduced in 1993, it is
not clear whether credit relief would be available under the estate tax
convention discussed above.
IRISH STAMP DUTY
No stamp duty, stamp duty reserve tax or issue, documentary, registration
or other similar tax imposed by any government department or other taxing
authority of or in Ireland (collectively "Irish stamp duty") will be payable by
noteholders on the creation, initial issue or delivery of Notes.
Since the global notes are bearer securities, they will not be charged with
Irish stamp duty, if transferred by delivery. The global notes will be exempt
from Irish stamp duty under section 106 of the Finance Act, 1993 if the issue
price is not less than ninety percent of their nominal value and if transferred
by a written instrument. If that exemption was not applicable and in the absence
of any other applicable exemption such instrument in writing would be chargeable
with Irish stamp duty if either the instrument was executed in Ireland or,
wherever executed, related to any property situated in Ireland (which would
include notes physically located in Ireland) or any matter or thing done or to
be done in Ireland. Transfers of book-entry interests in the notes which are not
effected by written instrument will not be chargeable with Irish stamp duty. Any
Irish stamp duty charged on such an instrument would be at the rate of one per
cent on the amount of the consideration for the transfer or, if greater, the
market value of the notes.
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IRISH TAXATION OF THE AERCO GROUP
The following discussion of the Irish taxation of the AerCo group is based
on the advice of KPMG, AerCo's tax advisor.
AerCo, AerCo Ireland and AerCo Ireland II will be entitled to certain
corporate tax benefits for Shannon, Ireland certified companies including a
preferential corporate taxation rate of 10% through December 2005. AerCo, AerCo
Ireland, and AerCo Ireland II may become subject to Irish corporate taxation at
general Irish statutory rates currently 28% if:
- AerFi Group were to be liquidated or were to cease to hold its 5%
shareholding in AerCo;
- AerFi Group or GECAS were to reduce or relocate their respective
operations for any reason such that either party failed to maintain,
among other things, certain employment levels at Shannon, Ireland; or
- AerFi Administrative Services Limited or AerFi Cash Manager II Limited
were to resign or be terminated as administrative agent or cash manager
of AerCo group.
Upon the scheduled termination of the Irish preferential 10% tax rate on
December 31, 2005, AerCo and the other Irish tax-resident members of the AerCo
group will become subject to Irish corporate tax on their net trading income at
a 12.50% rate as announced by the Minister for Finance of Ireland on December 3,
1997. According to the announcement non-trading income will be taxed at 25%.
There can be no assurance that the announced rates will be adopted as law in
Ireland or that, if adopted, such rates will not thereafter be changed.
A company will not be subject to Irish income tax provided that it is not
Irish tax resident, has no branch or agency in Ireland and has no Irish-source
income. ALPS 94-1 and AerCo USA have adopted certain operational provisions in
their organizational documents regarding the management and operation of their
businesses designed to minimize the likelihood of Irish taxation of their
income. In the opinion of KPMG, Irish tax advisor to AerCo, neither ALPS 94-1
nor AerCo USA will be subject to Irish income tax on their non-Irish source
income. However, there can be no assurance that ALPS 94-1 or AerCo USA will not
be subject to Irish tax on some or all of their income.
IRISH VALUE-ADDED TAX
Ireland generally imposes Value Added Tax (VAT) on the supply of goods and
services. Any Irish VAT that may become payable by an AerCo group company in
connection with any management services performed by Babcock & Brown will be
eligible to be reclaimed by that company on the assumption that invoices
addressed to any AerCo group company relate to costs attributable to a business
activity of that company which is considered to be a supply of goods or services
by that company, regardless of whether such supply of goods or services has an
Irish place of supply for VAT purposes and that business activity is not one
which would be considered VAT exempt under Irish VAT law.
Some or all of the services provided to AerCo group by the cash manager may
be exempt from Irish VAT. To the extent that any Irish VAT is payable on
services provided to an AerCo group company by the cash manager or by the
administrative agent such VAT will be eligible to be reclaimed by that company
on the same assumption as set out in the preceding paragraph.
Payments by the lessees to AerCo and its Irish-resident subsidiary
companies will not be subject to Irish VAT in any case where the aircraft are
used or to be used by a transport undertaking operating for reward chiefly on
international routes.
CERTAIN JERSEY TAX CONSIDERATIONS
The following summary is based upon the opinion of Mourant du Feu & Jeune,
AerCo's Jersey tax counsel, on the tax treatment under Jersey law of AerCo and
ALPS 94-1 and the tax treatment under Jersey law for the purchase, ownership and
disposition of the notes. The discussion is based on an interpretation of
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laws, regulations, rulings and decisions, including certain letters from the
Comptroller of Income Tax in Jersey and the Director of the Jersey Financial
Services Department, the functions of which were taken over by the Jersey
Financial Services Commission with effect from July 1, 1998, all of which are
currently in effect and are subject to change. Any such change may be applied
retroactively and may adversely affect the Jersey tax consequences described
herein. Unless otherwise noted, the term "note" refers to both the actual global
notes and the interest in the global notes held indirectly through DTC, Cedel or
Euroclear.
INCOME TAXES
AerCo will qualify as an "exempt company" under Article 123A of the Income
Tax (Jersey) Law 1961 as amended as long as it makes the returns of information
and pays the fees, currently L600 per annum as required by that Article and,
subject to the concession referred to below, as long as no Jersey resident has a
beneficial interest (for purposes of the 1961 Law) in AerCo. As an exempt
company, AerCo will be treated for purposes of the 1961 Law as not resident in
Jersey and will pay no Jersey income tax other than on income arising in Jersey
(but, by long standing concession, excluding bank deposit interest arising in
Jersey) and on profits of its trade (if any) carried on through an established
place of business in Jersey. For purposes of the 1961 Law the Comptroller of
Income Tax in Jersey, among other things, has:
- granted a concession that the holders of AerCo Notes will not be
regarded as having a beneficial interest (for the purposes of Article
123A of the 1961 Law) in AerCo;
- confirmed that the holding of the shares in the capital of AerCo by or
on behalf of the charitable trust trustee and AerFi Group will not
prejudice the exempt company status of AerCo;
- confirmed that the income generated by the activities undertaken by
AerCo as described herein will not be treated as income arising in
Jersey; and
- confirmed that the administration in and from Jersey of the business
undertaken by AerCo as described herein will not constitute the carrying
on of a trade through an established place of business in Jersey.
Accordingly in the opinion of our Jersey tax counsel, AerCo will not be
subject to Jersey income tax.
WITHHOLDING TAXES
In general, Jersey imposes a withholding tax at the rate of 20% on interest
and other amounts paid to non-residents of Jersey on a debt obligation of a
company resident in Jersey. However, no such withholding tax is imposed with
respect to an exempt company (as defined above). Accordingly, based upon AerCo's
qualification as an exempt company, in the opinion of our Jersey tax counsel, no
withholding tax will be deducted from interest and other amounts paid on the
notes on account of Jersey taxes.
In the event that any Jersey withholding tax is imposed, noteholders should
note that there is no income tax treaty between the United States and Jersey
that would apply to reduce or eliminate such withholding. Noteholders should
note further that AerCo will not be obligated under the terms of the notes to
make any additional payments in respect of any such withholding tax.
Accordingly, in the event that withholding were to be required on account of
Jersey taxes, distributions to noteholders may be less than those which would be
made on the notes in the absence of any such withholding tax.
OTHER TAXES
There is no taxation of capital gains (other than with respect to certain
tax avoidance transactions) in Jersey. As a result, the capital gains of AerCo
on its investments and the capital gains of noteholders on a sale or transfer of
their notes will not be subject to taxation in Jersey. There is no value added
tax or other relevant taxation in Jersey. No stamp duty, stamp duty reserve tax
or issue, documentary, registration or other similar tax imposed by any
governmental department or other taxing authority of or in Jersey is payable in
connection with the creation, initial issue, delivery or transfer inter vivos of
the notes.
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In the event that on the death of a sole individual holder of notes who is
a non-resident of Jersey, such notes are situated in Jersey (by virtue of their
being held on a register in Jersey or in bearer form and held in Jersey at the
date of death or otherwise deemed to be situated under applicable rules of
private international law), a grant of probate or letters of administration
would have to be obtained in Jersey and a duty of up to 1% of the value of the
assets of the deceased situated in Jersey would be payable.
ALPS 94-1
ALPS 94-1 will qualify as an exempt company under the 1961 Law as long as
AerCo also qualifies as an exempt company and as long as ALPS 94-1 makes the
returns of information and pays the fees as required by Article 123A of the 1961
Law (as described above). As an exempt company, ALPS 94-1 will be treated for
the purposes of the 1961 Law in the same way as AerCo. Accordingly, in the
opinion of our Jersey tax counsel, no withholding tax will be deducted from any
amounts paid by ALPS 94-1 to AerCo as described herein on account of Jersey
taxes.
UNITED STATES TAXATION
In the opinion of Davis, Polk & Wardwell, the following discussion sets
forth the material U.S. federal income tax consequences of the purchase,
ownership and disposition of notes. This discussion deals only with notes held
as capital assets by United States holders as defined below who purchased notes
in the offering at their "issue" price (which will be the price at which a
substantial amount of the notes was sold to persons other than bond houses,
brokers or similar persons acting in the capacity of underwriters, placement
agents or wholesalers), and not with special classes of holders, including
without limitation, dealers in securities or currencies, banks, tax-exempt
organisations, life insurance companies, financial institutions, broker-dealers,
persons that hold securities that are a hedge or that are hedged against
currency or interest rate risks or that are part of a straddle or conversion
transaction, certain U.S. expatriates, persons that are not United States
holders or persons whose functional currency for U.S. federal income tax
purposes is not the U.S. dollar. United States holders who purchased notes at a
price other than the issue price should consult their tax advisors as to the
possible applicability to them of the amortizable bond premium or market
discount rules. Further, this discussion does not address the effect of any U.S.
state or local tax laws on a United States holder of notes. The discussion is
based on the Internal Revenue Code of 1986, as amended, its legislative history,
existing and proposed regulations thereunder, published rulings and court
decisions, all as currently in effect and all subject to change at any time,
possibly with retroactive effect.
Purchasers of the notes should consult their own tax advisors concerning
the consequences, in their particular circumstances, under the U.S. federal
income tax laws and the laws of any relevant state, local or other foreign
taxing jurisdiction, of ownership of the notes.
For purposes of this discussion, a "United States Holder" means a
beneficial owner of notes that is for U.S. federal income tax purposes a citizen
or resident of the United States, a U.S. corporation, or an estate or trust the
income of which is subject to U.S. federal income tax regardless of its source.
PAYMENTS OF INTEREST
The gross amount of interest paid on a note will be includible in the gross
income of a U.S. holder as ordinary interest income at the time it is received
or accrued, depending on the holder's method of accounting for U.S. federal
income tax purposes. Interest paid by AerCo on the notes will be income from
sources outside the United States, and, with certain exceptions, will be treated
separately, together with other items of "passive" income or, in certain cases,
"financial services" income, for purposes of computing the foreign tax credit
allowable under U.S. federal income tax laws.
SALE, RETIREMENT AND OTHER DISPOSITION OF THE NOTES
Except as noted below, upon the sale, exchange or retirement of a note, a
United States holder will generally recognise taxable gain or loss equal to the
difference between the amount realised (not including any amounts received that
are attributable to accrued and unpaid interest not taken into income, which
will be
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taxable as ordinary interest income in accordance with the United States
holder's method of accounting as described above) and the United States holder's
tax basis in the note. A United States holder's tax basis in a note generally
will be its cost. Such gain or loss recognized on the sale or retirement of a
note will be capital gain or loss. Prospective investors should consult their
tax advisors regarding the treatment of capital gains (which may be taxed at
lower rates than ordinary income for certain taxpayers who are individuals) and
losses (the deductibility of which is subject to limitations).
An exchange of old notes for new notes will not be treated as a taxable
exchange for U.S. federal income tax purposes. Accordingly, United States
Holders who exchange their old notes for new notes will not recognize income,
gain or loss for United States federal income tax purposes. A United States
holder's tax basis in the new notes will be equal to its adjusted basis in the
old notes and its holding period will include the period during which it held
the notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments of principal and interest on the notes held by certain
non-corporate holders and the proceeds of a disposition of such notes may be
subject to U.S. information reporting requirements. Such payments also may be
subject to U.S. backup withholding at a rate of 31% if the holder does not
provide a taxpayer identification number or otherwise establish an exemption.
The holder may credit the amounts withheld against its U.S. federal income tax
liability and claim a refund for amounts withheld in excess of its tax
liability. Recently finalized regulations which are applicable to payments made
after December 31, 1999 will change the requirements for establishing an
exemption from information reporting and backup withholding.
UNITED STATES TAXATION OF THE AERCO GROUP
AerCo, ALPS 94-1, AerCo Ireland and AerCo Ireland II do not expect to have
any material U.S. federal income tax liability. However, this conclusion may
depend, in part, on:
- the nature of such companies' income and operations, and
- in the case of AerCo Ireland and AerCo Ireland II, qualification for the
benefits of the income tax treaty between the United States and Ireland.
AerFi and certain of its affiliates, with the support of the Irish
authorities, have sought a ruling from the United States authorities under the
treaty, to the effect that certain subsidiaries and affiliates of AerFi Group
would be deemed to meet certain requirements necessary for eligibility for
treaty benefits. AerFi is in the process of updating the ruling request to take
account of certain restructuring transactions undertaken in 1998. However, there
can be no assurance that a ruling will be obtained, that AerCo, AerCo Ireland or
AerCo Ireland II would be covered by the ruling or that such companies or ALPS
94-1 would not be subject to United States federal income tax on some or all of
their income with the result that the cash flow available for payments on the
notes would be reduced.
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ERISA CONSIDERATIONS
Any Plan that proposes to purchase Notes should consult with its counsel
about the potential consequences of such investment under the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and the Code.
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
(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). Thus, a plan fiduciary considering an investment in notes should also
consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code and whether an administrative
exemption might be applicable to such investment.
Any prohibited transaction could be treated as exempt under ERISA and the
Code if the notes were acquired pursuant to and in accordance with one or more
"class exemptions" issued by the DOL, such as Prohibited Transaction Class
Exemption ("PTCE") 75-1 (an exemption for certain transactions involving
employee benefit plans and broker dealers (such as an underwriter), reporting
dealers and banks), PTCE 84-14 (an exemption for certain transactions determined
by an independent qualified professional asset manager), PTCE 91-38 (an
exemption for certain transactions involving bank collective investment funds),
PTCE 90-1 (an exemption for certain transactions involving insurance company
pooled separate accounts), PTCE 95-60 (an exemption for certain transactions
involving insurance company general accounts) or PTCE 96-23 (an exemption for
certain transactions determined by in-house asset managers).
ERISA also prohibits a fiduciary of a plan from maintaining the indicia of
ownership of any assets of the plan outside the jurisdiction of the district
courts of the United States except under certain circumstances. Before investing
in a note, a plan fiduciary should consider whether its acquisition and holding
of a note would satisfy such indicia of ownership rules.
A PLAN FIDUCIARY CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT ITS TAX
AND/OR LEGAL ADVISORS REGARDING UNDER WHAT CIRCUMSTANCES THE ASSETS OF AERCO
WOULD BE CONSIDERED PLAN ASSETS, THE AVAILABILITY, IF ANY, OF EXEMPTIVE RELIEF
FROM ANY POTENTIAL PROHIBITED TRANSACTION AND OTHER FIDUCIARY ISSUES AND THEIR
POTENTIAL CONSEQUENCES.
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 old notes where the old notes were acquired as a
result of market-making activities or other trading activities. AerCo has agreed
that, starting on the expiration date and ending on the close of business on the
180th 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.
AerCo 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
147
<PAGE> 149
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.
For a period of 180 days after the expiration date, AerCo will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in the letter
of transmittal. AerCo has agreed to pay all expenses incident to the exchange
offer including the expenses of one counsel for the holders of the old notes,
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the old notes including any broker-dealers against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the new notes offered in this prospectus
will be passed upon for AerCo by Davis Polk & Wardwell, New York, New York,
special United States counsel for AerCo, and Mourant du Feu & Jeune, special
Jersey counsel to AerCo.
In accordance with the rules of the Luxembourg Stock Exchange, AerCo states
that there has been no material adverse change in its financial position since
the date of its formation. AerCo is not a party to any material legal
proceedings.
EXPERTS
On September 9, 1998 AerCo appointed KPMG, Chartered Accountants, 5
George's Dock, IFSC Dublin 1, Ireland, as new independent auditors for the
fiscal year ending June 30, 1998 and subsequent periods. The financial
statements of ALPS 94-1 included in this prospectus at and for the year ended
June 30, 1998, the financial statements of the AerFi transferred aircraft
included in this prospectus at and for the year ended June 30, 1998 and the
balance sheet of AerCo at June 30, 1998 have been audited by KPMG as indicated
in their report thereon included herein in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The financial statements of ALPS 94-1 as of June 30, 1997 and for each of
the years in the two year period ended June 30, 1997 and the financial
statements of the AerFi transferred aircraft for the year ended June 30, 1997
included in this prospectus have been audited by Arthur Andersen -- Forum House,
Grenville Street, St. Helier, Jersey, Channel Islands, independent public
accountants as indicated in their report thereon included herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
With respect to certain matters, AerCo and AerFi are not represented by
separate counsel and are not expected to be unless it is agreed that separate
representation is required to satisfy the professional responsibilities of
counsel. Also, certain professionals, appraisers and experts who perform
services for AerCo have performed services for Babcock & Brown and AerFi and
certain of their respective affiliates in the past and may do so again in the
future.
Valuations of the aircraft have been made by three expert aircraft
appraisers: Aircraft Information Services, Inc., BK Associates, Inc. and
Airclaims Limited. These valuations are discussed in detail elsewhere in this
prospectus and are included herein in reliance upon the authority of such firms
as experts in giving such appraisals.
148
<PAGE> 150
AERCO GROUP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
A. HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS FOR ALPS
94-1 (AS RESTATED)
Independent auditors' reports.......................... F-2
Consolidated balance sheets............................ F-6
Consolidated statements of operations.................. F-7
Consolidated statements of cash flows.................. F-8
Statements of changes in shareholders' deficit......... F-9
Statement of accounting policies....................... F-10
Notes to the consolidated financial statements......... F-14
B. HISTORICAL FINANCIAL STATEMENTS FOR AERFI TRANSFERRED
AIRCRAFT
Independent auditors' reports.......................... F-28
Statements of net assets............................... F-30
Statements of operations............................... F-31
Statements of cash flows............................... F-32
Statements of changes in net assets.................... F-33
Statements of accounting policies...................... F-34
Notes to the financial statements...................... F-36
C. HISTORICAL FINANCIAL STATEMENTS FOR AERCO
Independent auditors' report........................... F-43
Balance sheet and notes to financial statement......... F-44
</TABLE>
COMPANY DEFINITIONS
"AerCo" AerCo Limited, a special purpose limited liability
company incorporated under the laws of Jersey with
its registered office located at 22 Grenville
Street, St. Helier, Jersey, JE4 8PX, Channel
Islands.
"ALPS 94-1" Aircraft Lease Portfolio Securitization 94-1
Limited, a special purpose limited liability
company incorporated under the laws of Jersey in
1994 to purchase 27 aircraft from AerFi.
"AerFi" AerFi Group plc and its subsidiary undertakings.
F-1
<PAGE> 151
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED ("ALPS 94-1")
We have audited the accompanying consolidated balance sheet of ALPS 94-1 as
of June 30, 1998 and the related consolidated statement of operations, cash
flows and changes in shareholders' deficit for the year then ended.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The directors of ALPS 94-1 are required to prepare consolidated financial
statements for each financial year which give a true and fair view of the state
of affairs of ALPS 94-1 and its consolidated subsidiaries and of the results of
ALPS 94-1 and its consolidated subsidiaries for that year. In preparing those
consolidated financial statements, the directors are required to select suitable
accounting policies and apply them consistently, make judgements and estimates
that are prudent and reasonable and to prepare the consolidated financial
statements on the going concern basis unless it is not appropriate to assume
that ALPS 94-1 and its consolidated subsidiaries will continue in business. The
directors are responsible for keeping proper accounting records which disclose
with reasonable accuracy at any time the financial position of ALPS 94-1 and its
consolidated subsidiaries and which enable them to ensure that the annual
statutory financial statements comply with the Companies (Jersey) Law 1991. They
are also responsible for safeguarding the assets of ALPS 94-1 and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.
It is our responsibility to form an independent opinion, based on our
audit, on those financial statements and to report our opinion to you. The
consolidated financial statements of ALPS 94-1 and subsidiaries as of June 30,
1997 and 1996 were audited by other auditors whose report dated December 2, 1997
expressed an unqualified opinion on those statements.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
U.K. Auditing Practices Board which do not differ significantly from U.S.
generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the consolidated financial statements. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the consolidated financial statements and of
whether the accounting policies are appropriate to the circumstances of ALPS
94-1 and its consolidated subsidiaries, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the consolidated financial
statements are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the consolidated financial
statements.
OPINION
In our opinion the 1998 consolidated financial statements referred to above
give a true and fair view of the state of affairs of ALPS 94-1 and its
consolidated subsidiaries as at June 30, 1998 and of the income, cash flows and
changes in shareholders' deficit for the year ended June 30, 1998 and have been
properly prepared in accordance with U.K. generally accepted accounting
principles.
F-2
<PAGE> 152
INDEPENDENT AUDITORS' REPORT -- (CONTINUED)
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected the result of operations for the year
ended June 30, 1998 and the shareholders' equity as of June 30, 1998 to the
extent summarized in Notes 23, 24 and 25 of the consolidated financial
statements.
KPMG
CHARTERED ACCOUNTANTS
5 George's Dock
IFSC
Dublin 1
Ireland
November 23, 1998
F-3
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED ("ALPS 94-1")
We have audited the accompanying consolidated balance sheet of ALPS 94-1 as
of June 30, 1997 and the related consolidated statement of operations, cash
flows and changes in shareholders' deficit for the years ended June 30, 1996 and
June 30, 1997 (as restated).
The 1996 and 1997 financial statements have been restated from the
previously issued financial statements of ALPS 94-1.
In the previously issued financial statements of ALPS 94-1, the directors
adopted the true and fair override principle in respect of Financial Reporting
Standard 4 (FRS 4), such that certain losses which would be borne by the class E
Noteholder, were released from the carrying value of the debt and credited to
the statement of operations. This accounting treatment will not be adopted by
AerCo and previously issued 1996 and 1997 financial statements of ALPS 94-1 have
been restated to reflect AerCo's accounting policy, to account for the class E
Note in accordance with FRS4. The impact of the restatement is to increase the
loss for the years and to increase indebtedness in 1996 and 1997. As the
restatement eliminates the previous difference between U.K. GAAP and U.S. GAAP
concerning the accounting for indebtedness, the restatement has also resulted in
a restatement of the reconciliation of the income and shareholders' equity under
both U.K. GAAP and U.S. GAAP disclosed in Note 23 and 24 of the consolidated
financial statements for the years ended June 30, 1996 and 1997.
In addition, in previously issued financial statements of ALPS 94-1, lease
revenue was recognised as income as it accrued over the period of the lease.
When future rental increases were contracted under the terms of the lease, ALPS
94-1 accrued income on the basis of the current rental rate rather than on a
basis that averaged the lease rentals over the total lease term.
The previously issued 1995, 1996 and 1997 financial statements of ALPS 94-1
have been restated to recognise income from operating leases on a straight line
basis over the period of the lease.
The impact of the restatement is to decrease lease revenue and increase net
loss in 1997 and increase lease revenue and reduce net loss in 1996 and 1995.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The directors of ALPS 94-1 are required to prepare consolidated financial
statements for each financial year which give a true and fair view of the state
of affairs of ALPS 94-1 and its consolidated subsidiaries and of the results of
ALPS 94-1 and its consolidated subsidiaries for that year. In preparing those
consolidated financial statements, the directors are required to select suitable
accounting policies and apply them consistently, make judgements and estimates
that are prudent and reasonable and to prepare the consolidated financial
statements on the going concern basis unless it is not appropriate to assume
that ALPS 94-1 and its consolidated subsidiaries will continue in business. The
directors are responsible for keeping proper accounting records which disclose
with reasonable accuracy at any time the financial position of ALPS 94-1 and its
consolidated subsidiaries and which enable them to ensure that the annual
statutory financial statements comply with the Companies (Jersey) Law 1991. They
are also responsible for safeguarding the assets of ALPS 94-1 and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.
It is our responsibility to form an independent opinion, based on our
audit, on those financial statements and to report our opinion to you.
F-4
<PAGE> 154
INDEPENDENT AUDITORS' REPORT -- (CONTINUED)
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
U.K. Auditing Practices Board which do not differ significantly from U.S.
generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the consolidated financial statements. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the consolidated financial statements and of
whether the accounting policies are appropriate to the circumstances of ALPS
94-1 and its consolidated subsidiaries, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the consolidated financial
statements are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the consolidated financial
statements.
OPINION
In our opinion the consolidated financial statements give a true and fair
view of the state of affairs of ALPS 94-1 and its consolidated subsidiaries as
at June 30, 1997 and of the income, cash flow and changes in shareholders'
deficit for the years ended June 30, 1996 and June 30, 1997 and have been
properly prepared in accordance with U.K. generally accepted accounting
principles (as restated, see indebtedness and revenue recognition accounting
policies and Notes 6 and 10).
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected the result of operations for the years
ended June 30, 1997 and 1996 and the shareholders' equity and aircraft values as
of June 30, 1997 to the extent summarized in Notes 23, 24 and 25 of the
consolidated financial statements (as restated, see indebtedness and revenue
recognition accounting policies and Notes 6 and 10).
ARTHUR ANDERSEN
CHARTERED ACCOUNTANTS
Forum House
Grenville Street
St. Helier
Jersey J2E 4UF
Channel Islands
December 2, 1997 (except with respect to matters described
in Notes 6 and 10, as to which the date is March 8, 1999)
F-5
<PAGE> 155
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
NOTES JUNE 30, 1998 1997
----- ------------- -------------
U.S.$'000 U.S.$'000
(AS RESTATED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash........................................................ 1 51,608 51,474
Commercial paper............................................ 1 36,686 39,821
Accounts receivable......................................... 2 2,489 4,140
------- ---------
TOTAL CURRENT ASSETS........................................ 90,783 95,435
FIXED ASSETS
Aircraft, net............................................... 3 800,090 854,596
------- ---------
TOTAL ASSETS................................................ 890,873 950,031
======= =========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Accrued expenses and other liabilities...................... 5 35,400 16,089
Indebtedness................................................ 6 877,128 919,157
Provision for maintenance................................... 7 44,309 46,247
Security deposits........................................... 8 13,255 15,202
------- ---------
TOTAL LIABILITIES........................................... 970,092 996,695
Share capital............................................... 9 -- --
Accumulated deficit......................................... (79,219) (46,664)
------- ---------
Shareholders' deficit....................................... (79,219) (46,664)
------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT................. 890,873 950,031
======= =========
</TABLE>
The accompanying notes, including the statement of accounting policies on pages
F-10 to F-13, are an integral part of the consolidated financial statements.
F-6
<PAGE> 156
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
NOTES JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
----- ------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C>
REVENUES
Aircraft leasing................................. 10 100,682 101,434 102,460
EXPENSES
Depreciation..................................... 3 (37,826) (38,062) (17,978)
Exceptional item -- additional depreciation.... 3 -- (34,385) --
Provision for permanent diminution in value of
aircraft....................................... 11 (8,720) -- (12,000)
Net interest expense............................. 12 (69,785) (71,037) (73,576)
Other expenses................................... 13 (6,599) (5,053) (5,581)
Exceptional item -- termination fee............ 11 (12,700) -- --
-------- -------- --------
Total expenses................................... (135,630) (148,537) (109,135)
-------- -------- --------
NET LOSS FROM OPERATIONS......................... (34,948) (47,103) (6,675)
Profit on sale of aircraft....................... 3 2,426 -- --
Reduction in indebtedness........................ 6 -- 5,258 --
-------- -------- --------
NET LOSS BEFORE PROVISION FOR TAXES.............. 14 (32,522) (41,845) (6,675)
(Provision)/benefit for taxes.................... 15 (33) 143 (200)
-------- -------- --------
NET LOSS FOR THE YEAR............................ (32,555) (41,702) (6,875)
Dividends........................................ -- -- --
-------- -------- --------
LOSS FOR THE YEAR................................ (32,555) (41,702) (6,875)
RETAINED (LOSS)/INCOME BROUGHT FORWARD........... (46,664) (4,962) 1,913
-------- -------- --------
RETAINED LOSS CARRIED FORWARD.................... (79,219) (46,664) (4,962)
BASIC LOSS PER ORDINARY SHARE.................... 16 (3,255.5) (4,170.2) (687.5)
-------- -------- --------
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
OUTSTANDING.................................... 16 10 10 10
======== ======== ========
</TABLE>
All recognised gains and losses are included in the consolidated statement of
operations above.
There is no material difference between the net income for the year or prior
years, and the historical cost equivalent.
The results for the year are derived from continuing operations.
The accompanying notes, including the statement of accounting policies on pages
F-10 to F-13, are an integral part of the consolidated financial statements.
F-7
<PAGE> 157
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year.............................. (32,555) (41,702) (6,875)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation charge for the year................. 37,826 38,062 17,978
Exceptional item: additional depreciation
charge........................................ -- 34,385 --
Provision for permanent diminution in value of
aircraft...................................... 8,720 -- 12,000
Changes in operating assets and liabilities
Accounts receivable........................... 1,651 503 (1,889)
Accrued interest on E Note.................... 17,079 14,532 12,907
Exceptional item -- termination fee........... 12,700 -- --
Accrued expenses and other liabilities........ 4,185 1,369 2,383
Reduction in indebtedness..................... -- (5,258) --
Net maintenance (expenditure)/receipts............. (1,938) 6,703 9,694
Net security deposits repaid....................... (1,947) (3,475) (666)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 45,721 45,119 45,532
-------- -------- --------
INVESTING ACTIVITIES
Purchase of aircraft............................... (1,132) -- --
Sale of aircraft................................... 11,518 -- --
-------- -------- --------
MANAGEMENT OF LIQUID RESOURCES
Net sale/(purchase) of commercial paper............ 3,135 (4,511) (35,310)
-------- -------- --------
FINANCING ACTIVITIES
Indebtedness repaid................................ (59,108) (43,494) (36,025)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES......... (59,108) (43,494) (36,025)
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH.................... 134 (2,886) (25,803)
CASH AT BEGINNING OF YEAR.......................... 51,474 54,360 80,163
-------- -------- --------
CASH AT END OF YEAR................................ 51,608 51,474 54,360
======== ======== ========
</TABLE>
Supplemental disclosure of cash flow information is set out in Note 20.
The accompanying notes, including the statement of accounting policies on pages
F-10 to F-13, are an integral part of the consolidated financial statements.
F-8
<PAGE> 158
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ISSUE OF SHARES RETAINED PROFIT TOTAL
--------------- --------------- ---------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Balance at June 30, 1995 (as restated)....... 10 -- 1,913 1,913
NET LOSS FOR THE YEAR (AS RESTATED).......... -- -- (6,875) (6,875)
--- ---- ------- -------
Balance at June 30, 1996 (as restated)....... 10 -- (4,962) (4,962)
NET LOSS FOR THE YEAR (AS RESTATED).......... -- -- (41,702) (41,702)
--- ---- ------- -------
Balance at June 30, 1997 (as restated)....... 10 -- (46,664) (46,664)
NET LOSS FOR THE YEAR........................ -- -- (32,555) (32,555)
--- ---- ------- -------
Balance at June 30, 1998..................... 10 -- (79,219) (79,219)
=== ==== ======= =======
</TABLE>
The accompanying notes, including the statement of accounting policies on pages
F-10 to F-13, are an integral part of the consolidated financial statements.
F-9
<PAGE> 159
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
STATEMENT OF ACCOUNTING POLICIES
Incorporation
ALPS 94-1 was incorporated in Jersey, Channel Islands on 2 June 1994. The
initial accounting period was from 2 June 1994 to June 30, 1995.
Basis of preparation
The accounting policies followed in the preparation of the accompanying
consolidated financial statements conform with generally accepted accounting
principles in the United Kingdom and comply with financial reporting standards
of the Accounting Standards Board in the United Kingdom as promulgated by the
Institute of Chartered Accountants in England and Wales. Generally accepted
accounting principles in the United Kingdom differ in certain significant
respects from generally accepted accounting principles in the United States. A
summary of these differences are set out in Notes 23 (as restated), 24 (as
restated) and 25.
The consolidated financial statements are prepared on the going concern
basis and under the historic cost convention and are stated in U.S. dollars,
which is the principal operating currency of ALPS 94-1 and of the aviation
industry.
Basis of consolidation
The consolidated financial statements include the results of ALPS 94-1 and
all subsidiaries. All intercompany profits, transactions and account balances
have been eliminated.
Revenue recognition
Revenue from aircraft on operating leases is recognised as income on a
straight line basis over the period of the leases. Where rentals are adjusted to
reflect increases or decreases in prevailing interest rates such adjustments are
accounted for as they arise. This includes rental income earned on aircraft for
the period prior to delivery (see Accounting policies -- Aircraft). Lease
rentals received in advance are deferred and recognized over the period to which
they relate.
In the previously issued financial statements of ALPS 94-1, lease revenue
was recognised as income as it accrued over the period of the lease. When future
rental increases were contracted under the terms of the lease, ALPS 94-1 accrued
income on the basis of the current rental rate rather than on a basis that
averaged the lease rentals over the total lease term.
The previously issued 1995, 1996 and 1997 financial statements of ALPS 94-1
have been restated to recognise income from operating leases on a straight line
basis over the period of the lease.
The impact of the restatement is to decrease lease revenue and increase net
loss in 1997 by $687,000 and increase lease revenue and reduce net loss in 1996
and 1995 by $438,000 and $1,247,000 respectively.
Interest income
Interest earned during the year has been credited to the statement of
operations.
Provision for maintenance
Under the lease contracts the lessee has the obligation for maintenance
costs on airframes and engines which arise during the term of the lease and in
many lease contracts the lessee makes a full or partial prepayment, calculated
at an hourly rate, into a fund from which maintenance expenditures for major
checks are disbursed. The balance of these funds are included in the provision
for maintenance.
F-10
<PAGE> 160
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
Aircraft leasing costs incurred relating to the repair and return to
releasable condition of aircraft following return from lessees are expensed as
incurred.
Taxation
ALPS 94-1 has been granted exempt company status by the Jersey taxation
authorities. It pays an exempt company fee of STGL600 per annum. Taxation is
provided on the profits of the subsidiaries at the current rates.
Aircraft
In the period ended June 30, 1995 ALPS 94-1 committed to purchase and AerFi
Group plc and its subsidiaries ('AerFi') committed to sell, subject to certain
conditions, 27 aircraft on operating leases. ALPS 94-1 agreed to purchase the
aircraft on August 24, 1994 (the Closing Date) for a price equal to the Initial
Appraised Value of the aircraft. It was agreed that the aircraft would be
delivered to ALPS 94-1 at agreed dates (the Delivery Dates) at which time the
purchase price was paid.
In the period from the Closing Date to the Delivery Date ALPS 94-1 received
full credit for the rental income receivable under each operating lease and
AerFi received full credit for the investment earnings on the purchase price of
the aircraft. The amounts were settled through an adjustment in the funds paid
by ALPS 94-1 to AerFi at the time of aircraft delivery. The net effect is that
at the time the aircraft were delivered both ALPS 94-1 and AerFi were in the
same financial position as they would have been had the aircraft been delivered
on the Closing Date.
The purchase of the aircraft was deemed to occur at the Closing Date rather
than on the Delivery Date when the change in legal ownership took place
reflecting the commercial substance of this transaction outlined above. Under
U.S. GAAP the purchase of the aircraft is deemed to occur on Delivery Date when
the change in legal ownership takes place (see Notes 22 to 25 for the
reconciliation between U.K. and U.S. GAAP).
Aircraft are stated at cost less accumulated depreciation less permanent
diminutions in value. Cost comprises the net purchase price of the aircraft
acquired by ALPS 94-1.
Under U.S. GAAP, transfers of assets and liabilities between ALPS 94-1 and
AerFi have all been accounted for on a historical cost basis, because all such
transfers of assets and liabilities are among entities within a single
consolidated group. Accordingly the aircraft are recorded at AerFi's amortised
cost at the Delivery Date (Amortised Cost). The difference between the Initial
Appraised Value and Amortised Cost is considered to be a distribution to AerFi.
In the year ended June 30, 1997 the company changed its estimates of
depreciation rates to more accurately reflect the allocation of the cost of the
asset purchases over the estimated useful economic life of these assets. In
prior periods, aircraft were depreciated at rates calculated to write-off the
cost of the assets to the company to a Nil residual value over their estimated
economic useful lives of 25 years from the Closing Date. Depreciation rates for
aircraft of 2% for the first 15 years and 7% thereafter were applied. The
revised method of calculating depreciation is to depreciate aircraft at rates
calculated to write off the cost of the assets to ALPS 94-1 to a residual value
of 15%, on a straight line basis, over their estimated economic useful lives of
25 years from the date of manufacture.
The changes in these estimates were considered necessary because of
developments in the industry at that time, including the bankruptcy of one major
manufacturer, the expected acquisition of MDC by Boeing, significant
manufacturer discounting of new aircraft and the announcement of a new
generation of Boeing aircraft. As a result of these developments the directors
considered that (i) the allocation of cost should be
F-11
<PAGE> 161
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
revised to a straight line basis (rather than the previous lower allocations in
earlier years) and (ii) additional depreciation reflecting the impact of
adopting the revised estimates, should be charged reflecting the permanent
impairment in value of the aircraft because of the effect of industry
circumstances referred to above on ALPS 94-1's fleet.
Under U.S. GAAP, for all periods, aircraft are depreciated on a straight
line basis so as to write-off the cost of the assets to a residual value of 15%
over a period of 25 years from the date of manufacture.
Where purchase option agreements exist to the benefit of the lessee,
aircraft are depreciated to the purchase option price on a straight-line basis
provided that this would result in a higher depreciation charge than that
arrived at by applying the standard method.
Additional charges are made to reduce the book value of specific assets to
fair market value where a permanent diminution in value is considered to have
occurred. Where fair market value is greater than book value no adjustment is
made.
Fair market value is assessed by the directors, consistent with the going
concern basis of preparation of the financial statements, and reflects the
underlying economic value of aircraft and 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 to
dispose of a significant number of aircraft simultaneously or to dispose of
aircraft quickly. In forming their assessment of fair market value the directors
have taken into consideration independent valuations of aircraft in the
portfolio, together with the directors' assessment of aircrafts' current
maintenance status and maintenance reserves.
For US GAAP purposes, ALPS 94-1 adopted FASB Statement No. 121 "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be disposed
of" as of July 1, 1996. FASB Statement No. 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing the
review for recoverability, the directors' estimated the future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognised. This statement did not materially change the carrying value of ALPS
94-1's assets in the period when it was first applied. Prior to the adoption of
FASB Statement No. 121, the company recorded additional charges to reduce the
book value of specific assets to fair value where a permanent diminution in
value was considered to have occurred.
Cash and liquid resources
Substantially all of ALPS 94-1's cash and commercial paper balances are
held for specific purposes under the terms of the Deed of Charge.
For the purposes of the cash flow statements cash represents amounts
available on demand and liquid resources comprise other cash and commercial
paper.
While the cash balances held by ALPS 94-1 are held for specific purposes
they may be applied for these purposes on demand and are classified as cash in
the cash flow statement.
F-12
<PAGE> 162
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
Indebtedness
Repayment of the principal amounts of the Class E Note and accrued interest
thereon are dependent upon funds being available to meet such liabilities as
they fall due. Under the terms of the ALPS 94-1 Class E Note, the recognition by
the directors of a permanent diminution in the value of aircraft may in certain
circumstances result in a legal reduction in the principal balance on the Class
E Note.
In previously issued financial statements of ALPS 94-1 the directors
adopted the true and fair override principles in respect of Financial Reporting
Standard 4 (FRS 4), such that certain losses which would be borne by the E
Noteholder, were released from the carrying value of the debt and credited to
the statement of operations under UK GAAP. This accounting treatment will not be
adopted by AerCo and previously issued financial statements of ALPS 94-1 have
been restated to reflect AerCo's accounting policy, to account for the E Note in
accordance with FRS 4.
The impact of the restatement is to increase the net loss and indebtedness
for 1997, 1996 and 1995 by $41,015,000, $6,647,000 and $0.
New Accounting Standards not yet effective
The company will be required to adopt the provisions of Financial Reporting
Standard No. 12 "Provisions, Contingent Liabilities and Contingent Assets" for
all financial periods ending on or after March 23, 1999. Management are
currently assessing the impact, if any, that this Standard will have on its
adoption by the company.
F-13
<PAGE> 163
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 CASH AND COMMERCIAL PAPER
<TABLE>
<CAPTION>
30 JUNE, 1998 30 JUNE, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Cash........................................................ 51,608 51,474
Commercial paper............................................ 36,686 39,821
------ ------
88,294 91,295
====== ======
</TABLE>
Substantially all of the cash and commercial paper balances at June 30,
1997 and 1998 are held for specific purposes under the terms of the Deed of
Charge.
2 ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
30 JUNE, 1998 30 JUNE, 1997
------------- -------------
U.S.$'000 U.S.$'000
(AS RESTATED)
<S> <C> <C>
Trade receivables........................................... 2,207 3,403
Non-trade receivables....................................... 282 737
----- -----
2,489 4,140
===== =====
</TABLE>
Trade receivables comprise amounts in respect of rent and maintenance
payments due from lessees.
As at June 30, 1998 two lessees accounted for 67% (1997: 27% (as restated))
and 30% (1997: 8% (as restated)) respectively of trade receivables. No other
lessee accounted for greater than 10% of trade receivables at June 30, 1998 and
June 30, 1997 (as restated).
Non-trade receivables comprise prepayments.
F-14
<PAGE> 164
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3 AIRCRAFT
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
COST
Beginning of year........................................... 975,179 975,179
Additions................................................... 1,132 --
Disposals................................................... (27,023) --
-------- --------
End of year................................................. 949,288 975,179
-------- --------
DEPRECIATION
Beginning of year........................................... (108,583) (36,136)
Charge for the year......................................... (37,826) (38,062)
Additional charge in year................................... -- (34,385)
Disposal.................................................... 5,931 --
-------- --------
End of year................................................. (140,478) (108,583)
-------- --------
PROVISION FOR PERMANENT DIMINUTION IN VALUE
Beginning of year........................................... (12,000) (12,000)
Charge for the year......................................... (8,720) --
Disposal.................................................... 12,000 --
-------- --------
End of year................................................. (8,720) (12,000)
-------- --------
NET BOOK VALUE
Beginning of year........................................... 854,596 927,043
-------- --------
End of year................................................. 800,090 854,596
======== ========
</TABLE>
Cost represents the purchase price of aircraft acquired by ALPS 94-1 which
was based on the independent appraisal values of the portfolio of 27 aircraft at
August 24, 1994.
The directors of ALPS 94-1 determine on an annual basis whether a permanent
diminution in value of ALPS 94-1's aircraft has occurred. Where a permanent
diminution in value is considered to have occurred provision is made based upon
market appraisals of the individual aircraft prepared by three professional
appraisal firms, together with other factors such as maintenance reserves held
by ALPS 94-1, the creditworthiness of particular lessees, current rental values
compared to open market and the length of remaining lease term.
In the year ended June 30, 1998, the directors made a provision of
U.S.$8.72 million to reflect a permanent diminution in value against three F100
aircraft. The directors arrived at such determination based on the bankruptcy of
Fokker N.V. and the discontinuation of its aircraft manufacturing operations,
resulting in significant reductions of values and lease rates for Fokker
aircraft.
In the year ended June 30, 1997, additional depreciation was charged of
U.S.$34.4 million as explained in "Statement of Accounting Policies: Aircraft".
In the year ended June 30, 1996, the directors made a provision of U.S.$12
million to reflect a permanent diminution in value against one A300 aircraft in
its fleet. The directors arrived at such determination based upon the current
unfavourable market conditions for this aircraft type, which also caused the
appraisal firms to reduce their appraisal values for this aircraft type. This
aircraft was disposed of to AerFi during the year and this provision was
included in determining the profit on the disposal of this aircraft of U.S.$2.4
million.
ALPS 94-1's aircraft, along with ALPS 94-1's other assets, have charges
attached to them such that they represent security for the Notes issued (see
Note 6).
F-15
<PAGE> 165
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4 OPERATING LEASES
All the aircraft are leased on operating leases to 19 lessees as at June
30, 1998 (1997: 19). Rentals on certain of the leases are variable in accordance
with prevailing interest rates.
The following is a schedule of contracted future rentals, by years, on
operating leases as of June 30, 1998. The interest rates prevailing at June 30,
1998 have been applied in determining rentals that are variable in accordance
with prevailing interest rates.
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 U.S.$'000
------------------- ---------
<S> <C>
1999........................................................ 83,622
2000........................................................ 51,021
2001........................................................ 28,467
2002........................................................ 20,858
2003........................................................ 10,013
-------
193,981
=======
</TABLE>
There are no contingent rentals.
The leases have charges attached to them such that they represent security
for the Notes issued.
Contracted future rentals for the year ended 30 June 1998 was $97,590,000.
Actual revenue earned was $100,682,000. The principal reason for the difference
is due to new leases executed during the year and changes in the interest rates.
5 ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Accrued expenses and other liabilities comprise:
Deferred income............................................. 7,791 5,382
Interest on Notes........................................... 7,241 5,574
Exceptional item -- termination fee (Note 11)............... 12,700 --
Taxation.................................................... (17) (50)
Other accruals.............................................. 7,685 5,183
------ ------
35,400 16,089
====== ======
</TABLE>
F-16
<PAGE> 166
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6 INDEBTEDNESS (AS RESTATED)
a) Principal
The purchase of the aircraft was funded by the sale of Trust Notes and the
sale of Subordinated Notes (together the 'Notes'). The Notes are secured by a
first priority security interest in ALPS 94-1's assets, which consist of the
aircraft, the leases and amounts on deposit in certain accounts.
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997 AT ISSUE
------------- ------------- ---------
U.S.$'000 U.S.$'000 U.S.$'000
(AS RESTATED)
<S> <C> <C> <C>
TRUST NOTES
Class A-1 Notes..................................... 98,349 121,944 172,000
Class A-2 Notes..................................... 73,108 101,372 139,404
Class A-3 Notes..................................... 156,167 156,167 156,167
Class A-4 Notes..................................... 140,122 140,122 140,122
Class B-1 Notes..................................... 43,770 43,770 44,106
Class B-2 Notes..................................... 43,994 43,994 44,106
Class C Notes....................................... 86,171 86,171 86,610
SUBORDINATED NOTES
Class D Note........................................ 42,739 49,988 71,185
Class E Note and capitalised E note interest........ 197,966 180,887 144,451
Less: extinguished by a permanent loss.............. (5,258) (5,258) --
------- ------- -------
Net Class E Note Principal and capitalised
interest......................................... 192,708 175,629 144,451
------- ------- -------
877,128 919,157 998,151
======= ======= =======
</TABLE>
Repayments of principal on the Trust Notes and Class D Note principal are
made monthly and commenced in October 1994. As a consequence of the ALPS 94-1
refinancing which was completed on July 15, 1998 the Notes are classified as
repayable within one year (see Note 30).
The repayment of principal on the Trust Notes and the Class D Note is
dependent upon the cash available at the monthly payment date and is governed by
the Deed of Charge of Assignment and Priorities entered into by ALPS 94-1 on the
Closing Date (the 'Deed of Charge").
The repayment of Class E Note principal is not due until the Trust Notes
and Class D Note have been fully repaid.
Repayment of the principal amounts of the Class E Note and accrued interest
thereon are dependent upon funds being available to meet such liabilities as
they fall due. Under the terms of the ALPS 94-1 Class E Note, the recognition by
the directors of a permanent diminution in the value of aircraft may in certain
circumstances result in a legal reduction in the principal balance on the Class
E Note. During the year ended June 30, 1997 there was a legal reduction in the
principal balance on the Class E Note of U.S.$5.258 million.
In previously issued financial statements of ALPS 94-1, the directors
adopted the true and fair override principles in respect of Financial Reporting
Standard 4 (FRS4), such that certain losses which would be borne by the E
Noteholder, were released from the carrying value of the debt and credited to
the statement of operations under UK GAAP. This accounting treatment will not be
adopted by AerCo and previously issued financial statements of ALPS 94-1 have
been restated to reflect AerCo's accounting policy, to account for the E Note in
accordance with FRS4.
F-17
<PAGE> 167
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6 INDEBTEDNESS (AS RESTATED) (CONTINUED)
The impact of the restatement is to increase the net loss and indebtedness
for 1997, 1996 and 1995 by $41,015,000, $6,647,000 and $nil.
b) Interest
Class A-1 Notes bear interest at LIBOR plus 0.48%, payable monthly in
arrears.
Class A-2 Notes bear interest at 7.15%, payable monthly in arrears,
increased to 9.15% from November 1997 onwards.
Class A-3 Notes bear interest at LIBOR plus 0.45%, payable monthly in
arrears.
Class A-4 Notes bear interest at 7.80%, payable monthly in arrears.
Class B-1 Notes bear interest at LIBOR plus 1.15%, payable monthly in
arrears.
Class B-2 Notes bear interest at 8.20%, payable monthly in arrears.
Class C Notes bear interest at 9.35%, payable monthly in arrears.
The Class D Note bears interest at LIBOR plus 5.50%. Interest is payable
monthly in arrears and commenced in October 1994, subject to available cash.
Interest accrued but not paid will be added to the principal outstanding and
will accrue interest until paid.
The Class E Note bears interest at 10.00%. The interest accrues monthly in
arrears. With the exception of certain circumstances the Class E permitted
interest amount will not be paid until the payment date following the fourth
anniversary of the Closing Date.
c) Debt maturity
Upon the Final Maturity Date, the cash available will be applied to
principal in the following order:
1. Class A Notes principal
2. Class B Notes principal
3. Class C Notes principal
4. Class D Note principal
5. Class E Note principal
7 PROVISION FOR MAINTENANCE
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Opening balance............................................. 46,247 39,544
Receivable during year...................................... 8,021 12,558
Repaid during year.......................................... (9,959) (5,855)
------ ------
Closing balance............................................. 44,309 46,247
------ ------
Due within one year......................................... 6,512 1,604
Due after one year.......................................... 37,797 44,643
------ ------
44,309 46,247
====== ======
</TABLE>
F-18
<PAGE> 168
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8 SECURITY DEPOSITS
Security deposits of U.S.$13,255,000 (1997: U.S.$15,202,000) are held as
security for obligations in accordance with the terms of certain leases. The
deposits are held as cash or commercial paper and are included within the cash
and commercial paper balances (see Note 1).
9 SHARE CAPITAL
Called up share capital comprises:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$ U.S.$
<S> <C> <C>
AUTHORISED
15,000 ordinary shares of U.S.$1 each....................... 15,000 15,000
------ ------
ISSUED AND FULLY PAID
10 ordinary shares of U.S.$1 each........................... 10 10
------ ------
</TABLE>
ALPS 94-1 issued 10 ordinary shares at $1 each on June 3, 1994.
10 REVENUES AND CONCENTRATION OF CREDIT RISK
a) Distribution of revenues by geographic area
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
----------------- --------------------- ---------------------
U.S.$'000 % U.S.$'000 % U.S.$'000 %
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C> <C> <C>
Europe........................... 45,624 45.3 44,903 44.3 46,194 45.1
North America.................... 4,328 4.3 3,693 3.6 3,673 3.6
South/Central America............ 21,375 21.2 18,751 18.5 14,715 14.3
Asia/Pacific..................... 29,355 29.2 34,087 33.6 37,878 37.0
------- ---- ------- ---- ------- ----
100,682 100 101,434 100 102,460 100
======= ==== ======= ==== ======= ====
</TABLE>
All revenues are derived from aircraft leasing.
In the previously issued financial statements of ALPS 94-1, lease revenue
was recognised as income as it accrued over the period of the lease. When future
rental increases were contracted under the terms of the lease, ALPS 94-1 accrued
income on the basis of the current rental rate rather than on a basis that
averaged the lease rentals over the total lease term.
The previously issued 1995, 1996 and 1997 financial statements of ALPS 94-1
have been restated to recognise income from operating leases on a straight line
basis over the period of the lease.
The impact of the restatement is to decrease lease revenue and increase net
loss in 1997 by $687,000 and increase lease revenue and reduce net loss in 1996
and 1995 by $438,000 and $1,247,000 respectively.
b) Concentration of credit risk
Credit risk with respect to trade accounts receivable is generally
mitigated due to the number of lessees and their dispersal across different
geographic areas.
F-19
<PAGE> 169
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10 REVENUES AND CONCENTRATION OF CREDIT RISK (CONTINUED)
ALPS 94-1 manages its exposure to particular countries in part through
obtaining security from lessees by way of deposits, letters of credit and
guarantees. In addition ALPS 94-1 maintains Political Risk Insurance in respect
of certain lessees.
ALPS 94-1 continually evaluates the financial position of lessees and,
based on this evaluation, the amounts outstanding and the available security,
makes an appropriate provision for doubtful debts.
As at June 30, 1998, one lessee accounted for 14% (1997: 14% (as restated))
of ALPS 94-1's lease revenues and another accounted for 12% (1997: 12% (as
restated); 1996: 12% (as restated)) of lease revenues. No other lessee accounted
for greater than 10% of ALPS 94-1's revenues for the years ended June 30, 1998,
1997 (as restated) and 1996 (as restated).
11 EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Additional depreciation(i)......................... -- 34,385 --
Provision for permanent diminution in value of
aircraft (Note 3)................................ 8,720 -- 12,000
Termination fee(ii)................................ 12,700 -- --
------ ------ ------
21,420 34,385 12,000
====== ====== ======
</TABLE>
- ---------------
(i) The additional depreciation charge in the year ended June 30, 1997 related
to a change in calculating depreciation estimates as explained in
"Statement of Accounting Policies: Aircraft".
(ii) Prior to the year end the directors approved a transaction involving the
sale of the capital stock of ALPS 94-1 (see Note 29). During 1998, ALPS
94-1 entered into a contract with the servicer whereby it agreed to
terminate the servicing agreement in respect of the management of the
company's assets in consideration for a termination fee of $12.7 million.
This amount was charged in the year ended June 30, 1998 and was paid
subsequent to the year end.
12 NET INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Interest expense on Notes.......................... 73,560 73,975 76,587
Net interest income................................ (3,775) (2,938) (3,011)
------ ------ ------
69,785 71,037 73,576
====== ====== ======
</TABLE>
The interest rate payable on the Class A-2 Notes increased to 9.15% from
November 15, 1997, the expected final payment date for such Class.
F-20
<PAGE> 170
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13 OTHER EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Servicer's fees.................................... 2,894 2,899 2,893
Political Risk Insurance........................... 425 737 1,210
Administration fees................................ 412 441 503
Aircraft leasing costs............................. 1,914 -- --
Legal and professional fees........................ 440 402 323
Directors' and Officers' Insurance................. 295 350 391
Directors' fees and expenses....................... 100 122 150
Cash manager's fees................................ 76 66 41
Audit and tax fees................................. 43 36 70
------ ------ ------
6,599 5,053 5,581
====== ====== ======
</TABLE>
14 NET LOSS BEFORE PROVISION FOR TAXES
a) Net loss before provision for taxes is stated after charging:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Directors' remuneration............................ 100 100 100
------ ------ ------
100 100 100
====== ====== ======
</TABLE>
b) Directors and Officers' Insurance
As approved at an Extraordinary General Meeting of ALPS 94-1, Directors'
and Officers' Insurance has been implemented. Directors also have the protection
of an unsecured indemnity from ALPS 94-1 in respect of claims relating to them
in their capacity as directors.
15 (PROVISION)/BENEFIT FOR TAXES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Corporation tax -- (provision)/benefit............. (33) 143 (200)
=== === ====
</TABLE>
Taxation provisions shown relate to the activities of subsidiaries, levied
by local jurisdictions. The tax benefit in the year ended June 30, 1997 relates
to a subsequent approval of a lower prior period tax charge levied by one
jurisdiction.
16 BASIC LOSS PER ORDINARY SHARE (AS RESTATED)
The calculation of basic loss per ordinary share has been computed by
dividing the loss for the year of U.S.$32,555,000 (1997: loss of U.S.$41,702,000
(as restated); 1996: loss of U.S.$6,875,000 (as restated)) by the weighted
average number of ordinary shares outstanding during the year of 10 shares for
all periods.
17 STAFF COSTS AND NUMBERS
ALPS 94-1 has no employees.
F-21
<PAGE> 171
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18 SUBSIDIARY COMPANIES
ALPS 94-1 has the following subsidiary companies:
<TABLE>
<CAPTION>
COUNTRY OF % OF SHARES
NAME INCORPORATION BUSINESS HELD
- ---- ------------- -------- -----------
<S> <C> <C> <C>
Pergola Limited................ Ireland Aircraft leasing and sub-leasing 100%
ALPS 94-1 (Belgium) N.V........ Belgium Aircraft leasing and sub-leasing 100%
ALPS 94-1 (France) S.A.R.L. ... France Dormant 100%
</TABLE>
19 DIVIDENDS
Under the Articles of Association, the shareholders are entitled to receive
a fixed cumulative preferential dividend of U.S.$1,500 per annum out of the
profits of ALPS 94-1. This dividend has not been declared in the current year.
20 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Cash paid in respect of:
Interest -- Trust Notes............................ 49,191 50,574 53,558
Interest -- Subordinated Notes..................... 5,624 9,298 10,444
Income taxes....................................... -- -- 174
------ ------ ------
54,815 59,872 64,176
====== ====== ======
</TABLE>
21 COMMITMENTS
ALPS 94-1 has no long-term contracts other than those with its service
providers (see Note 28) and lessees (see Note 4).
22 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (AS RESTATED)
The consolidated financial statements are prepared in accordance with U.K.
GAAP which differ significantly in certain respects from U.S. GAAP. These
significant differences are described below:
a) Basis of accounting for transactions between AerCo, ALPS 94-1 and AerFi
Under U.K. GAAP the transaction whereby AerCo acquired ALPS 94-1 and the
AerFi transferred aircraft is accounted for using acquisition accounting.
Under U.S. GAAP the transactions between AerCo, ALPS 94-1 and AerFi are
transactions between entities under common control as these entities are all
part of a single consolidated group. However, because of the restricted nature
of the ALPS 94-1 and AerCo vehicles and in particular the restrictions on the
assets and cash flows of these vehicles, the U.S. GAAP historical financial
information for ALPS 94-1 and the AerFi transferred aircraft have not been
retroactively restated using the "as-if pooling-of-interest method".
Accordingly, the U.S. GAAP reconciliation has not been restated to show the
retroactive combination.
F-22
<PAGE> 172
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
b) Aircraft
The consolidated financial statements are prepared applying Financial
Reporting Standard No. 5 'Reporting the Substance of Transactions'. This
accounting standard defines assets as the right or other access to future
economic benefits controlled by an entity arising as a result of transactions or
events. ALPS 94-1 has rights to access future economic benefits arising from the
aircraft at the Closing Date even though it does not become the legal owner of
the aircraft until they are delivered. Therefore the aircraft are included at
their initial valuation or purchase price at the Closing Date and depreciated
from that date. Similarly, rental income has been recognised as receivable from
the Closing Date.
The accounting treatment under U.S. GAAP (as explained under Statement of
Accounting Policies: Aircraft) would be to record the cost of the aircraft at
AerFi's Amortised Cost at the Delivery Date and to depreciate the aircraft and
recognize rental income from the Delivery Date. Effective from 1 July 1996 the
method of depreciation is the same for both U.K. and U.S. GAAP. Prior to that
date under U.K. GAAP, depreciation was provided at 2% for the first 15 years and
7% thereafter whereas under U.S. GAAP prior to 1997, the aircraft are
depreciated on a straight-line basis so as to write-off the cost of the assets
over a period of 25 years. Under U.K. GAAP, a provision for additional
depreciation was made in 1997 to reflect the impact of adopting the revised
estimates of accumulated depreciation in respect of prior periods. Under U.S.
GAAP, no such additional depreciation charge arises.
The differences between income recorded under U.K. GAAP and U.S. GAAP
therefore relate to:
1. Depreciation from the Closing Date to Delivery Date.
2. Rental income from the Closing Date to Delivery Date.
3. Investment income earned from the Closing Date to Delivery Date.
4. Difference in depreciation of Amortised Cost of aircraft under U.S. GAAP
and initial appraised value under U.K. GAAP.
5. Difference in depreciation under U.S. GAAP and U.K. GAAP.
6. Difference in additional depreciation resulting from the change in the
depreciation method under U.K. GAAP.
7. Difference in cost of aircraft disposed under U.S. GAAP and U.K. GAAP.
c) Cash flows
In accordance with U.K. GAAP, ALPS 94-1 complies with Financial Reporting
Standard No. 1 (Revised) "Cash flow Statements" ("FRS 1"). Its objective and
principles are similar to those set out in SFAS No. 95 "Statement of Cash
Flows". The principal difference between the standards is in respect of
classification. Under FRS1, ALPS 94-1 presents its cash flows for: (a) operating
activities; (b) return on investments and servicing of finance; (c) taxation;
(d) capital expenditure and financial investment; (e) acquisitions and
disposals; (f) management of liquid resources and (g) financing activities. SFAS
No. 95 requires only three categories of cash flow activity; (a) operating; (b)
investing; and (c) financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under FRS1 are included as operating activities under SFAS No. 95.
Cash flows arising from capital expenditure under FRS1 are included as investing
activities under SFAS No. 95.
F-23
<PAGE> 173
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
For the purposes of cash flows under U.S. GAAP, ALPS 94-1 considers all
highly liquid deposits with maturity of three months or less to be cash
equivalents. Under U.K. GAAP, cash represents amounts available on demand and
liquid resources comprise other cash and commercial paper.
Substantially all of the cash balances of ALPS 94-1 at June 30, 1996, 1997,
and 1998 are held for specific purposes under the terms of the ALPS 94-1 deed of
charge.
d) Shareholders' deficit
The differences between shareholders' deficit under U.K. GAAP and U.S. GAAP
relate to the recording of the aircraft at Amortised Cost. Under U.K. GAAP, the
assets of ALPS 94-1 are recorded at their fair value on the date of acquisition
from AerFi less accumulated depreciation. For U.S. GAAP purposes, these assets
are recorded at their predecessor cost less accumulated depreciation. The
shareholders' deficit for U.S. GAAP is also adjusted to reflect this difference
in the carrying value of the aircraft.
e) Indebtedness
In the previously issued financial statements of ALPS 94-1, the directors
adopted the true and fair override principle in respect of Financial Reporting
Standard 4 (FRS 4), such that certain losses which would be borne by the E
Noteholder, were released from the carrying value of the debt and credited to
the statement of operations under U.K. GAAP. Under U.S. GAAP the liability for
the principal amount remains until such time as the obligation is extinguished.
The restatement of previously issued financial statements of ALPS 94-1 for 1997
and 1996 under U.K. GAAP has eliminated any differences between U.K. GAAP and
U.S. GAAP concerning the accounting for indebtedness.
F-24
<PAGE> 174
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23 RECONCILIATION OF INCOME AS STATED IN ACCORDANCE WITH U.K. GAAP TO NET
INCOME IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
Retained loss in accordance with U.K. GAAP......... (32,555) (41,702) (6,875)
ITEMS HAVING THE EFFECT OF INCREASING REPORTED
INCOME...........................................
Depreciation from the Closing Date to the
Delivery Date................................. -- -- 141
Investment income earned from the Closing Date to
Delivery Date................................. -- -- 374
Exceptional item: additional depreciation
charge........................................ -- 34,385 --
Difference in depreciation of amortised cost of
aircraft...................................... 5,773 5,723 (14,501)
Difference in permanent diminution in value of
aircraft...................................... 8,200 -- --
ITEMS HAVING THE EFFECT OF DECREASING REPORTED
INCOME
Difference in book value of aircraft sold........ (2,226) -- --
Rental from the Closing Date to the Delivery
Date.......................................... -- -- (729)
--------- -------- --------
Net loss in accordance with U.S. GAAP.............. (20,808) (1,594) (21,590)
Accumulated deficit at beginning of year........... (36,787) (35,193) (13,603)
--------- -------- --------
Accumulated deficit at end of year................. (57,595) (36,787) (35,193)
Loss per ordinary share for the year as so
adjusted......................................... (2,080.8) (159.4) (2,159.0)
--------- -------- --------
Weighted average number of ordinary shares
outstanding...................................... 10 10 10
--------- -------- --------
</TABLE>
24 RECONCILIATION OF SHAREHOLDERS' DEFICIT AS STATED IN ACCORDANCE WITH U.K.
GAAP TO SHAREHOLDERS' DEFICIT IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
-------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
Shareholders' deficit in accordance with U.K.
GAAP............................................ (79,219) (46,664) (4,962)
ITEMS HAVING THE EFFECT OF AMENDING SHAREHOLDERS'
EQUITY
Distribution to AerFi at Closing Date........... (147,588) (147,588) (147,588)
Cumulative difference in net income between U.K.
GAAP and U.S. GAAP (see Note 23)............. 21,624 9,877 (30,231)
-------- -------- --------
Shareholders' deficit in accordance with U.S.
GAAP............................................ (205,183) (184,375) (182,781)
-------- -------- --------
</TABLE>
F-25
<PAGE> 175
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
25 RECONCILIATION OF AIRCRAFT STATED IN ACCORDANCE WITH U.K. GAAP TO AIRCRAFT
STATED IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
U.S. GAAP U.K. GAAP
------------------------------ ------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
COST
Cost.................................... 975,179 975,179 975,179 975,179
Step up cost............................ (147,588) (147,588) -- --
-------- -------- -------- --------
Beginning of year....................... 827,591 827,591 975,179 975,179
Additions............................... 1,132 -- 1,132 --
Disposal................................ (29,086) -- (27,023) --
-------- -------- -------- --------
End of year............................. 799,637 827,591 949,288 975,179
-------- -------- -------- --------
DEPRECIATION
Beginning of year....................... (81,119) (48,780) (108,583) (36,136)
Provision in year....................... (32,053) (32,339) (37,826) (38,062)
Additional charge in year............... -- -- -- (34,385)
Disposal................................ 5,768 -- 5,931 --
-------- -------- -------- --------
End of year............................. (107,404) (81,119) (140,478) (108,583)
-------- -------- -------- --------
PROVISION FOR PERMANENT DIMINUTION IN VALUE
Beginning of year....................... (12,000) (12,000) (12,000) (12,000)
Provision in year....................... (520) -- (8,720) --
Disposal................................ 12,000 -- 12,000 --
-------- -------- -------- --------
End of year............................. (520) (12,000) (8,720) (12,000)
-------- -------- -------- --------
NET BOOK VALUE
Beginning of year....................... 734,472 766,811 854,596 927,043
-------- -------- -------- --------
End of year............................. 691,713 734,472 800,090 854,596
-------- -------- -------- --------
</TABLE>
26 FAIR VALUE OF FINANCIAL INSTRUMENTS
ALPS 94-1 estimates that the fair value of its cash and cash equivalents
and other receivables and payables at June 30, 1998 approximate to the amounts
at which these items are reflected in ALPS 94-1's balance sheet. This is due to
the relatively short-term nature of the instruments and the frequency at which
they reprice.
The fair value of the A, B and C Notes issued by ALPS 94-1 outstanding at
June 30, 1997 and 1998 was U.S.$694 million and U.S.$642 million respectively.
Although no public market existed for the D and E Notes, the directors
estimate their fair value at June 30, 1997 and 1998, at U.S.$50 million and
U.S.$43 million for the D Notes and U.S.$35 million and U.S.$38 million for the
E Notes. At June 30, 1998 and 1997 the D Notes were held by the servicer and the
E Notes, which are based on the appraised value of the aircraft at the Closing
Date, represent the holders' residual interest in the aircraft owned by ALPS
94-1.
The fair value estimates of the Class D and E Notes involve uncertainties
and matters of significant judgement and therefore cannot be determined with
precision. The directors estimate the fair value of the Class D Note as being
its book value at June 30, 1997 and 1998 as it bears interest at a variable rate
and there
F-26
<PAGE> 176
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
26 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
has been no change in the credit risk associated with this Note between the date
on which it was issued and June 30, 1997 and 1998.
The Class E Note represents a residual interest in a pool of 27 aircraft
and the value inherent in these Notes can only be realized following the
repayment of the Class A-D Notes. The fair value of the Class E Note is
determined by considering the strategic value inherent in holding a residual
interest in a pool of aircraft of the quality of those held by ALPS 94-1 and
consideration of indicative valuation for notes with similar characteristics in
vehicles similar to ALPS 94-1.
F-26.1
<PAGE> 177
AIRCRAFT LEASE PORTFOLIO SECURITIZATION 94-1 LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
27 FOREIGN CURRENCY TRANSACTIONS
ALPS 94-1's foreign currency transactions are not significant as all
revenues and most costs are denominated in U.S. dollars.
28 RELATED PARTY TRANSACTIONS
a) GE Capital Aviation Services Limited (GECAS)
GECAS acts as lease manager to ALPS 94-1. In addition to managing ALPS
94-1's aircraft GECAS also manages aircraft owned by GE Capital and its
affiliates and other third parties, including AerFi from whom ALPS 94-1's
aircraft were purchased. GECAS may from time to time have conflicts of interest
in performing its obligations to ALPS 94-1 and other entities to which it
provides management, marketing and other services.
GECAS receives an annual fee as lease manager which amounted to
U.S.$2,894,000 (1997: U.S.$2,899,000); for the year ended June 30, 1998. GECAS
is an affiliate of GE Capital which holds the Class D Note and has a right to
appoint a representative to the board. GE Capital has not yet indicated any
intention to make such an appointment.
As explained in Note 1, the GECAS servicing agreement was terminated and a
termination fee of $12,700,000 was paid to GECAS subsequent to the year end.
b) On July 15, 1998 AerFi was appointed as Administrative Agent and Cash
Manager to ALPS 94-1.
c) Mr. E.J. Hansom (Director)
Mr. E.J. Hansom is the Chief Financial Officer of AerFi and is one of the
representatives on the board appointed by AerFi, as holder of the Class E Note.
ALPS 94-1 purchased its aircraft from AerFi.
d) Mr. G.A. Robinson (Director)
Mr. G.A. Robinson performs consulting services from time to time for Air
2000, one of the lessees. Included in aircraft leasing revenue is an amount of
U.S.$5,202,000 (1997: U.S.$5,097,000) in respect of this lessee.
29 SUBSEQUENT EVENTS
Prior to the year end the directors approved a transaction involving the
sale of the capital stock of ALPS 94-1 to a new company, AerCo Limited, and the
early redemption of the existing Notes issued by ALPS 94-1. On June 23, 1998,
AerCo Limited issued an Offering Memorandum in connection with this transaction
and on July 15, 1998, AerCo Limited issued U.S.$800 million of Notes in four
classes and used part of the proceeds to acquire the capital stock of ALPS 94-1.
As part of this transaction all of the existing indebtedness of ALPS 94-1 was
repaid including the Class E Note. Makewhole premium attaching to the early
redemption of the existing notes amounting to U.S.$11.6 million was paid on the
refinancing date.
F-27
<PAGE> 178
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF AERCO GROUP
We have audited the accompanying statement of net assets of the entity as
of June 30, 1998 and the related statement of operations, cash flows and changes
in net assets for the year then ended.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The directors of AerCo group are required to prepare financial statements
for each financial year to give a true and fair view of the statement of net
assets of the entity and of the income, cash flows and changes in net assets of
the entity for that year. In preparing the financial statements, the directors
are required to select suitable accounting policies and apply them consistently,
make judgements and estimates that are prudent and reasonable and to prepare the
financial statements on the going concern basis unless it is not appropriate to
assume that the entity will continue in business.
It is our responsibility to form an independent opinion, based on our
audit, on those financial statements and to report our opinion to you. The
financial statements of the entity as of June 30, 1997 were audited by other
auditors whose report dated June 23, 1998 expressed an unqualified opinion on
those financial statements.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
U.K. Auditing Practices Board which do not differ significantly from U.S.
generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgements made by the directors in
the preparation of the financial statements and of whether the accounting
policies are appropriate to the circumstances of the entity, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements present fairly the statement of net
assets of the entity as at June 30, 1998 and of the income, cash flows and
changes in net assets for the year ended June 30, 1998 of the entity and have
been properly prepared in accordance with U.K. generally accepted accounting
principles.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have no significant effect on the statement of
operations for the year ended June 30, 1998 and the statement of net assets as
at June 30, 1998.
KPMG
CHARTERED ACCOUNTANTS
5 George's Dock
IFSC
Dublin 1
Ireland
November 23, 1998
F-28
<PAGE> 179
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF AERCO GROUP
We have audited the accompanying statement of net assets of the entity as
of June 30, 1997 and the related statement of operations, cash flows and changes
in net assets for the year then ended.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The directors of AerCo group are required to prepare financial statements
for each financial year to give a true and fair view of the statement of net
assets of the entity and of the income, cash flows and changes in net assets of
the entity for that year. In preparing the financial statements, the directors
are required to select suitable accounting policies and apply them consistently,
make judgements and estimates that are prudent and reasonable and to prepare the
financial statements on the going concern basis unless it is not appropriate to
assume that the entity will continue in business.
It is our responsibility to form an independent opinion, based on our
audit, on those financial statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
U.K. Auditing Practices Board which do not differ significantly from U.S.
generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgements made by the directors in
the preparation of the financial statements and of whether the accounting
policies are appropriate to the circumstances of the entity, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements present fairly the statement of net
assets of the entity as at June 30, 1997 and of the income, cash flows and
changes in net assets for the year ended June 30, 1997 of the entity and have
been properly prepared in accordance with U.K. generally accepted accounting
principles.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have no significant effect on the statement of
operations for the year ended June 30, 1997 and the statement of net assets as
at June 30, 1997.
ARTHUR ANDERSEN
CHARTERED ACCOUNTANTS
Forum House
Grenville Street
St. Helier
Jersey JE2 4UF
Channel Islands
June 23, 1998
F-29
<PAGE> 180
AERFI TRANSFERRED AIRCRAFT
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
NOTES JUNE 30, 1998 JUNE 30, 1997
----- ------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Due from AerFi............................................. 24,376 27,294
Accounts receivable........................................ 2 772 814
------- -------
TOTAL CURRENT ASSETS....................................... 25,148 28,108
FIXED ASSETS
Aircraft................................................... 3 179,220 177,850
------- -------
TOTAL ASSETS............................................... 204,368 205,958
======= =======
LIABILITIES
Accrued expenses and other liabilities..................... 5 3,671 7,037
Indebtedness............................................... 6 88,345 115,044
Provision for maintenance.................................. 7 6,469 12,946
Security deposits.......................................... 8 2,900 2,930
Deferred income tax........................................ 12 5,153 5,654
------- -------
TOTAL LIABILITIES.......................................... 106,538 143,611
NET ASSETS................................................. 97,830 62,347
======= =======
</TABLE>
The accompanying notes, including the statement of accounting policies on pages
F-34 to F-35, are an integral part of the financial statements.
F-30
<PAGE> 181
AERFI TRANSFERRED AIRCRAFT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOTES JUNE 30, 1998 JUNE 30, 1997
----- ------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C> <C>
REVENUES
Aircraft leasing........................................... 9 21,109 22,216
EXPENSES
Depreciation............................................... 3 (10,215) (9,261)
Provision for permanent diminution in value of aircraft.... 3 -- (4,000)
Net interest expense....................................... 10 (6,612) (10,144)
Other expenses............................................. 11 (4,804) (9,032)
------- -------
(21,631) (32,437)
------- -------
NET LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES........ (522) (10,221)
Benefit for taxes.......................................... 12 501 1,176
NET LOSS FOR THE YEAR...................................... (21) (9,045)
======= =======
</TABLE>
All recognised gains and losses are included in the statement of operations
above.
There is no material difference between the net loss for the year, and its
historical cost equivalent.
The results for the year are derived from continuing operations.
The accompanying notes, including the statement of accounting policies on pages
F-34 to F-35, are an integral part of the financial statements.
F-31
<PAGE> 182
AERFI TRANSFERRED AIRCRAFT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year....................................... (21) (9,045)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Depreciation charge for the year............................ 10,215 9,261
Provision for permanent diminution in value of aircraft..... -- 4,000
Amortisation................................................ -- 603
Deferred income tax......................................... (501) (1,176)
Changes in operating assets and liabilities
Accounts receivable and due from AerFi.................... 2,960 2,115
Accrued expenses and other liabilities.................... (3,366) 5,288
Net maintenance expenditure............................... (6,477) (2,702)
Net security deposits (repaid)/received................... (30) 1,080
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 2,780 9,424
------- -------
INVESTING ACTIVITIES
Purchase of aircraft........................................ (11,585) (203)
------- -------
FINANCING ACTIVITIES
Contributions from AerFi.................................... 35,504 28,456
Reduction in Indebtedness................................... (26,699) (37,677)
------- -------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES......... 8,805 (9,221)
------- -------
NET INCREASE IN CASH........................................ -- --
CASH AT BEGINNING OF YEAR................................... -- --
------- -------
CASH AT END OF YEAR......................................... -- --
======= =======
</TABLE>
Supplemental disclosure of cash flow information is set out in Note 14.
The accompanying notes, including the statement of accounting policies on pages
F-34 to F-35, are an integral part of the financial statements.
F-32
<PAGE> 183
AERFI TRANSFERRED AIRCRAFT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TOTAL
---------
U.S.$'000
<S> <C>
Balance at June 30, 1996.................................... 42,936
Net contributions from AerFi................................ 28,456
NET LOSS FOR THE YEAR....................................... (9,045)
------
Balance at June 30, 1997.................................... 62,347
Net contribution from AerFi................................. 35,504
NET LOSS FOR THE YEAR....................................... (21)
------
Balance at June 30, 1998.................................... 97,830
======
</TABLE>
The accompanying notes, including the statement of accounting policies on pages
F-34 to F-35, are an integral part of the financial statements.
F-33
<PAGE> 184
AERFI TRANSFERRED AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES
Introduction and basis of preparation
These financial statements present the statement of operations and the cash
flows for the year ended June 30, 1998 and June 30, 1997 and the statement of
net assets at June 30, 1998 and June 30, 1997 of the aircraft (the "AERFI
TRANSFERRED AIRCRAFT") acquired by AerCo from AerFi pursuant to a secured
financing transaction on July 15, 1998.
Under the transaction AerCo acquired all of the capital stock of ALPS 94-1,
a company which owns 25 aircraft and related leases, and also acquired 10
aircraft and related leases from AerFi. The further details of the Transaction
and of the basis of preparation of these financial statements for the AerFi
transferred aircraft are set out in Note 1.
The accounting policies followed in the preparation of the accompanying
financial statements conform with generally accepted accounting principles in
the United Kingdom and comply with financial reporting standards of the
Accounting Standards Board in the United Kingdom as promulgated by the Institute
of Chartered Accountants in England and Wales.
The financial statements are prepared on the going concern basis and under
the historic cost convention and are stated in US dollars, which is the
principal operating currency of the entity and of the aviation industry.
Revenue recognition
Revenue from aircraft on operating leases is recognised as income on a
straight line basis over the period of the leases. Where rentals are adjusted to
reflect increases or decreases in prevailing interest rates such adjustments are
accounted for as they arise. Lease rentals received in advance are deferred and
recognised over the period to which they relate.
Interest income
Interest earned during the year has been credited to the statement of
operations.
Provision for maintenance
Under the lease contracts the lessee has the obligation for maintenance
costs on airframes and engines which arise during the term of the lease and in
many lease contracts the lessee makes a full or partial prepayment, calculated
at an hourly rate, into a fund held by the entity from which maintenance
expenditures for major checks are disbursed. The balance of these funds are
included in the provision for maintenance.
Aircraft leasing costs incurred relating to the repair and return to
releaseable condition of aircraft following return from lessees are expensed as
incurred.
Taxation
Corporation tax is provided based on the results for the year. Deferred
income tax assets and liabilities recognize the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
F-34
<PAGE> 185
AERFI TRANSFERRED AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
Aircraft
Aircraft are stated at cost less accumulated depreciation less permanent
diminutions in value. Cost comprises the net purchase price of the aircraft when
originally acquired by AerFi.
Cost comprises the invoiced cost net of manufacturer's discounts.
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 15% of cost and for useful lives are as follows:
<TABLE>
<CAPTION>
YEARS FROM
----- ----
<S> <C> <C>
Refurbished and upgraded aircraft -- converted to
freighters................................................ 20 Conversion Date
All other aircraft.......................................... 25 Manufacture Date
</TABLE>
Where purchase option agreements exist to the benefit of the lessee,
aircraft are depreciated to the purchase option price on a straight-line basis
provided that this would result in a higher depreciation charge than that
arrived at by applying the standard method.
Additional charges are made to reduce the book value of specific assets to
fair market value where a permanent diminution in value is considered to have
occurred. Where fair market value is greater than book value no adjustment is
made.
Fair market value is assessed by the directors, consistent with the going
concern basis of preparation of the financial statements, and reflects the
underlying economic value of aircraft and 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. In forming their assessment of fair market value the directors
have taken into consideration independent valuations of aircraft in the
portfolio, together with the directors' assessment of aircrafts' current
maintenance status and maintenance reserves.
AerFi adopted FASB Statement No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be disposed of" as of July 1,
1996. FASB Statement No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the directors' estimated the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized. This
statement did not materially change the carrying value of the entity's assets in
the period when it was first applied or in previous periods.
New Accounting Standards not yet effective
The entity will be required to adopt the provisions of Financial Reporting
Standard No. 12 "Provisions, Contingent Liabilities and Contingent Assets" for
all financial periods ending on or after March 23, 1999. Management are
currently assessing the impact, if any, that this Standard will have on its
adoption by the entity.
F-35
<PAGE> 186
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
Under a refinancing transaction of July 15, 1998, AerCo acquired 100% of
the capital stock of ALPS 94-1 and thereby acquired 25 aircraft and related
leases and acquired directly or indirectly 10 aircraft and related leases from
AerFi (collectively the "AerFi transferred aircraft"). The Transaction was
effected by transferring ALPS 94-1 and subsidiaries and the existing AerFi
subsidiaries that own the AerFi transferred aircraft to AerCo.
Simultaneously with such transfers, AerCo issued approximately U.S.$800
million in aggregate principal amount of Notes in four subclasses: subclass A-1,
subclass A-2, subclass B-1 and subclass C-1 ("NOTES"). AerCo also issued two
additional subclasses of notes, the subclass D-1 Notes and the subclass E-1
Notes, which are initially held by AerFi. In addition, as part of the
Transaction a subsidiary of AerFi surrendered its holding of its existing Class
E Note of ALPS 94-1. AerCo used the proceeds of the issuance of the Notes, the
subclass D-1 Notes and subclass E-1 Notes to finance the repayment of all of
ALPS 94-1's existing financial indebtedness and to acquire or to finance the
acquisition by the Transferring Companies of the Transferring Aircraft from
AerFi.
These financial statements present, on the bases and assumptions set out
below, the results of operations, assets and liabilities relating to the
aircraft to be transferred to AerCo from AerFi, reflecting the nine aircraft
owned by AerFi during the year ended June 30, 1998 and the acquisition in April
1998 of the A300-B4-200 aircraft by AerFi from ALPS 94-1. The financial
statements have been prepared by AerFi Administrative Services Limited on behalf
of the directors of AerCo.
(i) The financial statements are presented on a historical cost basis as if
the AerFi transferred aircraft had been organized as single economic entity for
the year ended June 30, 1998 and June 30, 1997.
(ii) The Transaction is approved as planned and is completed such that
AerCo is a going concern with adequate capital and finance in place.
(iii) For the purposes of these financial statements, an allocation of
certain costs such as selling, general and administrative expenses of AerFi to
the AerFi transferred aircraft has been made. The most significant element of
these costs relate to aircraft management fees, substantially all of which are
asset based fees calculated as an annual percentage of a reference net book
value of aircraft under management. The balance of such costs have been
calculated based on AerFi's estimate of the other overhead costs incurred in
managing the fleet of aircraft for the year. Management believes that the basis
for these allocations are reasonable.
(iv) During the year two of the aircraft were financed by finance leases to
AerFi and one aircraft was financed by Notes issued by AerFi. For these aircraft
the financial lease obligations, the liabilities under the Notes and related
cash flows and interest costs are reflected in these financial statements.
In the case of the remaining aircraft, no separate identifiable financing
was in place. These aircraft are assumed to have been financed by intercompany
indebtedness to AerFi at levels based on the ratio of AerFi's overall net debt
to aircraft net book value of 74.9% at July 1, 1996, 51.87% at June 30, 1997 and
42.06% at June 30, 1998 and repayments to AerFi are assumed to have been made
accordingly during the year.
(v) The interest charged on the assumed indebtedness to AerFi is based on
AerFi's average cost of debt of 9.59% for the year ended June 30, 1998 and
10.06% for the year ended June 30, 1997.
(vi) Cash generated from or absorbed by the activities of the AerFi
transferred aircraft during the year is reflected through the intercompany
account as distributions to or transfers from AerFi. This includes
F-36
<PAGE> 187
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
1 BASIS OF PREPARATION (CONTINUED)
restricted cash held by AerFi with respect to AerFi transferred aircraft. No
separate cash balances existed for the AerFi transferred aircraft.
(vii) The tax provisions and deferred income tax assets and liabilities of
the AerFi transferred aircraft have been determined as if the aircraft had been
owned by taxable entities separate from AerFi.
2 ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Trade receivables........................................... 366 401
Non-trade receivables....................................... 406 413
--- ---
772 814
=== ===
</TABLE>
Trade receivables are stated net of bad debt provision of $0.6 million
(1997: $0.2 million) and comprise amounts in respect of rent and maintenance
payments due from lessees. As at June 30, 1998 one lessee accounted for 99% of
trade receivables. As at June 30, 1997 two lessees each accounted for 53% and
43% respectively of trade receivables.
Non-trade receivables comprise prepayments of French VAT.
3 AIRCRAFT
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
COST
Beginning of year........................................... 272,128 271,925
Additions during the year................................... 11,585 203
-------- -------
End of year................................................. 283,713 272,128
-------- -------
DEPRECIATION
Beginning of year........................................... (90,278) (81,017)
Charge for the year......................................... (10,215) (9,261)
-------- -------
End of year................................................. (100,493) (90,278)
-------- -------
Provision for permanent diminution in value................. (4,000) 4,000
-------- -------
NET BOOK VALUE
Beginning of year........................................... 177,850 190,908
-------- -------
End of year................................................. 179,220 177,850
-------- -------
</TABLE>
Cost represents the net purchase price of the aircraft when originally
acquired by AerFi.
The directors of AerCo determine on an annual basis whether a permanent
diminution in value of the AerFi transferred aircraft has occurred. Where a
permanent diminution in value is considered to have occurred provision is made
based upon market appraisals of the individual aircraft prepared by three
professional appraisal firms, together with other factors such as maintenance
reserves held by the entity, the creditworthiness of particular lessees, current
rental values compared to open market and the length of remaining lease term.
F-37
<PAGE> 188
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3 AIRCRAFT (CONTINUED)
In the year ended June 30, 1997, the directors made a provision of U.S.$4
million to reflect a permanent diminution in value against two F100 aircraft.
The directors arrived at such determination based on significant reductions of
values and lease rates for Fokker aircraft.
4 OPERATING LEASES
All the aircraft are held for operating lease. Rentals on certain of the
leases are variable in accordance with prevailing interest rates.
The following is a schedule of contracted future rentals, by years, on
operating leases as of June 30, 1998. The interest rates prevailing at June 30,
1998 have been applied in determining rentals that are variable in accordance
with prevailing interest rates.
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 U.S.$'000
- ------------------- ---------
<S> <C>
1999........................................................ 22,729
2000........................................................ 26,233
2001........................................................ 17,644
2002........................................................ 13,315
2003........................................................ 15,399
Thereafter.................................................. 9,704
-------
105,024
=======
</TABLE>
5 ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Accrued expenses and other liabilities comprise:
Deferred income.......................................... 839 925
Interest................................................. 50 54
Other accruals........................................... 2,782 6,058
----- -----
3,671 7,037
----- -----
----- -----
</TABLE>
6 INDEBTEDNESS
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Finance lease obligations(i)............................. 18,774 34,822
AerFi Notes(i)........................................... 20,993 22,577
Due to AerFi(ii)......................................... 48,578 57,645
------ --------
88,345 115,044
------ --------
------ --------
</TABLE>
The basis and assumptions under which indebtedness has been reflected in
these financial statements is set out in Note 1.
(i) The finance lease obligations and the AerFi Notes issued comprise the
amounts raised by AerFi to finance three of the AerFi transferred
aircraft. As part of the completion of the Transaction these amounts
will be repaid in full (and accordingly no future maturity analysis is
presented). The AerFi Notes are secured on one of the aircraft which has
a net book value of U.S.$25.1 million
F-38
<PAGE> 189
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
6 INDEBTEDNESS (CONTINUED)
(1997: U.S.$26.2 million) and the Notes carried interest at a rate of
7.21% (1997: 7.21%) during the financial year.
(ii) As explained in Note 1 it has been assumed that the remaining
aircraft had been financed with indebtedness due to AerFi.
(iii) Repayments of principal during the year on the finance lease
obligations and the AerFi Notes were in accordance with their respective
contractual terms. The repayments of principal on the aircraft which
were assumed to be financed by AerFi were assumed to be made in
accordance with changes in AerFi's aircraft net book value to net debt
ratio during the financial year.
7 PROVISION FOR MAINTENANCE
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Opening balance............................................. 12,946 15,647
Receivable during year...................................... 2,654 3,694
Expenditure................................................. (9,131) (6,395)
------ ------
Closing Balance............................................. 6,469 12,946
====== ======
Due within one year......................................... 743 6,575
Due after one year.......................................... 5,726 6,371
------ ------
6,469 12,946
====== ======
</TABLE>
8 SECURITY DEPOSITS
Security deposits received from lessees of U.S.$2.9 million (1997: U.S.$2.9
million) are held as security for obligations in accordance with the terms of
certain leases.
9 REVENUES AND CONCENTRATION OF CREDIT RISK
a) Distribution of revenues by geographic area
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------------- -------------------
U.S.$'000 % U.S.$'000 %
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Europe............................................. 12,950 61.36 13,845 62.32
North America...................................... 4,195 19.87 4,449 20.03
South/Central America.............................. 3,727 17.65 2,042 9.19
Asia/Pacific....................................... 237 1.12 1,880 8.46
------ ------ ------ ------
21,109 100.00 22,216 100.00
====== ====== ====== ======
</TABLE>
All revenues are derived from aircraft leasing.
b) Concentration of credit risk
Credit risk with respect to trade accounts receivable is generally
mitigated due to the number of lessees and their dispersal across different
geographic areas.
F-39
<PAGE> 190
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9 REVENUES AND CONCENTRATION OF CREDIT RISK (CONTINUED)
The entity manages its exposure to particular countries in part through
obtaining security from lessees by way of deposits, letters of credit and
guarantees. In addition the entity maintains Political Risk Insurance in respect
of certain lessees.
The entity continually evaluates the financial position of lessees and,
based on this evaluation, the amounts outstanding and the available security,
makes an appropriate provision for doubtful debts.
As at June 30, 1998, five lessees accounted for 18%, 16%, 15%, 15% and 14%
of the entity's lease revenues. No other lessee accounted for greater than 10%
of the entity's lease revenues for the year ended June 30, 1998.
As at June 30, 1997, four lessees accounted for 16%, 15%, 14% and 11% of
the entity's lease revenues. No other lessee accounted for greater than 10% of
the entity's lease revenues for the year ended June 30, 1997.
10 NET INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Interest payable on finance lease obligations............... 2,076 2,149
Interest payable on AerFi Notes............................. 1,596 1,665
Interest payable on indebtedness due to AerFi............... 4,902 7,461
Net interest income on amounts due from AerFi............... (1,962) (1,131)
------ ------
6,612 10,144
====== ======
</TABLE>
11 OTHER EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Servicer's fees............................................. 1,201 1,175
Aircraft leasing costs...................................... 3,348 6,723
Political risk insurance.................................... (145) 130
Administration fees......................................... 40 40
Legal and professional fees................................. 100 100
Deferred expenditure........................................ -- 604
Cash manager's fees......................................... 210 210
Audit and tax fees.......................................... 50 50
------ ------
4,804 9,032
====== ======
</TABLE>
Aircraft leasing costs include costs relating to the repair and return to
releasable condition of aircraft following return from lessees. Such costs
amounted to U.S.$4.6 million and U.S.$1.5 million in 1997 and 1998 respectively.
F-40
<PAGE> 191
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12 BENEFIT FOR TAXES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Tax benefit of the AerFi transferred aircraft consists of
the following:
Deferred income tax benefit................................. 501 1,176
------ ------
501 1,176
====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Deferred tax assets and liabilities of the AerFi transferred
aircraft:
Deferred tax assets relating to losses...................... (5,415) (2,665)
Deferred tax liability relating to aircraft................. 10,568 8,319
------ ------
5,153 5,654
====== ======
</TABLE>
The AerFi transferred aircraft's income from approved activities in Ireland
is taxable at a rate of 10% until December 31, 2005. US Federal and State tax is
provided at a rate of 35%.
Two aircraft, for tax purposes, are treated as being leased from third
parties under US "safe harbour lease" tax rules. Under existing laws, certain
events could reverse the cumulative effect of this tax treatment, in which case
the entity would be required to make payments to third parties under the tax
indemnification clauses included in the lease agreements. As of June 30, 1998
the maximum potential exposure under this provision is U.S.$0.9 million (1997:
U.S.$1.4M). The directors of AerCo believe that no events have taken place which
would cause such payments to become due.
13 STAFF COSTS AND NUMBERS
The entity has no employees.
14 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1998 1997
------------ ------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Cash paid in respect of:
Interest -- Individual financings........................... 4,902 7,461
Interest -- AerFi Notes..................................... 1,600 1,667
Interest -- Indebtedness to AerFi........................... 2,076 2,310
------------ ------------
8,578 11,438
============ ============
</TABLE>
15 COMMITMENTS
The entity has no long-term contracts other than those with its service
providers (see Note 19).
F-41
<PAGE> 192
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
16 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements are prepared in accordance with generally accepted
accounting principles applicable in the United Kingdom ('U.K. GAAP') which
differ significantly in certain respects from those generally accepted in the
United States ('U.S. GAAP'). There were no significant differences arising in
respect of the AerFi transferred aircraft for the year to June 30, 1998 and June
30, 1997.
17 FAIR VALUE OF FINANCIAL INSTRUMENTS
The entity estimates that the fair value of its cash and other receivables
and payables at June 30, 1998 and June 30, 1997 approximate to the amounts at
which these items are reflected in the entity's statement of net assets. This is
due to the relatively short-term nature of the instruments and the frequency at
which they reprice.
18 FOREIGN CURRENCY TRANSACTIONS
The entity's foreign currency transactions are not significant as all
revenues and most costs are denominated in U.S. dollars.
19 RELATED PARTY TRANSACTIONS
GE Capital Aviation Services Limited (GECAS)
During the year GECAS acted as lease manager for AerFi transferred
aircraft. In addition to managing the entity's aircraft GECAS also manages
aircraft owned by GE Capital and its affiliates and other third parties,
including AerFi. GECAS may from time to time have conflicts of interest in
performing its obligations to the entity and other entities to which it provides
management, marketing and other services.
GECAS receives an annual fee from AerFi as lease manager of certain of its
aircraft -- U.S.$1,201,000 (1997: U.S.$1,175,000) of this fee is attributed to
these aircraft for the year ended June 30, 1998.
F-42
<PAGE> 193
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AERCO LIMITED ("AERCO")
We have audited the accompanying balance sheet of AerCo as at June 30, 1998
which has been prepared under the historical cost convention and the basis of
accounting set out on page F-44.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The directors of AerCo are required to prepare financial statements for
each financial period which give a true and fair view of the state of affairs of
AerCo and of the results of AerCo for that period. In preparing those financial
statements, the directors are required to select suitable accounting policies
and then apply them consistently, make judgements and estimates that are prudent
and reasonable and to prepare the financial statements on the going concern
basis unless it is not appropriate to assume that AerCo will continue in
business. The directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial position of
AerCo and which enable them to ensure that the statutory financial statements
comply with the Companies (Jersey) Law 1991. They are also responsible for
safeguarding the assets of AerCo and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
It is our responsibility to form an independent opinion, based on our
audit, on those financial statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
U.K. Auditing Practices Board which do not differ significantly from U.S.
generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgements made by the directors in
the preparation of the financial statements and of whether the accounting
policies are appropriate to the circumstances of AerCo, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of AerCo as at June 30, 1998 and have been properly prepared in
accordance with generally accepted accounting principles in the United Kingdom
and the United States.
KPMG
CHARTERED ACCOUNTANTS
5 George's Dock
IFSC
Dublin 1
Ireland
March 8, 1999
F-43
<PAGE> 194
AERCO LIMITED
BALANCE SHEET
<TABLE>
<CAPTION>
AS AT
NOTES JUNE 30, 1998
----- -------------
US$
<S> <C> <C>
CURRENT ASSETS
Share capital receivable.................................... 20
------
CAPITAL RESERVES
Called up share capital..................................... 2 20
------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF ACCOUNTING
The company was incorporated on June 4, 1998 and had not conducted business
or entered into contracts at June 30, 1998 and accordingly no profit or loss
account or cash flow statement has been prepared. The financial statements have
been prepared under the historical cost convention and in accordance with
generally accepted accounting principles in the United Kingdom and the United
States.
2. SHARE CAPITAL US$
<TABLE>
<S> <C> <C>
AUTHORISED
10,000 ordinary shares of US$1 each........................... 10,000
ISSUED AND OUTSTANDING
20 ordinary shares of US$1 each............................... 20
-- ------
</TABLE>
3. BENEFICIAL OWNERSHIP
The ultimate beneficial owner is AerCo Holding Trust, a Jersey charitable
trust as to 95% of the issued share capital and AerFi Group as to 5% of the
issued share capital.
F-44
<PAGE> 195
APPENDIX 1
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Adjusted Portfolio Value........... 96
AerFi transferred aircraft......... 11
AerFi transferred companies........ 31
Assumed Portfolio Value............ 95
Charitable Trust................... 29
Excess Amortization Date........... 98
Extended Pool Factor............... 97
GECAS.............................. 29
Initial Appraised Value............ 95
Minimum Class Percentage........... 95
Minimum Principal Payment Amount... 95
Minimum Target Principal Balance... 95
Nominees........................... 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Plans.............................. 145
Pool Factor........................ 97
PTCE............................... 145
Scheduled Class Percentage......... 96
Scheduled Principal Payment
Amount........................... 96
Scheduled Target Principal
Balance.......................... 96
Supplemental Class Percentage...... 97
Supplemental Principal Payment
Amount........................... 97
Supplemental Target Principal
Balance.......................... 97
U.S. Holder........................ 139
United States Holder............... 143
</TABLE>
A-1
<PAGE> 196
APPENDIX 2
AIRCRAFT TYPES DATA(1)
<TABLE>
<CAPTION>
NO. & STAGE 3
NARROW/ MFR. OF NOISE CURRENT ON NO. OF
TYPE & VARIANT WIDEBODY TYPICAL SEATS ENGINES COMPLIANCE PROD. YEARS FLEET ORDER OPERATORS
- -------------- -------- ------------- ------------ ---------- ----------- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Airbus A300-B4................. Wide 250 2 X GE/PW Yes 1975-88 129 0 30
Airbus A320-200................ Narrow 150 2 X CFM/IAE Yes 1988- 553 166 60
Boeing 737-300................. Narrow 130 2 X CFM Yes 1984- 971 54 89
Boeing 737-400................. Narrow 150 2 X CFM Yes 1988- 421 28 53
Boeing 737-500................. Narrow 110 2 X CFM Yes 1990- 330 37 36
Boeing 747-200................. Wide 370 4 X GE/PW/RR Yes 1970-89 397 0 69
Boeing 757-200................. Narrow 180 2 X RR/PW Yes 1982- 758 91 68
Boeing 767-300ER............... Wide 250 2 X GE/PW/RR Yes 1988- 340 61 51
MDC MD83(2).................... Narrow 150 2 X PW Yes 1984- 246 0 31
MDC DC8-70F.................... Narrow -- 4 X CFM Yes Conversions 101 0 12
Fokker 100..................... Narrow 100 2 X RR Yes 1988-96 258 0 26
</TABLE>
- ---------------
(1) Data is at April 30, 1998.
(2) Boeing has announced that production of these aircraft types is expected to
end in 1999.
A-2
<PAGE> 197
APPENDIX 3
MONTHLY GROSS REVENUES BASED ON THE ASSUMPTIONS
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
August 1998.............. 8,266,830
September 1998........... 9,570,151
October 1998............. 10,352,892
November 1998............ 9,571,995
December 1998............ 9,560,995
January 1999............. 10,217,795
February 1999............ 9,452,240
March 1999............... 10,295,540
April 1999............... 10,218,280
May 1999................. 9,484,193
June 1999................ 9,534,193
July 1999................ 10,299,993
August 1999.............. 9,534,068
September 1999........... 9,553,596
October 1999............. 10,319,638
November 1999............ 9,531,369
December 1999............ 9,531,369
January 2000............. 9,788,333
February 2000............ 9,788,333
March 2000............... 9,788,333
April 2000............... 9,788,036
May 2000................. 9,789,642
June 2000................ 9,779,642
July 2000................ 9,779,642
August 2000.............. 9,779,642
September 2000........... 9,779,642
October 2000............. 9,779,642
November 2000............ 9,781,245
December 2000............ 9,781,245
January 2001............. 9,780,252
February 2001............ 9,780,252
March 2001............... 9,780,252
April 2001............... 9,780,252
May 2001................. 9,781,854
June 2001................ 9,767,665
July 2001................ 9,767,665
August 2001.............. 9,767,665
September 2001........... 9,767,665
October 2001............. 9,767,665
November 2001............ 9,769,272
December 2001............ 9,769,272
January 2002............. 9,769,272
February 2002............ 9,769,272
March 2002............... 9,769,272
April 2002............... 9,769,272
May 2002................. 9,770,875
June 2002................ 9,770,875
July 2002................ 9,770,875
August 2002.............. 9,770,875
September 2002........... 9,765,060
October 2002............. 9,765,060
November 2002............ 9,766,662
December 2002............ 9,766,662
January 2003............. 9,766,662
February 2003............ 9,766,662
</TABLE>
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
March 2003............... 9,766,662
April 2003............... 9,759,239
May 2003................. 9,759,239
June 2003................ 9,759,239
July 2003................ 9,759,239
August 2003.............. 9,669,650
September 2003........... 9,669,650
October 2003............. 9,669,650
November 2003............ 9,669,650
December 2003............ 9,669,650
January 2004............. 9,669,650
February 2004............ 9,669,650
March 2004............... 9,669,650
April 2004............... 9,553,544
May 2004................. 9,552,272
June 2004................ 9,552,272
July 2004................ 9,552,272
August 2004.............. 9,551,836
September 2004........... 9,551,836
October 2004............. 9,551,836
November 2004............ 9,550,505
December 2004............ 9,550,505
January 2005............. 9,550,505
February 2005............ 9,550,505
March 2005............... 9,550,505
April 2005............... 9,548,787
May 2005................. 9,548,787
June 2005................ 9,548,787
July 2005................ 9,548,787
August 2005.............. 9,548,787
September 2005........... 9,548,787
October 2005............. 9,548,787
November 2005............ 9,548,787
December 2005............ 9,548,787
January 2006............. 9,536,623
February 2006............ 9,536,623
March 2006............... 9,534,823
April 2006............... 9,527,527
May 2006................. 9,489,093
June 2006................ 9,448,220
July 2006................ 9,448,220
August 2006.............. 9,448,220
September 2006........... 9,448,220
October 2006............. 9,448,220
November 2006............ 9,448,220
December 2006............ 9,448,220
January 2007............. 9,448,220
February 2007............ 9,448,220
March 2007............... 9,448,220
April 2007............... 9,448,220
May 2007................. 9,448,220
June 2007................ 9,440,120
July 2007................ 9,438,444
August 2007.............. 9,438,444
September 2007........... 9,435,575
</TABLE>
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
October 2007............. 9,435,575
November 2007............ 9,364,232
December 2007............ 9,347,271
January 2008............. 9,334,624
February 2008............ 9,334,624
March 2008............... 9,334,624
April 2008............... 9,329,576
May 2008................. 9,329,576
June 2008................ 9,308,134
July 2008................ 9,308,134
August 2008.............. 9,022,681
September 2008........... 8,996,014
October 2008............. 8,980,884
November 2008............ 8,980,884
December 2008............ 8,980,884
January 2009............. 8,953,777
February 2009............ 8,950,139
March 2009............... 8,950,139
April 2009............... 8,646,352
May 2009................. 8,589,123
June 2009................ 8,589,123
July 2009................ 8,549,622
August 2009.............. 8,471,080
September 2009........... 8,391,928
October 2009............. 8,391,928
November 2009............ 8,259,471
December 2009............ 8,259,471
January 2010............. 8,219,213
February 2010............ 8,219,213
March 2010............... 8,219,213
April 2010............... 7,912,796
May 2010................. 7,873,573
June 2010................ 7,873,573
July 2010................ 7,873,573
August 2010.............. 7,873,573
September 2010........... 7,873,573
October 2010............. 7,873,573
November 2010............ 7,873,573
December 2010............ 7,873,573
January 2011............. 7,818,835
February 2011............ 7,818,835
March 2011............... 7,737,835
April 2011............... 7,550,213
May 2011................. 7,468,824
June 2011................ 7,398,886
July 2011................ 7,398,886
August 2011.............. 7,398,886
September 2011........... 7,398,886
October 2011............. 7,398,886
November 2011............ 7,398,886
December 2011............ 7,398,886
January 2012............. 7,398,886
February 2012............ 7,398,886
March 2012............... 7,398,886
April 2012............... 7,398,886
</TABLE>
A-3
<PAGE> 198
MONTHLY GROSS REVENUES BASED ON THE ASSUMPTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
May 2012................. 7,398,886
June 2012................ 7,346,814
July 2012................ 7,271,394
August 2012.............. 7,271,394
September 2012........... 7,142,264
October 2012............. 7,142,264
November 2012............ 7,055,496
December 2012............ 6,972,980
January 2013............. 6,891,680
February 2013............ 6,891,680
March 2013............... 6,891,680
April 2013............... 6,761,879
May 2013................. 6,761,879
June 2013................ 6,704,272
July 2013................ 6,704,272
August 2013.............. 6,704,272
September 2013........... 6,584,272
October 2013............. 6,504,172
November 2013............ 6,504,172
December 2013............ 6,504,172
January 2014............. 6,439,972
February 2014............ 6,346,426
March 2014............... 6,346,426
April 2014............... 6,181,480
May 2014................. 6,049,220
June 2014................ 6,049,220
July 2014................ 5,951,818
August 2014.............. 5,768,990
September 2014........... 5,591,769
October 2014............. 5,591,769
November 2014............ 5,373,241
December 2014............ 5,373,241
January 2015............. 5,296,152
February 2015............ 5,296,152
March 2015............... 5,296,152
April 2015............... 4,838,833
May 2015................. 4,752,733
June 2015................ 4,752,733
July 2015................ 4,752,733
August 2015.............. 4,752,733
September 2015........... 4,752,733
October 2015............. 4,752,733
November 2015............ 4,752,733
December 2015............ 4,752,733
January 2016............. 4,637,175
</TABLE>
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
February 2016............ 4,637,175
March 2016............... 4,449,975
April 2016............... 4,019,487
May 2016................. 3,868,014
June 2016................ 3,868,014
July 2016................ 3,868,014
August 2016.............. 3,868,014
September 2016........... 3,868,014
October 2016............. 3,868,014
November 2016............ 3,868,014
December 2016............ 3,868,014
January 2017............. 3,868,014
February 2017............ 3,868,014
March 2017............... 3,868,014
April 2017............... 3,868,014
May 2017................. 3,868,014
June 2017................ 3,754,612
July 2017................ 3,580,308
August 2017.............. 3,580,308
September 2017........... 3,281,874
October 2017............. 3,281,874
November 2017............ 3,150,758
December 2017............ 2,975,183
January 2018............. 2,798,130
February 2018............ 2,798,130
March 2018............... 2,798,130
April 2018............... 2,500,307
May 2018................. 2,500,307
June 2018................ 2,387,333
July 2018................ 2,387,333
August 2018.............. 2,387,333
September 2018........... 2,134,000
October 2018............. 1,962,230
November 2018............ 1,962,230
December 2018............ 1,962,230
January 2019............. 1,839,537
February 2019............ 1,624,901
March 2019............... 1,624,901
April 2019............... 1,358,922
May 2019................. 1,358,922
June 2019................ 1,358,922
July 2019................ 1,171,153
August 2019.............. 1,171,153
September 2019........... 836,791
October 2019............. 836,791
</TABLE>
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
November 2019............ 722,349
December 2019............ 722,349
January 2020............. 582,732
February 2020............ 582,732
March 2020............... 582,732
April 2020............... 161,677
May 2020................. 0
June 2020................ 0
July 2020................ 0
August 2020.............. 0
September 2020........... 0
October 2020............. 0
November 2020............ 0
December 2020............ 0
January 2021............. 0
February 2021............ 0
March 2021............... 0
April 2021............... 0
May 2021................. 0
June 2021................ 0
July 2021................ 0
August 2021.............. 0
September 2021........... 0
October 2021............. 0
November 2021............ 0
December 2021............ 0
January 2022............. 0
February 2022............ 0
March 2022............... 0
April 2022............... 0
May 2022................. 0
June 2022................ 0
July 2022................ 0
August 2022.............. 0
September 2022........... 0
October 2022............. 0
November 2022............ 0
December 2022............ 0
January 2023............. 0
February 2023............ 0
March 2023............... 0
April 2023............... 0
May 2023................. 0
June 2023................ 0
July 2023................ 0
</TABLE>
A-4
<PAGE> 199
APPENDIX 4
ASSUMED PORTFOLIO VALUES FOR THE INITIAL PORTFOLIO
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
Closing............... 951.97
August 1998........... 949.16
September 1998........ 945.90
October 1998.......... 942.63
November 1998......... 939.35
December 1998......... 936.05
January 1999.......... 932.74
February 1999......... 929.41
March 1999............ 926.07
April 1999............ 922.72
May 1999.............. 919.35
June 1999............. 915.97
July 1999............. 912.58
August 1999........... 909.17
September 1999........ 905.75
October 1999.......... 902.32
November 1999......... 898.87
December 1999......... 895.41
January 2000.......... 891.93
February 2000......... 888.44
March 2000............ 884.94
April 2000............ 881.42
May 2000.............. 877.89
June 2000............. 874.34
July 2000............. 870.78
August 2000........... 867.21
September 2000........ 863.62
October 2000.......... 860.02
November 2000......... 856.40
December 2000......... 852.77
January 2001.......... 849.13
February 2001......... 845.47
March 2001............ 841.79
April 2001............ 838.10
May 2001.............. 834.40
June 2001............. 830.68
July 2001............. 826.95
August 2001........... 823.20
September 2001........ 819.44
October 2001.......... 815.67
November 2001......... 811.87
December 2001......... 808.07
January 2002.......... 804.25
February 2002......... 800.41
March 2002............ 796.56
April 2002............ 792.70
May 2002.............. 788.82
June 2002............. 784.92
July 2002............. 781.01
August 2002........... 777.09
September 2002........ 773.15
October 2002.......... 769.19
November 2002......... 765.22
December 2002......... 761.24
January 2003.......... 757.24
</TABLE>
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
February 2003......... 753.22
March 2003............ 749.19
April 2003............ 745.14
May 2003.............. 741.08
June 2003............. 737.00
July 2003............. 732.91
August 2003........... 728.80
September 2003........ 724.68
October 2003.......... 720.54
November 2003......... 716.38
December 2003......... 712.21
January 2004.......... 708.02
February 2004......... 703.82
March 2004............ 699.60
April 2004............ 695.37
May 2004.............. 691.12
June 2004............. 686.85
July 2004............. 682.57
August 2004........... 678.27
September 2004........ 673.96
October 2004.......... 669.63
November 2004......... 665.28
December 2004......... 660.92
January 2005.......... 656.54
February 2005......... 652.14
March 2005............ 647.73
April 2005............ 643.30
May 2005.............. 638.86
June 2005............. 634.40
July 2005............. 629.92
August 2005........... 625.43
September 2005........ 620.92
October 2005.......... 616.39
November 2005......... 611.85
December 2005......... 607.29
January 2006.......... 602.71
February 2006......... 598.12
March 2006............ 593.57
April 2006............ 589.15
May 2006.............. 584.71
June 2006............. 580.25
July 2006............. 575.78
August 2006........... 571.29
September 2006........ 566.79
October 2006.......... 562.39
November 2006......... 558.23
December 2006......... 554.05
January 2007.......... 549.85
February 2007......... 545.64
March 2007............ 541.42
April 2007............ 537.18
May 2007.............. 532.92
June 2007............. 528.65
July 2007............. 524.36
August 2007........... 520.06
</TABLE>
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
September 2007........ 515.74
October 2007.......... 511.41
November 2007......... 507.06
December 2007......... 502.69
January 2008.......... 498.31
February 2008......... 493.92
March 2008............ 489.50
April 2008............ 485.13
May 2008.............. 480.90
June 2008............. 476.74
July 2008............. 472.57
August 2008........... 468.39
September 2008........ 464.19
October 2008.......... 459.97
November 2008......... 455.74
December 2008......... 451.49
January 2009.......... 447.23
February 2009......... 442.96
March 2009............ 438.66
April 2009............ 434.36
May 2009.............. 430.03
June 2009............. 425.69
July 2009............. 421.34
August 2009........... 416.97
September 2009........ 412.59
October 2009.......... 408.19
November 2009......... 403.77
December 2009......... 399.34
January 2010.......... 394.89
February 2010......... 390.43
March 2010............ 385.95
April 2010............ 381.45
May 2010.............. 376.94
June 2010............. 372.41
July 2010............. 367.87
August 2010........... 363.31
September 2010........ 358.74
October 2010.......... 354.15
November 2010......... 349.54
December 2010......... 344.92
January 2011.......... 340.28
February 2011......... 335.62
March 2011............ 330.95
April 2011............ 326.26
May 2011.............. 321.55
June 2011............. 316.83
July 2011............. 312.10
August 2011........... 307.34
September 2011........ 302.57
October 2011.......... 297.78
November 2011......... 292.98
December 2011......... 288.16
January 2012.......... 283.32
February 2012......... 278.47
March 2012............ 273.59
</TABLE>
A-5
<PAGE> 200
ASSUMED PORTFOLIO VALUES FOR THE INITIAL PORTFOLIO -- (CONTINUED)
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
April 2012............ 268.71
May 2012.............. 263.80
June 2012............. 258.88
July 2012............. 253.94
August 2012........... 248.99
September 2012........ 244.01
October 2012.......... 239.02
November 2012......... 234.02
December 2012......... 228.99
January 2013.......... 223.95
February 2013......... 218.89
March 2013............ 213.81
April 2013............ 208.72
May 2013.............. 203.61
June 2013............. 198.48
July 2013............. 193.34
August 2013........... 188.17
September 2013........ 182.99
October 2013.......... 177.85
November 2013......... 172.82
December 2013......... 167.76
January 2014.......... 162.75
February 2014......... 157.84
March 2014............ 152.92
April 2014............ 148.03
May 2014.............. 143.23
June 2014............. 138.41
July 2014............. 133.58
August 2014........... 128.78
September 2014........ 124.07
October 2014.......... 119.39
November 2014......... 114.79
December 2014......... 110.22
January 2015.......... 105.69
February 2015......... 101.21
March 2015............ 96.90
April 2015............ 92.67
May 2015.............. 88.48
June 2015............. 84.40
July 2015............. 80.31
August 2015........... 76.20
September 2015........ 72.08
October 2015.......... 67.94
November 2015......... 63.80
December 2015......... 59.63
January 2016.......... 55.46
</TABLE>
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
February 2016......... 51.47
March 2016............ 48.06
April 2016............ 45.08
May 2016.............. 42.21
June 2016............. 39.32
July 2016............. 36.42
August 2016........... 33.59
September 2016........ 30.92
October 2016.......... 28.32
November 2016......... 25.71
December 2016......... 23.14
January 2017.......... 20.66
February 2017......... 18.17
March 2017............ 15.68
April 2017............ 13.28
May 2017.............. 11.08
June 2017............. 9.03
July 2017............. 7.41
August 2017........... 6.21
September 2017........ 5.35
October 2017.......... 4.50
November 2017......... 3.70
December 2017......... 3.04
January 2018.......... 2.38
February 2018......... 1.87
March 2018............ 1.68
April 2018............ 1.49
May 2018.............. 1.30
June 2018............. 1.10
July 2018............. 0.91
August 2018........... 0.72
September 2018........ 0.52
October 2018.......... 0.33
November 2018......... 0.13
December 2018......... 0.00
January 2019.......... 0.00
February 2019......... 0.00
March 2019............ 0.00
April 2019............ 0.00
May 2019.............. 0.00
June 2019............. 0.00
July 2019............. 0.00
August 2019........... 0.00
September 2019........ 0.00
October 2019.......... 0.00
</TABLE>
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
November 2019......... 0.00
December 2019......... 0.00
January 2020.......... 0.00
February 2020......... 0.00
March 2020............ 0.00
April 2020............ 0.00
May 2020.............. 0.00
June 2020............. 0.00
July 2020............. 0.00
August 2020........... 0.00
September 2020........ 0.00
October 2020.......... 0.00
November 2020......... 0.00
December 2020......... 0.00
January 2021.......... 0.00
February 2021......... 0.00
March 2021............ 0.00
April 2021............ 0.00
May 2021.............. 0.00
June 2021............. 0.00
July 2021............. 0.00
August 2021........... 0.00
September 2021........ 0.00
October 2021.......... 0.00
November 2021......... 0.00
December 2021......... 0.00
January 2022.......... 0.00
February 2022......... 0.00
March 2022............ 0.00
April 2022............ 0.00
May 2022.............. 0.00
June 2022............. 0.00
July 2022............. 0.00
August 2022........... 0.00
September 2022........ 0.00
October 2022.......... 0.00
November 2022......... 0.00
December 2022......... 0.00
January 2023.......... 0.00
February 2023......... 0.00
March 2023............ 0.00
April 2023............ 0.00
May 2023.............. 0.00
June 2023............. 0.00
July 2023............. 0.00
</TABLE>
A-6
<PAGE> 201
APPENDIX 5
CLASS A CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
Closing.............. 66.31% 66.31% 66.31%
August 1998.......... 66.31% 66.31% 65.69%
September 1998....... 66.31% 66.31% 65.64%
October 1998......... 66.31% 66.31% 65.50%
November 1998........ 66.31% 66.31% 65.45%
December 1998........ 66.31% 66.31% 65.39%
January 1999......... 66.31% 66.31% 65.27%
February 1999........ 66.31% 66.31% 65.22%
March 1999........... 66.30% 66.30% 65.05%
April 1999........... 66.30% 66.30% 64.93%
May 1999............. 66.30% 66.30% 64.96%
June 1999............ 66.30% 66.30% 64.90%
July 1999............ 66.30% 66.29% 64.76%
August 1999.......... 66.29% 66.29% 64.70%
September 1999....... 66.29% 66.29% 64.64%
October 1999......... 66.28% 66.28% 64.49%
November 1999........ 66.28% 66.28% 64.44%
December 1999........ 66.27% 66.27% 64.36%
January 2000......... 66.27% 66.27% 64.28%
February 2000........ 66.26% 66.26% 64.19%
March 2000........... 66.26% 66.25% 64.07%
April 2000........... 66.25% 66.24% 63.99%
May 2000............. 66.24% 66.23% 64.01%
June 2000............ 66.23% 66.22% 63.92%
July 2000............ 66.22% 66.21% 63.82%
August 2000.......... 66.21% 66.20% 63.72%
September 2000....... 66.20% 66.19% 63.63%
October 2000......... 66.19% 66.18% 63.53%
November 2000........ 66.18% 66.16% 63.44%
December 2000........ 66.16% 66.15% 63.33%
January 2001......... 66.15% 66.13% 63.23%
February 2001........ 66.13% 66.11% 63.14%
March 2001........... 66.12% 66.09% 63.00%
April 2001........... 66.10% 66.07% 62.90%
May 2001............. 66.08% 66.05% 62.92%
June 2001............ 66.06% 66.03% 62.82%
July 2001............ 66.04% 66.01% 62.72%
August 2001.......... 66.02% 65.99% 62.62%
September 2001....... 66.00% 65.96% 62.52%
October 2001......... 65.98% 65.93% 62.40%
November 2001........ 65.95% 65.90% 62.30%
December 2001........ 65.93% 65.88% 62.18%
January 2002......... 65.90% 65.84% 62.08%
February 2002........ 65.87% 65.81% 61.97%
March 2002........... 65.85% 65.78% 61.82%
April 2002........... 65.82% 65.74% 61.70%
May 2002............. 65.78% 65.71% 61.71%
June 2002............ 65.75% 65.67% 61.60%
July 2002............ 65.72% 65.63% 61.46%
August 2002.......... 65.68% 65.59% 61.35%
September 2002....... 65.65% 65.55% 61.23%
October 2002......... 65.61% 65.50% 61.10%
November 2002........ 65.57% 65.46% 60.98%
December 2002........ 65.53% 65.41% 60.84%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
January 2003......... 65.49% 65.36% 60.72%
February 2003........ 65.45% 65.31% 60.59%
March 2003........... 65.41% 65.26% 60.42%
April 2003........... 65.36% 65.20% 60.30%
May 2003............. 65.31% 65.15% 60.30%
June 2003............ 65.27% 65.09% 60.17%
July 2003............ 65.22% 65.03% 60.03%
August 2003.......... 65.16% 64.97% 59.90%
September 2003....... 65.11% 64.90% 59.78%
October 2003......... 65.06% 64.84% 59.64%
November 2003........ 65.00% 64.77% 59.50%
December 2003........ 64.94% 64.70% 59.36%
January 2004......... 64.89% 64.63% 59.23%
February 2004........ 64.82% 64.56% 59.09%
March 2004........... 64.76% 64.48% 58.92%
April 2004........... 64.70% 64.40% 58.79%
May 2004............. 64.63% 64.32% 58.80%
June 2004............ 64.57% 64.24% 58.67%
July 2004............ 64.50% 64.16% 58.52%
August 2004.......... 64.43% 64.07% 58.38%
September 2004....... 64.35% 63.98% 58.25%
October 2004......... 64.28% 63.89% 58.09%
November 2004........ 64.20% 63.80% 57.94%
December 2004........ 64.13% 63.70% 57.79%
January 2005......... 64.05% 63.61% 57.64%
February 2005........ 63.97% 63.51% 57.49%
March 2005........... 63.88% 63.41% 57.30%
April 2005........... 63.80% 63.30% 57.14%
May 2005............. 63.71% 63.19% 57.12%
June 2005............ 63.62% 63.08% 56.96%
July 2005............ 63.53% 62.97% 56.78%
August 2005.......... 63.44% 62.86% 56.61%
September 2005....... 63.35% 62.74% 56.44%
October 2005......... 63.25% 62.62% 56.24%
November 2005........ 63.15% 62.50% 56.05%
December 2005........ 63.05% 62.38% 55.84%
January 2006......... 62.95% 62.25% 55.65%
February 2006........ 62.84% 62.12% 55.45%
March 2006........... 62.74% 61.99% 55.21%
April 2006........... 62.63% 61.85% 54.98%
May 2006............. 62.52% 61.71% 54.91%
June 2006............ 62.40% 61.57% 54.69%
July 2006............ 62.29% 61.43% 54.45%
August 2006.......... 62.17% 61.28% 54.21%
September 2006....... 62.05% 61.13% 53.97%
October 2006......... 61.93% 60.98% 53.70%
November 2006........ 61.81% 60.83% 53.40%
December 2006........ 61.68% 60.67% 50.87%
January 2007......... 61.55% 60.51% 50.55%
February 2007........ 61.42% 60.35% 50.22%
March 2007........... 61.29% 60.18% 49.89%
April 2007........... 61.16% 60.01% 49.56%
May 2007............. 61.02% 59.84% 49.22%
June 2007............ 60.88% 59.66% 48.88%
</TABLE>
A-7
<PAGE> 202
CLASS A CLASS PERCENTAGES -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
July 2007............ 60.74% 59.48% 48.54%
August 2007.......... 60.59% 59.30% 48.19%
September 2007....... 60.45% 59.12% 47.83%
October 2007......... 60.30% 58.93% 47.48%
November 2007........ 60.15% 58.74% 47.12%
December 2007........ 59.99% 58.55% 46.75%
January 2008......... 59.84% 58.35% 46.39%
February 2008........ 59.68% 58.15% 46.02%
March 2008........... 59.52% 57.94% 45.64%
April 2008........... 59.36% 57.74% 45.26%
May 2008............. 59.19% 57.53% 44.88%
June 2008............ 59.02% 57.31% 44.49%
July 2008............ 58.85% 57.10% 44.10%
August 2008.......... 58.68% 56.88% 43.71%
September 2008....... 58.50% 56.65% 43.31%
October 2008......... 58.32% 56.43% 42.91%
November 2008........ 58.14% 56.20% 42.50%
December 2008........ 57.96% 55.96% 42.09%
January 2009......... 57.77% 55.72% 41.68%
February 2009........ 57.58% 55.48% 41.26%
March 2009........... 57.39% 55.24% 40.84%
April 2009........... 57.19% 54.99% 40.41%
May 2009............. 57.00% 54.74% 39.98%
June 2009............ 56.80% 54.48% 39.55%
July 2009............ 56.60% 54.22% 39.11%
August 2009.......... 56.39% 53.96% 38.67%
September 2009....... 56.18% 53.70% 38.23%
October 2009......... 55.97% 53.43% 37.78%
November 2009........ 55.76% 53.15% 37.32%
December 2009........ 55.54% 52.88% 36.87%
January 2010......... 55.32% 52.59% 36.41%
February 2010........ 55.10% 52.31% 35.94%
March 2010........... 54.88% 52.02% 35.48%
April 2010........... 54.65% 51.73% 35.00%
May 2010............. 54.42% 51.43% 34.53%
June 2010............ 54.18% 51.13% 34.05%
July 2010............ 53.95% 50.83% 33.56%
August 2010.......... 53.71% 50.52% 33.07%
September 2010....... 53.47% 50.21% 32.58%
October 2010......... 53.22% 49.89% 32.09%
November 2010........ 52.97% 49.57% 31.59%
December 2010........ 52.72% 49.25% 31.08%
January 2011......... 52.47% 48.92% 30.57%
February 2011........ 52.21% 48.59% 30.06%
March 2011........... 51.95% 48.25% 29.55%
April 2011........... 51.69% 47.91% 29.03%
May 2011............. 51.42% 47.57% 28.50%
June 2011............ 51.15% 47.22% 27.97%
July 2011............ 50.88% 46.86% 27.44%
August 2011.......... 50.60% 46.51% 26.91%
September 2011....... 50.32% 46.15% 26.37%
October 2011......... 50.04% 45.78% 25.82%
November 2011........ 49.76% 45.41% 25.27%
December 2011........ 49.47% 45.04% 24.72%
January 2012......... 49.18% 44.66% 24.17%
February 2012........ 48.88% 44.27% 23.61%
March 2012........... 48.58% 43.89% 23.04%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
April 2012........... 48.28% 43.50% 22.47%
May 2012............. 47.98% 43.10% 21.90%
June 2012............ 47.67% 42.70% 21.32%
July 2012............ 47.36% 42.30% 20.74%
August 2012.......... 47.04% 41.89% 20.16%
September 2012....... 46.73% 41.47% 19.57%
October 2012......... 46.41% 41.05% 18.98%
November 2012........ 46.08% 40.63% 18.38%
December 2012........ 45.75% 40.20% 17.78%
January 2013......... 45.42% 39.77% 17.18%
February 2013........ 45.09% 39.33% 16.57%
March 2013........... 44.75% 38.89% 15.95%
April 2013........... 44.41% 38.45% 15.34%
May 2013............. 44.07% 38.00% 14.71%
June 2013............ 43.72% 37.54% 14.09%
July 2013............ 43.37% 37.08% 13.46%
August 2013.......... 43.01% 36.62% 12.83%
September 2013....... 42.65% 36.15% 12.19%
October 2013......... 42.29% 35.67% 11.25%
November 2013........ 41.93% 35.19% 9.85%
December 2013........ 41.56% 34.71% 8.37%
January 2014......... 41.18% 34.22% 6.81%
February 2014........ 40.81% 33.73% 5.18%
March 2014........... 40.43% 33.23% 3.43%
April 2014........... 40.05% 32.73% 1.65%
May 2014............. 39.66% 32.22% 0.00%
June 2014............ 39.27% 31.70% 0.00%
July 2014............ 38.87% 31.19% 0.00%
August 2014.......... 38.48% 30.66% 0.00%
September 2014....... 38.07% 30.13% 0.00%
October 2014......... 37.67% 29.60% 0.00%
November 2014........ 37.26% 29.06% 0.00%
December 2014........ 36.85% 28.52% 0.00%
January 2015......... 36.43% 27.97% 0.00%
February 2015........ 36.01% 27.41% 0.00%
March 2015........... 35.59% 26.86% 0.00%
April 2015........... 35.16% 26.29% 0.00%
May 2015............. 34.73% 25.72% 0.00%
June 2015............ 34.29% 25.15% 0.00%
July 2015............ 33.85% 24.57% 0.00%
August 2015.......... 33.41% 23.98% 0.00%
September 2015....... 32.97% 23.39% 0.00%
October 2015......... 32.51% 22.79% 0.00%
November 2015........ 32.06% 22.19% 0.00%
December 2015........ 31.60% 21.59% 0.00%
January 2016......... 31.14% 20.97% 0.00%
February 2016........ 30.67% 20.36% 0.00%
March 2016........... 30.20% 19.73% 0.00%
April 2016........... 29.73% 19.11% 0.00%
May 2016............. 29.25% 18.47% 0.00%
June 2016............ 28.77% 17.83% 0.00%
July 2016............ 28.28% 17.19% 0.00%
August 2016.......... 27.79% 16.54% 0.00%
September 2016....... 27.30% 15.88% 0.00%
October 2016......... 26.80% 15.22% 0.00%
November 2016........ 26.30% 14.55% 0.00%
December 2016........ 25.80% 13.88% 0.00%
</TABLE>
A-8
<PAGE> 203
CLASS A CLASS PERCENTAGES -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
January 2017......... 25.29% 13.20% 0.00%
February 2017........ 24.77% 12.52% 0.00%
March 2017........... 24.25% 11.83% 0.00%
April 2017........... 23.73% 11.13% 0.00%
May 2017............. 23.20% 10.43% 0.00%
June 2017............ 22.67% 9.72% 0.00%
July 2017............ 22.14% 9.01% 0.00%
August 2017.......... 21.60% 8.29% 0.00%
September 2017....... 21.06% 7.57% 0.00%
October 2017......... 20.51% 6.84% 0.00%
November 2017........ 19.96% 6.10% 0.00%
December 2017........ 19.40% 5.36% 0.00%
January 2018......... 18.84% 4.61% 0.00%
February 2018........ 18.28% 3.86% 0.00%
March 2018........... 17.71% 3.10% 0.00%
April 2018........... 17.14% 2.33% 0.00%
May 2018............. 16.56% 1.56% 0.00%
June 2018............ 15.98% 0.78% 0.00%
July 2018............ 15.39% 0.00% 0.00%
August 2018.......... 14.80% 0.00% 0.00%
September 2018....... 14.21% 0.00% 0.00%
October 2018......... 13.61% 0.00% 0.00%
November 2018........ 13.01% 0.00% 0.00%
December 2018........ 12.40% 0.00% 0.00%
January 2019......... 11.79% 0.00% 0.00%
February 2019........ 11.17% 0.00% 0.00%
March 2019........... 10.55% 0.00% 0.00%
April 2019........... 9.92% 0.00% 0.00%
May 2019............. 9.29% 0.00% 0.00%
June 2019............ 8.66% 0.00% 0.00%
July 2019............ 8.02% 0.00% 0.00%
August 2019.......... 7.38% 0.00% 0.00%
September 2019....... 6.73% 0.00% 0.00%
October 2019......... 6.08% 0.00% 0.00%
November 2019........ 5.42% 0.00% 0.00%
December 2019........ 4.76% 0.00% 0.00%
January 2020......... 4.09% 0.00% 0.00%
February 2020........ 3.42% 0.00% 0.00%
March 2020........... 2.75% 0.00% 0.00%
April 2020........... 2.07% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
May 2020............. 1.38% 0.00% 0.00%
June 2020............ 0.69% 0.00% 0.00%
July 2020............ 0.00% 0.00% 0.00%
August 2020.......... 0.00% 0.00% 0.00%
September 2020....... 0.00% 0.00% 0.00%
October 2020......... 0.00% 0.00% 0.00%
November 2020........ 0.00% 0.00% 0.00%
December 2020........ 0.00% 0.00% 0.00%
January 2021......... 0.00% 0.00% 0.00%
February 2021........ 0.00% 0.00% 0.00%
March 2021........... 0.00% 0.00% 0.00%
April 2021........... 0.00% 0.00% 0.00%
May 2021............. 0.00% 0.00% 0.00%
June 2021............ 0.00% 0.00% 0.00%
July 2021............ 0.00% 0.00% 0.00%
August 2021.......... 0.00% 0.00% 0.00%
September 2021....... 0.00% 0.00% 0.00%
October 2021......... 0.00% 0.00% 0.00%
November 2021........ 0.00% 0.00% 0.00%
December 2021........ 0.00% 0.00% 0.00%
January 2022......... 0.00% 0.00% 0.00%
February 2022........ 0.00% 0.00% 0.00%
March 2022........... 0.00% 0.00% 0.00%
April 2022........... 0.00% 0.00% 0.00%
May 2022............. 0.00% 0.00% 0.00%
June 2022............ 0.00% 0.00% 0.00%
July 2022............ 0.00% 0.00% 0.00%
August 2022.......... 0.00% 0.00% 0.00%
September 2022....... 0.00% 0.00% 0.00%
October 2022......... 0.00% 0.00% 0.00%
November 2022........ 0.00% 0.00% 0.00%
December 2022........ 0.00% 0.00% 0.00%
January 2023......... 0.00% 0.00% 0.00%
February 2023........ 0.00% 0.00% 0.00%
March 2023........... 0.00% 0.00% 0.00%
April 2023........... 0.00% 0.00% 0.00%
May 2023............. 0.00% 0.00% 0.00%
June 2023............ 0.00% 0.00% 0.00%
July 2023............ 0.00% 0.00% 0.00%
</TABLE>
A-9
<PAGE> 204
APPENDIX 6
CLASS B CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
Closing.............. 8.95% 8.95% 8.95%
August 1998.......... 8.95% 8.95% 8.95%
September 1998....... 8.95% 8.95% 8.95%
October 1998......... 8.95% 8.95% 8.94%
November 1998........ 8.95% 8.95% 8.94%
December 1998........ 8.95% 8.94% 8.94%
January 1999......... 8.95% 8.94% 8.94%
February 1999........ 8.95% 8.94% 8.94%
March 1999........... 8.95% 8.94% 8.93%
April 1999........... 8.95% 8.94% 8.93%
May 1999............. 8.95% 8.94% 8.92%
June 1999............ 8.95% 8.94% 8.92%
July 1999............ 8.95% 8.93% 8.91%
August 1999.......... 8.95% 8.93% 8.91%
September 1999....... 8.95% 8.93% 8.90%
October 1999......... 8.95% 8.93% 8.89%
November 1999........ 8.95% 8.92% 8.88%
December 1999........ 8.95% 8.92% 8.87%
January 2000......... 8.94% 8.91% 8.86%
February 2000........ 8.94% 8.91% 8.85%
March 2000........... 8.94% 8.91% 8.84%
April 2000........... 8.94% 8.90% 8.83%
May 2000............. 8.94% 8.89% 8.82%
June 2000............ 8.94% 8.89% 8.80%
July 2000............ 8.94% 8.88% 8.79%
August 2000.......... 8.94% 8.88% 8.78%
September 2000....... 8.94% 8.87% 8.76%
October 2000......... 8.94% 8.86% 8.74%
November 2000........ 8.94% 8.85% 8.73%
December 2000........ 8.94% 8.84% 8.71%
January 2001......... 8.94% 8.84% 8.69%
February 2001........ 8.94% 8.83% 8.67%
March 2001........... 8.94% 8.82% 8.65%
April 2001........... 8.93% 8.81% 8.63%
May 2001............. 8.93% 8.80% 8.60%
June 2001............ 8.93% 8.79% 8.58%
July 2001............ 8.93% 8.77% 8.56%
August 2001.......... 8.93% 8.76% 8.53%
September 2001....... 8.93% 8.75% 8.51%
October 2001......... 8.93% 8.74% 8.48%
November 2001........ 8.92% 8.72% 8.45%
December 2001........ 8.92% 8.71% 8.42%
January 2002......... 8.92% 8.69% 8.39%
February 2002........ 8.92% 8.68% 8.36%
March 2002........... 8.91% 8.66% 8.33%
April 2002........... 8.91% 8.65% 8.30%
May 2002............. 8.91% 8.63% 8.27%
June 2002............ 8.91% 8.61% 8.23%
July 2002............ 8.90% 8.60% 8.20%
August 2002.......... 8.90% 8.58% 8.16%
September 2002....... 8.90% 8.56% 8.13%
October 2002......... 8.89% 8.54% 8.09%
November 2002........ 8.89% 8.52% 8.05%
December 2002........ 8.89% 8.50% 8.01%
January 2003......... 8.88% 8.48% 7.97%
February 2003........ 8.88% 8.46% 7.93%
March 2003........... 8.87% 8.44% 7.89%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
April 2003........... 8.87% 8.41% 7.84%
May 2003............. 8.86% 8.39% 7.80%
June 2003............ 8.86% 8.37% 7.76%
July 2003............ 8.85% 8.34% 7.71%
August 2003.......... 8.85% 8.32% 7.66%
September 2003....... 8.84% 8.29% 7.61%
October 2003......... 8.84% 8.26% 7.56%
November 2003........ 8.83% 8.24% 7.51%
December 2003........ 8.82% 8.21% 7.46%
January 2004......... 8.82% 8.18% 7.41%
February 2004........ 8.81% 8.15% 7.36%
March 2004........... 8.80% 8.12% 7.30%
April 2004........... 8.79% 8.09% 7.25%
May 2004............. 8.79% 8.06% 7.19%
June 2004............ 8.78% 8.03% 7.14%
July 2004............ 8.77% 8.00% 7.08%
August 2004.......... 8.76% 7.97% 7.02%
September 2004....... 8.75% 7.93% 6.96%
October 2004......... 8.74% 7.90% 6.90%
November 2004........ 8.73% 7.87% 6.84%
December 2004........ 8.72% 7.83% 6.77%
January 2005......... 8.71% 7.80% 6.71%
February 2005........ 8.70% 7.76% 6.64%
March 2005........... 8.69% 7.72% 6.58%
April 2005........... 8.68% 7.68% 6.51%
May 2005............. 8.67% 7.65% 6.44%
June 2005............ 8.66% 7.61% 6.37%
July 2005............ 8.65% 7.57% 6.30%
August 2005.......... 8.63% 7.53% 6.23%
September 2005....... 8.62% 7.48% 6.16%
October 2005......... 8.61% 7.44% 6.08%
November 2005........ 8.59% 7.40% 6.01%
December 2005........ 8.58% 7.36% 5.93%
January 2006......... 8.56% 7.31% 5.85%
February 2006........ 8.55% 7.27% 5.78%
March 2006........... 8.53% 7.22% 5.70%
April 2006........... 8.52% 7.17% 5.62%
May 2006............. 8.50% 7.13% 5.53%
June 2006............ 8.48% 7.08% 5.45%
July 2006............ 8.47% 7.03% 5.37%
August 2006.......... 8.45% 6.98% 5.28%
September 2006....... 8.43% 6.93% 5.20%
October 2006......... 8.41% 6.88% 5.11%
November 2006........ 8.39% 6.83% 5.02%
December 2006........ 8.37% 6.78% 4.93%
January 2007......... 8.35% 6.72% 4.84%
February 2007........ 8.33% 6.67% 4.75%
March 2007........... 8.31% 6.62% 4.66%
April 2007........... 8.29% 6.56% 4.56%
May 2007............. 8.27% 6.50% 4.47%
June 2007............ 8.25% 6.45% 4.37%
July 2007............ 8.22% 6.39% 4.28%
August 2007.......... 8.20% 6.33% 4.18%
September 2007....... 8.18% 6.27% 4.08%
October 2007......... 8.15% 6.21% 3.98%
November 2007........ 8.13% 6.15% 3.88%
December 2007........ 8.10% 6.09% 3.77%
</TABLE>
A-10
<PAGE> 205
CLASS B CLASS PERCENTAGES -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
January 2008......... 8.07% 6.03% 3.67%
February 2008........ 8.05% 5.96% 3.56%
March 2008........... 8.02% 5.90% 3.46%
April 2008........... 7.99% 5.84% 3.35%
May 2008............. 7.96% 5.77% 3.24%
June 2008............ 7.93% 5.70% 3.13%
July 2008............ 7.90% 5.64% 3.02%
August 2008.......... 7.87% 5.57% 2.91%
September 2008....... 7.84% 5.50% 2.80%
October 2008......... 7.81% 5.43% 2.68%
November 2008........ 7.77% 5.36% 2.57%
December 2008........ 7.74% 5.29% 2.45%
January 2009......... 7.71% 5.22% 2.33%
February 2009........ 7.67% 5.14% 2.21%
March 2009........... 7.64% 5.07% 2.09%
April 2009........... 7.60% 4.99% 1.97%
May 2009............. 7.56% 4.92% 1.85%
June 2009............ 7.53% 4.84% 1.72%
July 2009............ 7.49% 4.76% 1.60%
August 2009.......... 7.45% 4.69% 1.47%
September 2009....... 7.41% 4.61% 1.34%
October 2009......... 7.37% 4.53% 1.21%
November 2009........ 7.33% 4.45% 1.08%
December 2009........ 7.29% 4.37% 0.95%
January 2010......... 7.24% 4.28% 0.82%
February 2010........ 7.20% 4.20% 0.69%
March 2010........... 7.16% 4.12% 0.55%
April 2010........... 7.11% 4.03% 0.42%
May 2010............. 7.07% 3.94% 0.28%
June 2010............ 7.02% 3.86% 0.14%
July 2010............ 6.97% 3.77% 0.00%
August 2010.......... 6.92% 3.68% 0.00%
September 2010....... 6.87% 3.59% 0.00%
October 2010......... 6.82% 3.50% 0.00%
November 2010........ 6.77% 3.41% 0.00%
December 2010........ 6.72% 3.32% 0.00%
January 2011......... 6.67% 3.23% 0.00%
February 2011........ 6.62% 3.13% 0.00%
March 2011........... 6.56% 3.04% 0.00%
April 2011........... 6.51% 2.94% 0.00%
May 2011............. 6.45% 2.84% 0.00%
June 2011............ 6.39% 2.75% 0.00%
July 2011............ 6.34% 2.65% 0.00%
August 2011.......... 6.28% 2.55% 0.00%
September 2011....... 6.22% 2.45% 0.00%
October 2011......... 6.16% 2.35% 0.00%
November 2011........ 6.09% 2.24% 0.00%
December 2011........ 6.03% 2.14% 0.00%
January 2012......... 5.97% 2.04% 0.00%
February 2012........ 5.90% 1.93% 0.00%
March 2012........... 5.84% 1.83% 0.00%
April 2012........... 5.77% 1.72% 0.00%
May 2012............. 5.70% 1.61% 0.00%
June 2012............ 5.63% 1.50% 0.00%
July 2012............ 5.56% 1.39% 0.00%
August 2012.......... 5.49% 1.28% 0.00%
September 2012....... 5.42% 1.17% 0.00%
October 2012......... 5.35% 1.06% 0.00%
November 2012........ 5.28% 0.94% 0.00%
December 2012........ 5.20% 0.83% 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
January 2013......... 5.12% 0.71% 0.00%
February 2013........ 5.05% 0.60% 0.00%
March 2013........... 4.97% 0.48% 0.00%
April 2013........... 4.89% 0.36% 0.00%
May 2013............. 4.81% 0.24% 0.00%
June 2013............ 4.73% 0.12% 0.00%
July 2013............ 4.64% 0.00% 0.00%
August 2013.......... 4.56% 0.00% 0.00%
September 2013....... 4.47% 0.00% 0.00%
October 2013......... 4.39% 0.00% 0.00%
November 2013........ 4.30% 0.00% 0.00%
December 2013........ 4.21% 0.00% 0.00%
January 2014......... 4.12% 0.00% 0.00%
February 2014........ 4.03% 0.00% 0.00%
March 2014........... 3.94% 0.00% 0.00%
April 2014........... 3.85% 0.00% 0.00%
May 2014............. 3.75% 0.00% 0.00%
June 2014............ 3.65% 0.00% 0.00%
July 2014............ 3.56% 0.00% 0.00%
August 2014.......... 3.46% 0.00% 0.00%
September 2014....... 3.36% 0.00% 0.00%
October 2014......... 3.26% 0.00% 0.00%
November 2014........ 3.15% 0.00% 0.00%
December 2014........ 3.05% 0.00% 0.00%
January 2015......... 2.95% 0.00% 0.00%
February 2015........ 2.84% 0.00% 0.00%
March 2015........... 2.73% 0.00% 0.00%
April 2015........... 2.62% 0.00% 0.00%
May 2015............. 2.51% 0.00% 0.00%
June 2015............ 2.40% 0.00% 0.00%
July 2015............ 2.29% 0.00% 0.00%
August 2015.......... 2.17% 0.00% 0.00%
September 2015....... 2.06% 0.00% 0.00%
October 2015......... 1.94% 0.00% 0.00%
November 2015........ 1.82% 0.00% 0.00%
December 2015........ 1.70% 0.00% 0.00%
January 2016......... 1.58% 0.00% 0.00%
February 2016........ 1.45% 0.00% 0.00%
March 2016........... 1.33% 0.00% 0.00%
April 2016........... 1.20% 0.00% 0.00%
May 2016............. 1.08% 0.00% 0.00%
June 2016............ 0.95% 0.00% 0.00%
July 2016............ 0.82% 0.00% 0.00%
August 2016.......... 0.68% 0.00% 0.00%
September 2016....... 0.55% 0.00% 0.00%
October 2016......... 0.41% 0.00% 0.00%
November 2016........ 0.28% 0.00% 0.00%
December 2016........ 0.14% 0.00% 0.00%
January 2017......... 0.00% 0.00% 0.00%
February 2017........ 0.00% 0.00% 0.00%
March 2017........... 0.00% 0.00% 0.00%
April 2017........... 0.00% 0.00% 0.00%
May 2017............. 0.00% 0.00% 0.00%
June 2017............ 0.00% 0.00% 0.00%
July 2017............ 0.00% 0.00% 0.00%
August 2017.......... 0.00% 0.00% 0.00%
September 2017....... 0.00% 0.00% 0.00%
October 2017......... 0.00% 0.00% 0.00%
November 2017........ 0.00% 0.00% 0.00%
December 2017........ 0.00% 0.00% 0.00%
</TABLE>
A-11
<PAGE> 206
CLASS B CLASS PERCENTAGES -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
January 2018......... 0.00% 0.00% 0.00%
February 2018........ 0.00% 0.00% 0.00%
March 2018........... 0.00% 0.00% 0.00%
April 2018........... 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
May 2018............. 0.00% 0.00% 0.00%
June 2018............ 0.00% 0.00% 0.00%
July 2018............ 0.00% 0.00% 0.00%
</TABLE>
A-12
<PAGE> 207
APPENDIX 7
CLASS C TARGET PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
Closing.......................... 85,000,000 85,000,000
August 1998...................... 84,999,964 84,999,416
September 1998................... 84,999,771 84,997,144
October 1998..................... 84,999,323 84,992,775
November 1998.................... 84,998,536 84,986,041
December 1998.................... 84,997,339 84,976,736
January 1999..................... 84,995,662 84,964,685
February 1999.................... 84,993,444 84,949,741
March 1999....................... 84,990,625 84,931,771
April 1999....................... 84,987,146 84,910,655
May 1999......................... 84,982,954 84,886,285
June 1999........................ 84,977,996 84,858,559
July 1999........................ 84,972,219 84,827,383
August 1999...................... 84,965,574 84,792,671
September 1999................... 84,958,013 84,754,338
October 1999..................... 84,949,488 84,712,306
November 1999.................... 84,939,954 84,666,501
December 1999.................... 84,929,364 84,616,851
January 2000..................... 84,917,675 84,563,288
February 2000.................... 84,904,843 84,505,748
March 2000....................... 84,890,826 84,444,168
April 2000....................... 84,875,580 84,378,486
May 2000......................... 84,859,065 84,308,645
June 2000........................ 84,841,240 84,234,589
July 2000........................ 84,822,065 84,156,262
August 2000...................... 84,801,501 84,073,613
September 2000................... 84,779,508 83,986,589
October 2000..................... 84,756,047 83,895,140
November 2000.................... 84,731,081 83,799,219
December 2000.................... 84,704,572 83,698,778
January 2001..................... 84,676,483 83,593,770
February 2001.................... 84,646,776 83,484,152
March 2001....................... 84,615,416 83,369,877
April 2001....................... 84,582,367 83,250,905
May 2001......................... 84,547,592 83,127,193
June 2001........................ 84,511,057 82,998,699
July 2001........................ 84,472,726 82,865,384
August 2001...................... 84,432,564 82,727,207
September 2001................... 84,390,539 82,584,131
October 2001..................... 84,346,614 82,436,118
November 2001.................... 84,300,757 82,283,129
December 2001.................... 84,252,934 82,125,129
January 2002..................... 84,203,111 81,962,082
February 2002.................... 84,151,257 81,793,952
March 2002....................... 84,097,337 81,620,705
April 2002....................... 84,041,319 81,442,306
May 2002......................... 83,983,172 81,258,722
June 2002........................ 83,922,863 81,069,920
July 2002........................ 83,860,361 80,875,867
August 2002...................... 83,795,633 80,676,532
September 2002................... 83,728,649 80,471,882
October 2002..................... 83,659,377 80,261,886
November 2002.................... 83,587,786 80,046,514
December 2002.................... 83,513,846 79,825,736
January 2003..................... 83,437,525 79,599,522
February 2003.................... 83,358,794 79,367,841
</TABLE>
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
March 2003....................... 83,277,622 79,130,666
April 2003....................... 83,193,980 78,887,966
May 2003......................... 83,107,836 78,639,715
June 2003........................ 83,019,163 78,385,884
July 2003........................ 82,927,929 78,126,445
August 2003...................... 82,834,106 77,861,372
September 2003................... 82,737,664 77,590,636
October 2003..................... 82,638,575 77,314,211
November 2003.................... 82,536,809 77,032,072
December 2003.................... 82,432,338 76,744,191
January 2004..................... 82,325,133 76,450,543
February 2004.................... 82,215,165 76,151,103
March 2004....................... 82,102,407 75,845,845
April 2004....................... 81,986,829 75,534,744
May 2004......................... 81,868,404 75,217,776
June 2004........................ 81,747,104 74,894,916
July 2004........................ 81,622,901 74,566,140
August 2004...................... 81,495,768 74,231,423
September 2004................... 81,365,676 73,890,743
October 2004..................... 81,232,598 73,544,076
November 2004.................... 81,096,508 73,191,397
December 2004.................... 80,957,377 72,832,685
January 2005..................... 80,815,178 72,467,917
February 2005.................... 80,669,886 72,097,069
March 2005....................... 80,521,472 71,720,119
April 2005....................... 80,369,909 71,337,046
May 2005......................... 80,215,173 70,947,826
June 2005........................ 80,057,234 70,552,439
July 2005........................ 79,896,069 70,150,862
August 2005...................... 79,731,649 69,743,075
September 2005................... 79,563,948 69,329,055
October 2005..................... 79,392,941 68,908,782
November 2005.................... 79,218,601 68,482,234
December 2005.................... 79,040,903 68,049,391
January 2006..................... 78,859,821 67,610,233
February 2006.................... 78,675,328 67,164,738
March 2006....................... 78,487,399 66,712,887
April 2006....................... 78,296,008 66,254,660
May 2006......................... 78,101,131 65,790,036
June 2006........................ 77,902,741 65,318,996
July 2006........................ 77,700,813 64,841,519
August 2006...................... 77,495,323 64,357,587
September 2006................... 77,286,244 63,867,181
October 2006..................... 77,073,552 63,370,280
November 2006.................... 76,857,221 62,866,866
December 2006.................... 76,637,227 62,356,919
January 2007..................... 76,413,546 61,840,422
February 2007.................... 76,186,151 61,317,355
March 2007....................... 75,955,019 60,787,699
April 2007....................... 75,720,125 60,251,437
May 2007......................... 75,481,444 59,708,550
June 2007........................ 75,238,952 59,159,020
July 2007........................ 74,992,625 58,602,829
August 2007...................... 74,742,437 58,039,958
September 2007................... 74,488,366 57,470,390
October 2007..................... 74,230,387 56,894,107
</TABLE>
A-13
<PAGE> 208
CLASS C TARGET PRINCIPAL BALANCES -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
November 2007.................... 73,968,475 56,311,092
December 2007.................... 73,702,607 55,721,328
January 2008..................... 73,432,759 55,124,795
February 2008.................... 73,158,907 54,521,479
March 2008....................... 72,881,027 53,911,361
April 2008....................... 72,599,095 53,294,424
May 2008......................... 72,313,087 52,670,651
June 2008........................ 72,022,981 52,040,026
July 2008........................ 71,728,752 51,402,532
August 2008...................... 71,430,377 50,758,152
September 2008................... 71,127,832 50,106,869
October 2008..................... 70,821,094 49,448,668
November 2008.................... 70,510,141 48,783,531
December 2008.................... 70,194,947 48,111,443
January 2009..................... 69,875,491 47,432,387
February 2009.................... 69,551,750 46,746,347
March 2009....................... 69,223,699 46,053,307
April 2009....................... 68,891,317 45,353,252
May 2009......................... 68,554,580 44,646,166
June 2009........................ 68,213,465 43,932,032
July 2009........................ 67,867,949 43,210,836
August 2009...................... 67,518,010 42,482,561
September 2009................... 67,163,626 41,747,192
October 2009..................... 66,804,772 41,004,714
November 2009.................... 66,441,427 40,255,112
December 2009.................... 66,073,568 39,498,370
January 2010..................... 65,701,172 38,734,473
February 2010.................... 65,324,218 37,963,406
March 2010....................... 64,942,682 37,185,154
April 2010....................... 64,556,543 36,399,702
May 2010......................... 64,165,777 35,607,036
June 2010........................ 63,770,364 34,807,140
July 2010........................ 63,370,280 34,000,000
August 2010...................... 62,965,503 33,185,601
September 2010................... 62,556,011 32,363,929
October 2010..................... 62,141,783 31,534,970
November 2010.................... 61,722,796 30,698,708
December 2010.................... 61,299,028 29,855,129
January 2011..................... 60,870,458 29,004,220
February 2011.................... 60,437,063 28,145,966
March 2011....................... 59,998,821 27,280,353
April 2011....................... 59,555,712 26,407,366
May 2011......................... 59,107,712 25,526,993
June 2011........................ 58,654,801 24,639,218
July 2011........................ 58,196,957 23,744,029
August 2011...................... 57,734,158 22,841,410
September 2011................... 57,266,383 21,931,349
October 2011..................... 56,793,609 21,013,832
November 2011.................... 56,315,817 20,088,846
December 2011.................... 55,832,984 19,156,376
January 2012..................... 55,345,088 18,216,409
February 2012.................... 54,852,110 17,268,931
March 2012....................... 54,354,026 16,313,931
April 2012....................... 53,850,817 15,351,393
May 2012......................... 53,342,460 14,381,305
June 2012........................ 52,828,936 13,403,653
July 2012........................ 52,310,221 12,418,425
August 2012...................... 51,786,296 11,425,607
September 2012................... 51,257,140 10,425,186
</TABLE>
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
October 2012..................... 50,722,731 9,417,150
November 2012.................... 50,183,048 8,401,485
December 2012.................... 49,638,071 7,378,179
January 2013..................... 49,087,778 6,347,218
February 2013.................... 48,532,150 5,308,590
March 2013....................... 47,971,164 4,262,282
April 2013....................... 47,404,800 3,208,282
May 2013......................... 46,833,038 2,146,576
June 2013........................ 46,255,857 1,077,153
July 2013........................ 45,673,236 0
August 2013...................... 45,085,154 0
September 2013................... 44,491,591 0
October 2013..................... 43,892,527 0
November 2013.................... 43,287,940 0
December 2013.................... 42,677,811 0
January 2014..................... 42,062,119 0
February 2014.................... 41,440,843 0
March 2014....................... 40,813,963 0
April 2014....................... 40,181,459 0
May 2014......................... 39,543,311 0
June 2014........................ 38,899,498 0
July 2014........................ 38,250,000 0
August 2014...................... 37,594,797 0
September 2014................... 36,933,868 0
October 2014..................... 36,267,194 0
November 2014.................... 35,594,755 0
December 2014.................... 34,916,529 0
January 2015..................... 34,232,499 0
February 2015.................... 33,542,642 0
March 2015....................... 32,846,940 0
April 2015....................... 32,145,372 0
May 2015......................... 31,437,919 0
June 2015........................ 30,724,560 0
July 2015........................ 30,005,277 0
August 2015...................... 29,280,048 0
September 2015................... 28,548,854 0
October 2015..................... 27,811,676 0
November 2015.................... 27,068,494 0
December 2015.................... 26,319,288 0
January 2016..................... 25,564,038 0
February 2016.................... 24,802,726 0
March 2016....................... 24,035,330 0
April 2016....................... 23,261,832 0
May 2016......................... 22,482,212 0
June 2016........................ 21,696,451 0
July 2016........................ 20,904,529 0
August 2016...................... 20,106,427 0
September 2016................... 19,302,124 0
October 2016..................... 18,491,603 0
November 2016.................... 17,674,843 0
December 2016.................... 16,851,826 0
January 2017..................... 16,022,531 0
February 2017.................... 15,186,940 0
March 2017....................... 14,345,034 0
April 2017....................... 13,496,792 0
May 2017......................... 12,642,197 0
June 2017........................ 11,781,228 0
July 2017........................ 10,913,867 0
August 2017...................... 10,040,094 0
</TABLE>
A-14
<PAGE> 209
CLASS C TARGET PRINCIPAL BALANCES -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
September 2017................... 9,159,891 0
October 2017..................... 8,273,238 0
November 2017.................... 7,380,117 0
December 2017.................... 6,480,508 0
January 2018..................... 5,574,392 0
February 2018.................... 4,661,751 0
</TABLE>
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
March 2018....................... 3,742,566 0
April 2018....................... 2,816,816 0
May 2018......................... 1,884,485 0
June 2018........................ 945,552 0
July 2018........................ 0 0
</TABLE>
A-15
<PAGE> 210
APPENDIX 8
CLASS D TARGET PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
$ $
<S> <C> <C>
Closing.......................... 80,000,000 80,000,000
August 1998...................... 80,000,000 80,000,000
September 1998................... 80,000,000 80,000,000
October 1998..................... 80,000,000 80,000,000
November 1998.................... 80,000,000 80,000,000
December 1998.................... 80,000,000 80,000,000
January 1999..................... 80,000,000 80,000,000
February 1999.................... 80,000,000 80,000,000
March 1999....................... 80,000,000 80,000,000
April 1999....................... 80,000,000 80,000,000
May 1999......................... 80,000,000 80,000,000
June 1999........................ 80,000,000 80,000,000
July 1999........................ 80,000,000 80,000,000
August 1999...................... 80,000,000 80,000,000
September 1999................... 80,000,000 80,000,000
October 1999..................... 80,000,000 80,000,000
November 1999.................... 80,000,000 80,000,000
December 1999.................... 80,000,000 80,000,000
January 2000..................... 80,000,000 80,000,000
February 2000.................... 80,000,000 80,000,000
March 2000....................... 80,000,000 80,000,000
April 2000....................... 80,000,000 80,000,000
May 2000......................... 80,000,000 80,000,000
June 2000........................ 80,000,000 80,000,000
July 2000........................ 80,000,000 80,000,000
August 2000...................... 80,000,000 80,000,000
September 2000................... 80,000,000 80,000,000
October 2000..................... 80,000,000 80,000,000
November 2000.................... 80,000,000 80,000,000
December 2000.................... 80,000,000 80,000,000
January 2001..................... 80,000,000 80,000,000
February 2001.................... 80,000,000 80,000,000
March 2001....................... 80,000,000 80,000,000
April 2001....................... 80,000,000 80,000,000
May 2001......................... 80,000,000 80,000,000
June 2001........................ 80,000,000 80,000,000
July 2001........................ 80,000,000 80,000,000
August 2001...................... 80,000,000 80,000,000
September 2001................... 80,000,000 80,000,000
October 2001..................... 80,000,000 80,000,000
November 2001.................... 80,000,000 80,000,000
December 2001.................... 80,000,000 80,000,000
January 2002..................... 80,000,000 80,000,000
February 2002.................... 80,000,000 80,000,000
March 2002....................... 80,000,000 80,000,000
April 2002....................... 80,000,000 80,000,000
May 2002......................... 80,000,000 80,000,000
June 2002........................ 80,000,000 80,000,000
July 2002........................ 80,000,000 80,000,000
August 2002...................... 80,000,000 80,000,000
September 2002................... 80,000,000 80,000,000
October 2002..................... 80,000,000 80,000,000
November 2002.................... 80,000,000 80,000,000
December 2002.................... 80,000,000 80,000,000
January 2003..................... 80,000,000 80,000,000
</TABLE>
<TABLE>
<CAPTION>
$ $
CLASS D CLASS D
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
February 2003.................... 80,000,000 80,000,000
March 2003....................... 80,000,000 80,000,000
April 2003....................... 80,000,000 80,000,000
May 2003......................... 80,000,000 80,000,000
June 2003........................ 80,000,000 80,000,000
July 2003........................ 80,000,000 80,000,000
August 2003...................... 80,000,000 80,000,000
September 2003................... 80,000,000 80,000,000
October 2003..................... 80,000,000 80,000,000
November 2003.................... 80,000,000 80,000,000
December 2003.................... 80,000,000 80,000,000
January 2004..................... 80,000,000 80,000,000
February 2004.................... 80,000,000 80,000,000
March 2004....................... 80,000,000 80,000,000
April 2004....................... 80,000,000 80,000,000
May 2004......................... 80,000,000 80,000,000
June 2004........................ 80,000,000 80,000,000
July 2004........................ 80,000,000 80,000,000
August 2004...................... 80,000,000 80,000,000
September 2004................... 80,000,000 80,000,000
October 2004..................... 80,000,000 80,000,000
November 2004.................... 80,000,000 80,000,000
December 2004.................... 80,000,000 80,000,000
January 2005..................... 80,000,000 80,000,000
February 2005.................... 80,000,000 80,000,000
March 2005....................... 80,000,000 80,000,000
April 2005....................... 80,000,000 80,000,000
May 2005......................... 80,000,000 80,000,000
June 2005........................ 80,000,000 80,000,000
July 2005........................ 80,000,000 80,000,000
August 2005...................... 80,000,000 80,000,000
September 2005................... 80,000,000 80,000,000
October 2005..................... 80,000,000 80,000,000
November 2005.................... 80,000,000 80,000,000
December 2005.................... 80,000,000 80,000,000
January 2006..................... 80,000,000 80,000,000
February 2006.................... 80,000,000 80,000,000
March 2006....................... 80,000,000 80,000,000
April 2006....................... 80,000,000 80,000,000
May 2006......................... 80,000,000 80,000,000
June 2006........................ 80,000,000 80,000,000
July 2006........................ 80,000,000 80,000,000
August 2006...................... 80,000,000 80,000,000
September 2006................... 80,000,000 80,000,000
October 2006..................... 80,000,000 80,000,000
November 2006.................... 80,000,000 80,000,000
December 2006.................... 80,000,000 80,000,000
January 2007..................... 80,000,000 79,774,880
February 2007.................... 80,000,000 79,328,760
March 2007....................... 80,000,000 78,873,970
April 2007....................... 80,000,000 78,410,461
May 2007......................... 80,000,000 77,938,186
June 2007........................ 80,000,000 77,457,096
July 2007........................ 80,000,000 76,967,146
August 2007...................... 80,000,000 76,468,290
</TABLE>
A-16
<PAGE> 211
CLASS D TARGET PRINCIPAL BALANCES -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
$ $
<S> <C> <C>
September 2007................... 80,000,000 75,960,480
October 2007..................... 80,000,000 75,443,671
November 2007.................... 80,000,000 74,917,819
December 2007.................... 80,000,000 74,382,876
January 2008..................... 80,000,000 73,838,800
February 2008.................... 80,000,000 73,285,546
March 2008....................... 80,000,000 72,723,068
April 2008....................... 80,000,000 72,151,325
May 2008......................... 80,000,000 71,570,271
June 2008........................ 80,000,000 70,979,864
July 2008........................ 80,000,000 70,380,061
August 2008...................... 80,000,000 69,770,819
September 2008................... 80,000,000 69,152,097
October 2008..................... 80,000,000 68,523,851
November 2008.................... 80,000,000 67,886,040
December 2008.................... 80,000,000 67,238,622
January 2009..................... 80,000,000 66,581,557
February 2009.................... 80,000,000 65,914,803
March 2009....................... 80,000,000 65,238,319
April 2009....................... 80,000,000 64,552,065
May 2009......................... 80,000,000 63,856,000
June 2009........................ 80,000,000 63,150,085
July 2009........................ 80,000,000 62,434,280
August 2009...................... 80,000,000 61,708,545
September 2009................... 80,000,000 60,972,841
October 2009..................... 80,000,000 60,227,129
November 2009.................... 80,000,000 59,471,369
December 2009.................... 80,000,000 58,705,524
January 2010..................... 80,000,000 57,929,554
February 2010.................... 80,000,000 57,143,422
March 2010....................... 80,000,000 56,347,089
April 2010....................... 80,000,000 55,540,518
May 2010......................... 80,000,000 54,723,670
June 2010........................ 80,000,000 53,896,510
July 2010........................ 80,000,000 53,058,998
August 2010...................... 80,000,000 52,211,100
September 2010................... 80,000,000 51,352,776
October 2010..................... 80,000,000 50,483,992
November 2010.................... 80,000,000 49,604,710
December 2010.................... 80,000,000 48,714,894
January 2011..................... 80,000,000 47,814,508
February 2011.................... 80,000,000 46,903,516
March 2011....................... 80,000,000 45,981,883
April 2011....................... 80,000,000 45,049,573
May 2011......................... 80,000,000 44,106,550
June 2011........................ 79,765,353 43,152,779
July 2011........................ 79,419,181 42,188,226
August 2011...................... 79,067,271 41,212,855
September 2011................... 78,709,580 40,226,632
October 2011..................... 78,346,069 39,229,522
November 2011.................... 77,976,695 38,221,491
December 2011.................... 77,601,419 37,202,504
January 2012..................... 77,220,200 36,172,528
February 2012.................... 76,832,996 35,131,528
March 2012....................... 76,439,767 34,079,471
April 2012....................... 76,040,472 33,016,323
May 2012......................... 75,635,072 31,942,051
June 2012........................ 75,223,524 30,856,621
</TABLE>
<TABLE>
<CAPTION>
$ $
CLASS D CLASS D
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
July 2012........................ 74,805,790 29,760,000
August 2012...................... 74,381,829 28,652,155
September 2012................... 73,951,600 27,533,054
October 2012..................... 73,515,063 26,402,663
November 2012.................... 73,072,179 25,260,950
December 2012.................... 72,622,907 24,107,883
January 2013..................... 72,167,207 22,943,429
February 2013.................... 71,705,040 21,767,555
March 2013....................... 71,236,366 20,580,230
April 2013....................... 70,761,145 19,381,423
May 2013......................... 70,279,337 18,171,100
June 2013........................ 69,790,903 16,949,231
July 2013........................ 69,295,804 15,715,783
August 2013...................... 68,793,999 14,470,726
September 2013................... 68,285,450 13,214,028
October 2013..................... 67,770,118 11,945,658
November 2013.................... 67,247,962 10,000,000
December 2013.................... 66,718,944 8,000,000
January 2014..................... 66,183,025 6,000,000
February 2014.................... 65,640,166 4,000,000
March 2014....................... 65,090,327 2,000,000
April 2014....................... 64,533,470 0
May 2014......................... 63,969,557 0
June 2014........................ 63,398,547 0
July 2014........................ 62,820,403 0
August 2014...................... 62,235,085 0
September 2014................... 61,642,556 0
October 2014..................... 61,042,777 0
November 2014.................... 60,435,708 0
December 2014.................... 59,821,312 0
January 2015..................... 59,199,551 0
February 2015.................... 58,570,385 0
March 2015....................... 57,933,778 0
April 2015....................... 57,289,689 0
May 2015......................... 56,638,083 0
June 2015........................ 55,978,919 0
July 2015........................ 55,312,161 0
August 2015...................... 54,637,770 0
September 2015................... 53,955,709 0
October 2015..................... 53,265,939 0
November 2015.................... 52,568,422 0
December 2015.................... 51,863,122 0
January 2016..................... 51,150,000 0
February 2016.................... 50,429,018 0
March 2016....................... 49,700,140 0
April 2016....................... 48,963,327 0
May 2016......................... 48,218,541 0
June 2016........................ 47,465,747 0
July 2016........................ 46,704,905 0
August 2016...................... 45,935,979 0
September 2016................... 45,158,931 0
October 2016..................... 44,373,724 0
November 2016.................... 43,580,322 0
December 2016.................... 42,778,686 0
January 2017..................... 41,968,780 0
February 2017.................... 41,150,566 0
March 2017....................... 40,324,009 0
April 2017....................... 39,489,069 0
</TABLE>
A-17
<PAGE> 212
CLASS D TARGET PRINCIPAL BALANCES -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
$ $
<S> <C> <C>
May 2017......................... 38,645,712 0
June 2017........................ 37,793,899 0
July 2017........................ 36,933,595 0
August 2017...................... 36,064,762 0
September 2017................... 35,187,363 0
October 2017..................... 34,301,362 0
November 2017.................... 33,406,723 0
December 2017.................... 32,503,408 0
January 2018..................... 31,591,381 0
February 2018.................... 30,670,606 0
March 2018....................... 29,741,046 0
April 2018....................... 28,802,664 0
May 2018......................... 27,855,425 0
June 2018........................ 26,899,292 0
July 2018........................ 25,934,229 0
August 2018...................... 24,960,199 0
September 2018................... 23,977,166 0
October 2018..................... 22,985,094 0
November 2018.................... 21,983,948 0
December 2018.................... 20,973,690 0
January 2019..................... 19,954,285 0
February 2019.................... 18,925,698 0
March 2019....................... 17,887,891 0
April 2019....................... 16,840,829 0
May 2019......................... 15,784,476 0
June 2019........................ 14,718,796 0
July 2019........................ 13,643,754 0
August 2019...................... 12,559,314 0
September 2019................... 11,465,440 0
October 2019..................... 10,362,096 0
November 2019.................... 9,249,247 0
December 2019.................... 8,126,857 0
January 2020..................... 6,994,890 0
February 2020.................... 5,853,312 0
March 2020....................... 4,702,086 0
April 2020....................... 3,541,177 0
May 2020......................... 2,370,550 0
June 2020........................ 1,190,170 0
</TABLE>
<TABLE>
<CAPTION>
$ $
CLASS D CLASS D
MINIMUM SCHEDULED
TARGET TARGET
PAYMENT DATE PRINCIPAL PRINCIPAL
OCCURRING IN BALANCE BALANCE
------------ ---------- ----------
<S> <C> <C>
July 2020........................ 0 0
August 2020...................... 0 0
September 2020................... 0 0
October 2020..................... 0 0
November 2020.................... 0 0
December 2020.................... 0 0
January 2021..................... 0 0
February 2021.................... 0 0
March 2021....................... 0 0
April 2021....................... 0 0
May 2021......................... 0 0
June 2021........................ 0 0
July 2021........................ 0 0
August 2021...................... 0 0
September 2021................... 0 0
October 2021..................... 0 0
November 2021.................... 0 0
December 2021.................... 0 0
January 2022..................... 0 0
February 2022.................... 0 0
March 2022....................... 0 0
April 2022....................... 0 0
May 2022......................... 0 0
June 2022........................ 0 0
July 2022........................ 0 0
August 2022...................... 0 0
September 2022................... 0 0
October 2022..................... 0 0
November 2022.................... 0 0
December 2022.................... 0 0
January 2023..................... 0 0
February 2023.................... 0 0
March 2023....................... 0 0
April 2023....................... 0 0
May 2023......................... 0 0
June 2023........................ 0 0
July 2023........................ 0 0
</TABLE>
A-18
<PAGE> 213
APPENDIX 9
POOL FACTORS
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing.............. 100.00% 100.00% 100.00% 100.00% 100.00%
August 1998.......... 100.00% 99.21% 99.94% 100.00% 100.00%
September 1998....... 100.00% 98.10% 99.60% 100.00% 100.00%
October 1998......... 100.00% 96.70% 99.25% 99.99% 100.00%
November 1998........ 100.00% 95.58% 98.91% 99.98% 100.00%
December 1998........ 100.00% 94.44% 98.45% 99.97% 100.00%
January 1999......... 100.00% 93.11% 98.10% 99.96% 100.00%
February 1999........ 100.00% 92.00% 97.75% 99.94% 100.00%
March 1999........... 100.00% 90.50% 97.40% 99.92% 100.00%
April 1999........... 100.00% 89.35% 97.05% 99.89% 100.00%
May 1999............. 100.00% 88.69% 96.69% 99.87% 100.00%
June 1999............ 100.00% 87.75% 96.34% 99.83% 100.00%
July 1999............ 100.00% 86.55% 95.87% 99.80% 100.00%
August 1999.......... 100.00% 85.60% 95.52% 99.76% 100.00%
September 1999....... 100.00% 84.65% 95.16% 99.71% 100.00%
October 1999......... 100.00% 83.42% 94.80% 99.66% 100.00%
November 1999........ 100.00% 82.49% 94.33% 99.61% 100.00%
December 1999........ 100.00% 81.48% 93.97% 99.55% 100.00%
January 2000......... 100.00% 80.46% 93.50% 99.49% 100.00%
February 2000........ 100.00% 79.41% 93.13% 99.42% 100.00%
March 2000........... 100.00% 78.27% 92.76% 99.35% 100.00%
April 2000........... 100.00% 77.25% 92.29% 99.27% 100.00%
May 2000............. 100.00% 76.53% 91.82% 99.19% 100.00%
June 2000............ 100.00% 75.48% 91.45% 99.10% 100.00%
July 2000............ 100.00% 74.39% 90.97% 99.01% 100.00%
August 2000.......... 100.00% 73.31% 90.60% 98.91% 100.00%
September 2000....... 100.00% 72.25% 90.12% 98.81% 100.00%
October 2000......... 100.00% 71.16% 89.64% 98.70% 100.00%
November 2000........ 100.00% 70.10% 89.17% 98.59% 100.00%
December 2000........ 100.00% 68.99% 88.69% 98.47% 100.00%
January 2001......... 100.00% 67.90% 88.31% 98.35% 100.00%
February 2001........ 100.00% 66.84% 87.83% 98.22% 100.00%
March 2001........... 100.00% 65.63% 87.35% 98.08% 100.00%
April 2001........... 100.00% 64.54% 86.87% 97.94% 100.00%
May 2001............. 100.00% 63.79% 86.38% 97.80% 100.00%
June 2001............ 100.00% 62.70% 85.90% 97.65% 100.00%
July 2001............ 100.00% 61.61% 85.32% 97.49% 100.00%
August 2001.......... 100.00% 60.51% 84.84% 97.33% 100.00%
September 2001....... 100.00% 59.42% 84.35% 97.16% 100.00%
October 2001......... 100.00% 58.27% 83.87% 96.98% 100.00%
November 2001........ 100.00% 57.17% 83.29% 96.80% 100.00%
December 2001........ 100.00% 56.02% 82.80% 96.62% 100.00%
January 2002......... 100.00% 54.92% 82.22% 96.43% 100.00%
February 2002........ 100.00% 53.80% 81.74% 96.23% 100.00%
March 2002........... 100.00% 52.56% 81.16% 96.02% 100.00%
April 2002........... 100.00% 51.41% 80.67% 95.81% 100.00%
May 2002............. 100.00% 50.61% 80.09% 95.60% 100.00%
June 2002............ 100.00% 49.49% 79.51% 95.38% 100.00%
July 2002............ 100.00% 48.28% 79.02% 95.15% 100.00%
August 2002.......... 100.00% 47.15% 78.44% 94.91% 100.00%
September 2002....... 100.00% 46.00% 77.86% 94.67% 100.00%
October 2002......... 100.00% 44.82% 77.28% 94.43% 100.00%
November 2002........ 100.00% 43.67% 76.70% 94.17% 100.00%
December 2002........ 100.00% 42.46% 76.12% 93.91% 100.00%
January 2003......... 100.00% 41.31% 75.55% 93.65% 100.00%
February 2003........ 100.00% 40.13% 74.97% 93.37% 100.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
March 2003........... 100.00% 38.85% 74.39% 93.09% 100.00%
April 2003........... 100.00% 37.70% 73.73% 92.81% 100.00%
May 2003............. 100.00% 36.85% 73.15% 92.52% 100.00%
June 2003............ 100.00% 35.67% 72.57% 92.22% 100.00%
July 2003............ 100.00% 34.47% 71.91% 91.91% 100.00%
August 2003.......... 100.00% 33.29% 71.34% 91.60% 100.00%
September 2003....... 100.00% 32.14% 70.68% 91.28% 100.00%
October 2003......... 100.00% 30.94% 70.02% 90.96% 100.00%
November 2003........ 100.00% 29.74% 69.45% 90.63% 100.00%
December 2003........ 100.00% 28.54% 68.79% 90.29% 100.00%
January 2004......... 100.00% 27.37% 68.14% 89.94% 100.00%
February 2004........ 100.00% 26.17% 67.48% 89.59% 100.00%
March 2004........... 100.00% 24.90% 66.83% 89.23% 100.00%
April 2004........... 100.00% 23.73% 66.18% 88.86% 100.00%
May 2004............. 100.00% 22.89% 65.53% 88.49% 100.00%
June 2004............ 100.00% 21.72% 64.89% 88.11% 100.00%
July 2004............ 100.00% 20.50% 64.24% 87.72% 100.00%
August 2004.......... 100.00% 19.30% 63.60% 87.33% 100.00%
September 2004....... 100.00% 18.13% 62.88% 86.93% 100.00%
October 2004......... 100.00% 16.89% 62.24% 86.52% 100.00%
November 2004........ 100.00% 15.68% 61.60% 86.11% 100.00%
December 2004........ 100.00% 14.46% 60.88% 85.69% 100.00%
January 2005......... 100.00% 13.25% 60.25% 85.26% 100.00%
February 2005........ 100.00% 12.04% 59.54% 84.82% 100.00%
March 2005........... 100.00% 10.74% 58.83% 84.38% 100.00%
April 2005........... 100.00% 9.51% 58.12% 83.93% 100.00%
May 2005............. 100.00% 8.59% 57.50% 83.47% 100.00%
June 2005............ 100.00% 7.36% 56.80% 83.00% 100.00%
July 2005............ 100.00% 6.09% 56.10% 82.53% 100.00%
August 2005.......... 100.00% 4.85% 55.41% 82.05% 100.00%
September 2005....... 100.00% 3.60% 54.64% 81.56% 100.00%
October 2005......... 100.00% 2.30% 53.95% 81.07% 100.00%
November 2005........ 100.00% 1.01% 53.27% 80.57% 100.00%
December 2005........ 99.74% 0.00% 52.58% 80.06% 100.00%
January 2006......... 98.65% 0.00% 51.83% 79.54% 100.00%
February 2006........ 97.55% 0.00% 51.16% 79.02% 100.00%
March 2006........... 96.39% 0.00% 50.42% 78.49% 100.00%
April 2006........... 95.27% 0.00% 49.70% 77.95% 100.00%
May 2006............. 94.43% 0.00% 49.05% 77.40% 100.00%
June 2006............ 93.34% 0.00% 48.33% 76.85% 100.00%
July 2006............ 92.21% 0.00% 47.62% 76.28% 100.00%
August 2006.......... 91.09% 0.00% 46.91% 75.71% 100.00%
September 2006....... 89.97% 0.00% 46.21% 75.14% 100.00%
October 2006......... 88.82% 0.00% 45.52% 74.55% 100.00%
November 2006........ 87.67% 0.00% 44.86% 73.96% 100.00%
December 2006........ 86.32% 0.00% 44.19% 73.36% 100.00%
January 2007......... 85.07% 0.00% 43.47% 72.75% 99.72%
February 2007........ 83.85% 0.00% 42.82% 72.14% 99.16%
March 2007........... 82.57% 0.00% 42.17% 71.51% 98.59%
April 2007........... 81.36% 0.00% 41.46% 70.88% 98.01%
May 2007............. 80.43% 0.00% 40.75% 70.25% 97.42%
June 2007............ 79.20% 0.00% 40.12% 69.60% 96.82%
July 2007............ 77.95% 0.00% 39.42% 68.94% 96.21%
August 2007.......... 76.72% 0.00% 38.73% 68.28% 95.59%
September 2007....... 75.48% 0.00% 38.04% 67.61% 94.95%
October 2007......... 74.22% 0.00% 37.36% 66.93% 94.30%
</TABLE>
A-19
<PAGE> 214
POOL FACTORS -- (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
November 2007........ 72.99% 0.00% 36.69% 66.25% 93.65%
December 2007........ 71.74% 0.00% 36.02% 65.55% 92.98%
January 2008......... 70.50% 0.00% 35.35% 64.85% 92.30%
February 2008........ 69.27% 0.00% 34.63% 64.14% 91.61%
March 2008........... 67.99% 0.00% 33.98% 63.43% 90.90%
April 2008........... 66.73% 0.00% 33.33% 62.70% 90.19%
May 2008............. 65.77% 0.00% 32.64% 61.97% 89.46%
June 2008............ 64.52% 0.00% 31.97% 61.22% 88.72%
July 2008............ 63.23% 0.00% 31.36% 60.47% 87.98%
August 2008.......... 62.04% 0.00% 30.69% 59.72% 87.21%
September 2008....... 60.85% 0.00% 30.04% 58.95% 86.44%
October 2008......... 59.64% 0.00% 29.38% 58.17% 85.65%
November 2008........ 58.44% 0.00% 28.74% 57.39% 84.86%
December 2008........ 57.22% 0.00% 28.10% 56.60% 84.05%
January 2009......... 56.01% 0.00% 27.47% 55.80% 83.23%
February 2009........ 54.82% 0.00% 26.79% 55.00% 82.39%
March 2009........... 53.56% 0.00% 26.16% 54.18% 81.55%
April 2009........... 52.43% 0.00% 25.50% 53.36% 80.69%
May 2009............. 51.57% 0.00% 24.89% 52.52% 79.82%
June 2009............ 50.44% 0.00% 24.24% 51.68% 78.94%
July 2009............ 49.30% 0.00% 23.60% 50.84% 78.04%
August 2009.......... 48.18% 0.00% 23.01% 49.98% 77.14%
September 2009....... 47.08% 0.00% 22.38% 49.11% 76.22%
October 2009......... 45.97% 0.00% 21.75% 48.24% 75.28%
November 2009........ 44.89% 0.00% 21.14% 47.36% 74.34%
December 2009........ 43.80% 0.00% 20.53% 46.47% 73.38%
January 2010......... 42.73% 0.00% 19.88% 45.57% 72.41%
February 2010........ 41.65% 0.00% 19.29% 44.66% 71.43%
March 2010........... 40.53% 0.00% 18.71% 43.75% 70.43%
April 2010........... 39.52% 0.00% 18.09% 42.82% 69.43%
May 2010............. 38.78% 0.00% 17.47% 41.89% 68.40%
June 2010............ 37.76% 0.00% 16.91% 40.95% 67.37%
July 2010............ 36.74% 0.00% 16.32% 40.00% 66.32%
August 2010.......... 35.72% 0.00% 15.73% 39.04% 65.26%
September 2010....... 34.69% 0.00% 15.15% 38.08% 64.19%
October 2010......... 33.65% 0.00% 14.58% 37.10% 63.10%
November 2010........ 32.61% 0.00% 14.02% 36.12% 62.01%
December 2010........ 31.56% 0.00% 13.47% 35.12% 60.89%
January 2011......... 30.59% 0.00% 12.93% 34.12% 59.77%
February 2011........ 29.67% 0.00% 12.36% 33.11% 58.63%
March 2011........... 28.76% 0.00% 11.84% 32.09% 57.48%
April 2011........... 27.86% 0.00% 11.28% 31.07% 56.31%
May 2011............. 27.14% 0.00% 10.74% 30.03% 55.13%
June 2011............ 26.18% 0.00% 10.25% 28.99% 53.94%
July 2011............ 25.22% 0.00% 9.73% 27.93% 52.74%
August 2011.......... 24.33% 0.00% 9.22% 26.87% 51.52%
September 2011....... 23.47% 0.00% 8.72% 25.80% 50.28%
October 2011......... 22.61% 0.00% 8.23% 24.72% 49.04%
November 2011........ 21.78% 0.00% 7.72% 23.63% 47.78%
December 2011........ 20.95% 0.00% 7.25% 22.54% 46.50%
January 2012......... 20.14% 0.00% 6.80% 21.43% 45.22%
February 2012........ 19.34% 0.00% 6.32% 20.32% 43.91%
March 2012........... 18.54% 0.00% 5.89% 19.19% 42.60%
April 2012........... 17.76% 0.00% 5.44% 18.06% 41.27%
May 2012............. 16.99% 0.00% 5.00% 16.92% 39.93%
June 2012............ 16.23% 0.00% 4.57% 15.77% 38.57%
July 2012............ 15.49% 0.00% 4.15% 14.61% 37.20%
August 2012.......... 14.76% 0.00% 3.75% 13.44% 35.82%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
September 2012....... 14.05% 0.00% 3.36% 12.26% 34.42%
October 2012......... 13.34% 0.00% 2.98% 11.08% 33.00%
November 2012........ 12.65% 0.00% 2.59% 9.88% 31.58%
December 2012........ 11.97% 0.00% 2.24% 8.68% 30.13%
January 2013......... 11.32% 0.00% 1.87% 7.47% 28.68%
February 2013........ 10.67% 0.00% 1.55% 6.25% 27.21%
March 2013........... 10.03% 0.00% 1.21% 5.01% 25.73%
April 2013........... 9.42% 0.00% 0.88% 3.77% 24.23%
May 2013............. 8.81% 0.00% 0.57% 2.53% 22.71%
June 2013............ 8.23% 0.00% 0.28% 1.27% 21.19%
July 2013............ 7.65% 0.00% 0.00% 0.00% 19.64%
August 2013.......... 6.76% 0.00% 0.00% 0.00% 18.09%
September 2013....... 5.90% 0.00% 0.00% 0.00% 16.52%
October 2013......... 5.05% 0.00% 0.00% 0.00% 14.93%
November 2013........ 4.39% 0.00% 0.00% 0.00% 12.50%
December 2013........ 3.74% 0.00% 0.00% 0.00% 10.00%
January 2014......... 3.11% 0.00% 0.00% 0.00% 7.50%
February 2014........ 2.40% 0.00% 0.00% 0.00% 5.00%
March 2014........... 1.54% 0.00% 0.00% 0.00% 2.50%
April 2014........... 0.72% 0.00% 0.00% 0.00% 0.00%
May 2014............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2014............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2014............ 0.00% 0.00% 0.00% 0.00% 0.00%
August 2014.......... 0.00% 0.00% 0.00% 0.00% 0.00%
September 2014....... 0.00% 0.00% 0.00% 0.00% 0.00%
October 2014......... 0.00% 0.00% 0.00% 0.00% 0.00%
November 2014........ 0.00% 0.00% 0.00% 0.00% 0.00%
December 2014........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2015......... 0.00% 0.00% 0.00% 0.00% 0.00%
February 2015........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2015........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2015........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2015............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2015............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2015............ 0.00% 0.00% 0.00% 0.00% 0.00%
August 2015.......... 0.00% 0.00% 0.00% 0.00% 0.00%
September 2015....... 0.00% 0.00% 0.00% 0.00% 0.00%
October 2015......... 0.00% 0.00% 0.00% 0.00% 0.00%
November 2015........ 0.00% 0.00% 0.00% 0.00% 0.00%
December 2015........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2016......... 0.00% 0.00% 0.00% 0.00% 0.00%
February 2016........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2016........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2016........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2016............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2016............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2016............ 0.00% 0.00% 0.00% 0.00% 0.00%
August 2016.......... 0.00% 0.00% 0.00% 0.00% 0.00%
September 2016....... 0.00% 0.00% 0.00% 0.00% 0.00%
October 2016......... 0.00% 0.00% 0.00% 0.00% 0.00%
November 2016........ 0.00% 0.00% 0.00% 0.00% 0.00%
December 2016........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2017......... 0.00% 0.00% 0.00% 0.00% 0.00%
February 2017........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2017........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2017........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2017............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2017............ 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-20
<PAGE> 215
POOL FACTORS -- (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
July 2017............ 0.00% 0.00% 0.00% 0.00% 0.00%
August 2017.......... 0.00% 0.00% 0.00% 0.00% 0.00%
September 2017....... 0.00% 0.00% 0.00% 0.00% 0.00%
October 2017......... 0.00% 0.00% 0.00% 0.00% 0.00%
November 2017........ 0.00% 0.00% 0.00% 0.00% 0.00%
December 2017........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2018......... 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
February 2018........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2018........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2018........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2018............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2018............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2018............ 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-21
<PAGE> 216
APPENDIX 10
EXTENDED POOL FACTORS
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing.............. 100.00% 100.43% 100.00% 100.00% 100.00%
August 1998.......... 100.00% 99.79% 100.00% 100.00% 100.00%
September 1998....... 100.00% 99.04% 100.00% 100.00% 100.00%
October 1998......... 100.00% 98.30% 100.00% 100.00% 100.00%
November 1998........ 100.00% 97.54% 100.00% 100.00% 100.00%
December 1998........ 100.00% 96.79% 100.00% 100.00% 100.00%
January 1999......... 100.00% 96.03% 100.00% 100.00% 100.00%
February 1999........ 100.00% 95.27% 100.00% 100.00% 100.00%
March 1999........... 100.00% 94.48% 100.00% 100.00% 100.00%
April 1999........... 100.00% 93.71% 100.00% 100.00% 100.00%
May 1999............. 100.00% 92.94% 100.00% 100.00% 100.00%
June 1999............ 100.00% 92.17% 100.00% 100.00% 100.00%
July 1999............ 100.00% 91.39% 100.00% 100.00% 100.00%
August 1999.......... 100.00% 90.58% 99.94% 100.00% 100.00%
September 1999....... 100.00% 89.80% 99.60% 100.00% 100.00%
October 1999......... 100.00% 88.99% 99.25% 100.00% 100.00%
November 1999........ 100.00% 88.20% 98.91% 100.00% 100.00%
December 1999........ 100.00% 87.38% 98.45% 100.00% 100.00%
January 2000......... 100.00% 86.58% 98.10% 100.00% 100.00%
February 2000........ 100.00% 85.75% 97.75% 100.00% 100.00%
March 2000........... 100.00% 84.95% 97.40% 100.00% 100.00%
April 2000........... 100.00% 84.12% 97.05% 100.00% 100.00%
May 2000............. 100.00% 83.28% 96.69% 100.00% 100.00%
June 2000............ 100.00% 82.44% 96.34% 100.00% 100.00%
July 2000............ 100.00% 81.60% 95.87% 100.00% 100.00%
August 2000.......... 100.00% 80.75% 95.52% 100.00% 100.00%
September 2000....... 100.00% 79.90% 95.16% 100.00% 100.00%
October 2000......... 100.00% 79.05% 94.80% 99.99% 100.00%
November 2000........ 100.00% 78.20% 94.33% 99.98% 100.00%
December 2000........ 100.00% 77.31% 93.97% 99.97% 100.00%
January 2001......... 100.00% 76.45% 93.50% 99.96% 100.00%
February 2001........ 100.00% 75.55% 93.13% 99.94% 100.00%
March 2001........... 100.00% 74.69% 92.76% 99.92% 100.00%
April 2001........... 100.00% 73.79% 92.29% 99.89% 100.00%
May 2001............. 100.00% 72.89% 91.82% 99.87% 100.00%
June 2001............ 100.00% 71.98% 91.45% 99.83% 100.00%
July 2001............ 100.00% 71.07% 90.97% 99.80% 100.00%
August 2001.......... 100.00% 70.16% 90.60% 99.76% 100.00%
September 2001....... 100.00% 69.25% 90.12% 99.71% 100.00%
October 2001......... 100.00% 68.34% 89.64% 99.66% 100.00%
November 2001........ 100.00% 67.39% 89.17% 99.61% 100.00%
December 2001........ 100.00% 66.47% 88.69% 99.55% 100.00%
January 2002......... 100.00% 65.52% 88.31% 99.49% 100.00%
February 2002........ 100.00% 64.56% 87.83% 99.42% 100.00%
March 2002........... 100.00% 63.63% 87.35% 99.35% 100.00%
April 2002........... 100.00% 62.67% 86.87% 99.27% 100.00%
May 2002............. 100.00% 61.68% 86.38% 99.19% 100.00%
June 2002............ 100.00% 60.72% 85.90% 99.10% 100.00%
July 2002............ 100.00% 59.75% 85.32% 99.01% 100.00%
August 2002.......... 100.00% 58.76% 84.84% 98.91% 100.00%
September 2002....... 100.00% 57.78% 84.35% 98.81% 100.00%
October 2002......... 100.00% 56.78% 83.87% 98.70% 100.00%
November 2002........ 100.00% 55.78% 83.29% 98.59% 100.00%
December 2002........ 100.00% 54.77% 82.80% 98.47% 100.00%
January 2003......... 100.00% 53.76% 82.22% 98.35% 100.00%
February 2003........ 100.00% 52.75% 81.74% 98.22% 100.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
March 2003........... 100.00% 51.74% 81.16% 98.08% 100.00%
April 2003........... 100.00% 50.70% 80.67% 97.94% 100.00%
May 2003............. 100.00% 49.65% 80.09% 97.80% 100.00%
June 2003............ 100.00% 48.63% 79.51% 97.65% 100.00%
July 2003............ 100.00% 47.59% 79.02% 97.49% 100.00%
August 2003.......... 100.00% 46.51% 78.44% 97.33% 100.00%
September 2003....... 100.00% 45.46% 77.86% 97.16% 100.00%
October 2003......... 100.00% 44.41% 77.28% 96.98% 100.00%
November 2003........ 100.00% 43.33% 76.70% 96.80% 100.00%
December 2003........ 100.00% 42.24% 76.12% 96.62% 100.00%
January 2004......... 100.00% 41.18% 75.55% 96.43% 100.00%
February 2004........ 100.00% 40.07% 74.97% 96.23% 100.00%
March 2004........... 100.00% 38.99% 74.39% 96.02% 100.00%
April 2004........... 100.00% 37.90% 73.73% 95.81% 100.00%
May 2004............. 100.00% 36.78% 73.15% 95.60% 100.00%
June 2004............ 100.00% 35.69% 72.57% 95.38% 100.00%
July 2004............ 100.00% 34.57% 71.91% 95.15% 100.00%
August 2004.......... 100.00% 33.45% 71.34% 94.91% 100.00%
September 2004....... 100.00% 32.31% 70.68% 94.67% 100.00%
October 2004......... 100.00% 31.18% 70.02% 94.43% 100.00%
November 2004........ 100.00% 30.04% 69.45% 94.17% 100.00%
December 2004........ 100.00% 28.91% 68.79% 93.91% 100.00%
January 2005......... 100.00% 27.76% 68.14% 93.65% 100.00%
February 2005........ 100.00% 26.61% 67.48% 93.37% 100.00%
March 2005........... 100.00% 25.44% 66.83% 93.09% 100.00%
April 2005........... 100.00% 24.29% 66.18% 92.81% 100.00%
May 2005............. 100.00% 23.11% 65.53% 92.52% 100.00%
June 2005............ 100.00% 21.93% 64.89% 92.22% 100.00%
July 2005............ 100.00% 20.75% 64.24% 91.91% 100.00%
August 2005.......... 100.00% 19.58% 63.60% 91.60% 100.00%
September 2005....... 100.00% 18.40% 62.88% 91.28% 100.00%
October 2005......... 100.00% 17.20% 62.24% 90.96% 100.00%
November 2005........ 100.00% 15.99% 61.60% 90.63% 100.00%
December 2005........ 100.00% 14.79% 60.88% 90.29% 100.00%
January 2006......... 100.00% 13.59% 60.25% 89.94% 100.00%
February 2006........ 100.00% 12.36% 59.54% 89.59% 100.00%
March 2006........... 100.00% 11.18% 58.83% 89.23% 100.00%
April 2006........... 100.00% 9.99% 58.12% 88.86% 100.00%
May 2006............. 100.00% 8.81% 57.50% 88.49% 100.00%
June 2006............ 100.00% 7.61% 56.80% 88.11% 100.00%
July 2006............ 100.00% 6.43% 56.10% 87.72% 100.00%
August 2006.......... 100.00% 5.23% 55.41% 87.33% 100.00%
September 2006....... 100.00% 4.03% 54.64% 86.93% 100.00%
October 2006......... 100.00% 2.86% 53.95% 86.52% 100.00%
November 2006........ 100.00% 1.74% 53.27% 86.11% 100.00%
December 2006........ 100.00% 0.60% 52.58% 85.69% 100.00%
January 2007......... 99.54% 0.00% 51.83% 85.26% 100.00%
February 2007........ 98.57% 0.00% 51.16% 84.82% 100.00%
March 2007........... 97.60% 0.00% 50.42% 84.38% 100.00%
April 2007........... 96.63% 0.00% 49.70% 83.93% 100.00%
May 2007............. 95.64% 0.00% 49.05% 83.47% 100.00%
June 2007............ 94.66% 0.00% 48.33% 83.00% 100.00%
July 2007............ 93.68% 0.00% 47.62% 82.53% 100.00%
August 2007.......... 92.68% 0.00% 46.91% 82.05% 100.00%
September 2007....... 91.70% 0.00% 46.21% 81.56% 100.00%
October 2007......... 90.70% 0.00% 45.52% 81.07% 100.00%
</TABLE>
A-22
<PAGE> 217
EXTENDED POOL FACTORS -- (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
November 2007........ 89.70% 0.00% 44.86% 80.57% 100.00%
December 2007........ 88.70% 0.00% 44.19% 80.06% 100.00%
January 2008......... 87.70% 0.00% 43.47% 79.54% 100.00%
February 2008........ 86.70% 0.00% 42.82% 79.02% 100.00%
March 2008........... 85.69% 0.00% 42.17% 78.49% 100.00%
April 2008........... 84.70% 0.00% 41.46% 77.95% 100.00%
May 2008............. 83.72% 0.00% 40.75% 77.40% 100.00%
June 2008............ 82.76% 0.00% 40.12% 76.85% 100.00%
July 2008............ 81.80% 0.00% 39.42% 76.28% 100.00%
August 2008.......... 80.84% 0.00% 38.73% 75.71% 100.00%
September 2008....... 79.87% 0.00% 38.04% 75.14% 100.00%
October 2008......... 78.90% 0.00% 37.36% 74.55% 100.00%
November 2008........ 77.93% 0.00% 36.69% 73.96% 100.00%
December 2008........ 76.97% 0.00% 36.02% 73.36% 100.00%
January 2009......... 75.99% 0.00% 35.35% 72.75% 99.72%
February 2009........ 75.02% 0.00% 34.63% 72.14% 99.16%
March 2009........... 74.04% 0.00% 33.98% 71.51% 98.59%
April 2009........... 73.06% 0.00% 33.33% 70.88% 98.01%
May 2009............. 72.09% 0.00% 32.64% 70.25% 97.42%
June 2009............ 71.12% 0.00% 31.97% 69.60% 96.82%
July 2009............ 70.14% 0.00% 31.36% 68.94% 96.21%
August 2009.......... 69.16% 0.00% 30.69% 68.28% 95.59%
September 2009....... 68.17% 0.00% 30.04% 67.61% 94.95%
October 2009......... 67.19% 0.00% 29.38% 66.93% 94.30%
November 2009........ 66.22% 0.00% 28.74% 66.25% 93.65%
December 2009........ 65.23% 0.00% 28.10% 65.55% 92.98%
January 2010......... 64.25% 0.00% 27.47% 64.85% 92.30%
February 2010........ 63.27% 0.00% 26.79% 64.14% 91.61%
March 2010........... 62.30% 0.00% 26.16% 63.43% 90.90%
April 2010........... 61.31% 0.00% 25.50% 62.70% 90.19%
May 2010............. 60.33% 0.00% 24.89% 61.97% 89.46%
June 2010............ 59.35% 0.00% 24.24% 61.22% 88.72%
July 2010............ 58.37% 0.00% 23.60% 60.47% 87.98%
August 2010.......... 57.39% 0.00% 23.01% 59.72% 87.21%
September 2010....... 56.42% 0.00% 22.38% 58.95% 86.44%
October 2010......... 55.43% 0.00% 21.75% 58.17% 85.65%
November 2010........ 54.46% 0.00% 21.14% 57.39% 84.86%
December 2010........ 53.48% 0.00% 20.53% 56.60% 84.05%
January 2011......... 52.51% 0.00% 19.88% 55.80% 83.23%
February 2011........ 51.54% 0.00% 19.29% 55.00% 82.39%
March 2011........... 50.57% 0.00% 18.71% 54.18% 81.55%
April 2011........... 49.60% 0.00% 18.09% 53.36% 80.69%
May 2011............. 48.63% 0.00% 17.47% 52.52% 79.82%
June 2011............ 47.66% 0.00% 16.91% 51.68% 78.94%
July 2011............ 46.70% 0.00% 16.32% 50.84% 78.04%
August 2011.......... 45.74% 0.00% 15.73% 49.98% 77.14%
September 2011....... 44.78% 0.00% 15.15% 49.11% 76.22%
October 2011......... 43.83% 0.00% 14.58% 48.24% 75.28%
November 2011........ 42.88% 0.00% 14.02% 47.36% 74.34%
December 2011........ 41.93% 0.00% 13.47% 46.47% 73.38%
January 2012......... 40.98% 0.00% 12.93% 45.57% 72.41%
February 2012........ 40.03% 0.00% 12.36% 44.66% 71.43%
March 2012........... 39.09% 0.00% 11.84% 43.75% 70.43%
April 2012........... 38.16% 0.00% 11.28% 42.82% 69.43%
May 2012............. 37.23% 0.00% 10.74% 41.89% 68.40%
June 2012............ 36.30% 0.00% 10.25% 40.95% 67.37%
July 2012............ 35.37% 0.00% 9.73% 40.00% 66.32%
August 2012.......... 34.45% 0.00% 9.22% 39.04% 65.26%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
September 2012....... 33.54% 0.00% 8.72% 38.08% 64.19%
October 2012......... 32.63% 0.00% 8.23% 37.10% 63.10%
November 2012........ 31.72% 0.00% 7.72% 36.12% 62.01%
December 2012........ 30.81% 0.00% 7.25% 35.12% 60.89%
January 2013......... 29.92% 0.00% 6.80% 34.12% 59.77%
February 2013........ 29.03% 0.00% 6.32% 33.11% 58.63%
March 2013........... 28.14% 0.00% 5.89% 32.09% 57.48%
April 2013........... 27.26% 0.00% 5.44% 31.07% 56.31%
May 2013............. 26.39% 0.00% 5.00% 30.03% 55.13%
June 2013............ 25.52% 0.00% 4.57% 28.99% 53.94%
July 2013............ 24.66% 0.00% 4.15% 27.93% 52.74%
August 2013.......... 23.80% 0.00% 3.75% 26.87% 51.52%
September 2013....... 22.95% 0.00% 3.36% 25.80% 50.28%
October 2013......... 22.12% 0.00% 2.98% 24.72% 49.04%
November 2013........ 21.31% 0.00% 2.59% 23.63% 47.78%
December 2013........ 20.51% 0.00% 2.24% 22.54% 46.50%
January 2014......... 19.71% 0.00% 1.87% 21.43% 45.22%
February 2014........ 18.95% 0.00% 1.55% 20.32% 43.91%
March 2014........... 18.18% 0.00% 1.21% 19.19% 42.60%
April 2014........... 17.44% 0.00% 0.88% 18.06% 41.27%
May 2014............. 16.71% 0.00% 0.57% 16.92% 39.93%
June 2014............ 15.99% 0.00% 0.28% 15.77% 38.57%
July 2014............ 15.27% 0.00% 0.00% 14.61% 37.20%
August 2014.......... 14.57% 0.00% 0.00% 13.44% 35.82%
September 2014....... 13.89% 0.00% 0.00% 12.26% 34.42%
October 2014......... 13.23% 0.00% 0.00% 11.08% 33.00%
November 2014........ 12.58% 0.00% 0.00% 9.88% 31.58%
December 2014........ 11.95% 0.00% 0.00% 8.68% 30.13%
January 2015......... 11.32% 0.00% 0.00% 7.47% 28.68%
February 2015........ 10.72% 0.00% 0.00% 6.25% 27.21%
March 2015........... 10.14% 0.00% 0.00% 5.01% 25.73%
April 2015........... 9.58% 0.00% 0.00% 3.77% 24.23%
May 2015............. 9.04% 0.00% 0.00% 2.53% 22.71%
June 2015............ 8.51% 0.00% 0.00% 1.27% 21.19%
July 2015............ 8.00% 0.00% 0.00% 0.00% 19.64%
August 2015.......... 7.49% 0.00% 0.00% 0.00% 18.09%
September 2015....... 6.99% 0.00% 0.00% 0.00% 16.52%
October 2015......... 6.50% 0.00% 0.00% 0.00% 14.93%
November 2015........ 6.02% 0.00% 0.00% 0.00% 12.50%
December 2015........ 5.54% 0.00% 0.00% 0.00% 10.00%
January 2016......... 5.08% 0.00% 0.00% 0.00% 7.50%
February 2016........ 4.64% 0.00% 0.00% 0.00% 5.00%
March 2016........... 4.27% 0.00% 0.00% 0.00% 2.50%
April 2016........... 3.94% 0.00% 0.00% 0.00% 0.00%
May 2016............. 3.63% 0.00% 0.00% 0.00% 0.00%
June 2016............ 3.33% 0.00% 0.00% 0.00% 0.00%
July 2016............ 3.03% 0.00% 0.00% 0.00% 0.00%
August 2016.......... 2.75% 0.00% 0.00% 0.00% 0.00%
September 2016....... 2.48% 0.00% 0.00% 0.00% 0.00%
October 2016......... 2.23% 0.00% 0.00% 0.00% 0.00%
November 2016........ 1.99% 0.00% 0.00% 0.00% 0.00%
December 2016........ 1.76% 0.00% 0.00% 0.00% 0.00%
January 2017......... 1.54% 0.00% 0.00% 0.00% 0.00%
February 2017........ 1.32% 0.00% 0.00% 0.00% 0.00%
March 2017........... 1.12% 0.00% 0.00% 0.00% 0.00%
April 2017........... 0.93% 0.00% 0.00% 0.00% 0.00%
May 2017............. 0.76% 0.00% 0.00% 0.00% 0.00%
June 2017............ 0.60% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-23
<PAGE> 218
EXTENDED POOL FACTORS -- (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
July 2017............ 0.48% 0.00% 0.00% 0.00% 0.00%
August 2017.......... 0.39% 0.00% 0.00% 0.00% 0.00%
September 2017....... 0.33% 0.00% 0.00% 0.00% 0.00%
October 2017......... 0.27% 0.00% 0.00% 0.00% 0.00%
November 2017........ 0.22% 0.00% 0.00% 0.00% 0.00%
December 2017........ 0.17% 0.00% 0.00% 0.00% 0.00%
January 2018......... 0.13% 0.00% 0.00% 0.00% 0.00%
February 2018........ 0.10% 0.00% 0.00% 0.00% 0.00%
March 2018........... 0.09% 0.00% 0.00% 0.00% 0.00%
April 2018........... 0.07% 0.00% 0.00% 0.00% 0.00%
May 2018............. 0.06% 0.00% 0.00% 0.00% 0.00%
June 2018............ 0.05% 0.00% 0.00% 0.00% 0.00%
July 2018............ 0.04% 0.00% 0.00% 0.00% 0.00%
August 2018.......... 0.03% 0.00% 0.00% 0.00% 0.00%
September 2018....... 0.02% 0.00% 0.00% 0.00% 0.00%
October 2018......... 0.01% 0.00% 0.00% 0.00% 0.00%
November 2018........ 0.01% 0.00% 0.00% 0.00% 0.00%
December 2018........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2019......... 0.00% 0.00% 0.00% 0.00% 0.00%
February 2019........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2019........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2019........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2019............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2019............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2019............ 0.00% 0.00% 0.00% 0.00% 0.00%
August 2019.......... 0.00% 0.00% 0.00% 0.00% 0.00%
September 2019....... 0.00% 0.00% 0.00% 0.00% 0.00%
October 2019......... 0.00% 0.00% 0.00% 0.00% 0.00%
November 2019........ 0.00% 0.00% 0.00% 0.00% 0.00%
December 2019........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2020......... 0.00% 0.00% 0.00% 0.00% 0.00%
February 2020........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2020........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2020........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2020............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2020............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2020............ 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
August 2020.......... 0.00% 0.00% 0.00% 0.00% 0.00%
September 2020....... 0.00% 0.00% 0.00% 0.00% 0.00%
October 2020......... 0.00% 0.00% 0.00% 0.00% 0.00%
November 2020........ 0.00% 0.00% 0.00% 0.00% 0.00%
December 2020........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2021......... 0.00% 0.00% 0.00% 0.00% 0.00%
February 2021........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2021........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2021........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2021............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2021............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2021............ 0.00% 0.00% 0.00% 0.00% 0.00%
August 2021.......... 0.00% 0.00% 0.00% 0.00% 0.00%
September 2021....... 0.00% 0.00% 0.00% 0.00% 0.00%
October 2021......... 0.00% 0.00% 0.00% 0.00% 0.00%
November 2021........ 0.00% 0.00% 0.00% 0.00% 0.00%
December 2021........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2022......... 0.00% 0.00% 0.00% 0.00% 0.00%
February 2022........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2022........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2022........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2022............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2022............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2022............ 0.00% 0.00% 0.00% 0.00% 0.00%
August 2022.......... 0.00% 0.00% 0.00% 0.00% 0.00%
September 2022....... 0.00% 0.00% 0.00% 0.00% 0.00%
October 2022......... 0.00% 0.00% 0.00% 0.00% 0.00%
November 2022........ 0.00% 0.00% 0.00% 0.00% 0.00%
December 2022........ 0.00% 0.00% 0.00% 0.00% 0.00%
January 2023......... 0.00% 0.00% 0.00% 0.00% 0.00%
February 2023........ 0.00% 0.00% 0.00% 0.00% 0.00%
March 2023........... 0.00% 0.00% 0.00% 0.00% 0.00%
April 2023........... 0.00% 0.00% 0.00% 0.00% 0.00%
May 2023............. 0.00% 0.00% 0.00% 0.00% 0.00%
June 2023............ 0.00% 0.00% 0.00% 0.00% 0.00%
July 2023............ 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-24
<PAGE> 219
AERCO LIMITED
c/o AerFi Administrative
Services Limited
Aviation House
Shannon
Ireland
and
22 Grenville Street
St. Helier
Jersey JE4 8PX
Channel Islands
<TABLE>
<S> <C>
BOOK-ENTRY DEPOSITARY,
TRUSTEE, SECURITY TRUSTEE,
CASH MANAGER REFERENCE AND EXCHANGE AGENT PAYING AGENT
AND REGISTRAR
BANKERS TRUST COMPANY
BANKERS TRUST COMPANY
Four Albany Street
Mail Stop 5091 Four Albany Street
New York, New York 10006 Mail Stop 5091
USA New York, New York 10006
USA
ADMINISTRATIVE AGENT SERVICER
AERFI ADMINISTRATIVE BABCOCK & BROWN LIMITED
SERVICES LIMITED Oracle House
Aviation House Herbert Street
Shannon Dublin 2
Ireland Ireland
</TABLE>
LUXEMBOURG PAYING AGENT
AND CO-REGISTRAR
BANQUE INTERNATIONALE A LUXEMBOURG S.A.
69, route d'Esch
L-1470 Luxembourg
LEGAL ADVISORS
<TABLE>
<S> <C>
To AerCo group as to To AerCo group as to
United States law Jersey law
DAVIS POLK & WARDWELL MOURANT DU FEU & JEUNE
1 Frederick's Place 22 Grenville Street
London EC2R 8AB St. Helier
England Jersey JE4 8PX
Channel Islands
To AerCo group as to
Irish law
MCCANN FITZGERALD
2 Harbourmaster Place
Custom House Dock
Dublin 1
Ireland
</TABLE>
LISTING AGENT
BANQUE INTERNATIONALE A LUXEMBOURG S.A.
69, route d'Esch
L-1470 Luxembourg
<PAGE> 220
(LOGO) Printed in London X39423
<PAGE> 221
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as hereinafter set forth, there is no provision of AerCo Limited's
Memorandum and Articles of Association, or of any contract, arrangement or
statute under which any director, trustee or officer of AerCo Limited is insured
or indemnified in any manner against any liability that he may incur in his
capacity as such.
AerCo Limited's Articles of Association provide that AerCo Limited shall
indemnify every present and former director of AerCo Limited against any loss or
liability incurred by reason of being or having been a director of AerCo Limited
to the fullest extent permitted by Jersey law. Article 77 of the Companies
(Jersey) Law 1991 ("Article 77") permits a Jersey company to indemnify each
director of that company against, among others, any liabilities incurred in
defending any proceedings whether civil or criminal (i) in which judgment is
given in his favor or he is acquitted, or (ii) which are discontinued otherwise
than for some benefit conferred by him or on his behalf or for some detriment
suffered by him, or (iii) which are settled on terms which include such benefit
or detriment and, in the opinion of a majority of the directors of the company
excluding any director who conferred such benefit or on whose behalf such
benefit was conferred or who suffered such detriment, the director was
substantially successful on the merits in his resistance to the proceedings.
AerCo Limited may purchase and maintain, in the name of and at the expense
of AerCo Limited, insurance for the benefit of any person who is or was a
director or officer of AerCo Limited or is or was serving at the request of
AerCo Limited as a director or officer in another corporation, partnership,
joint venture, trust or other enterprise against any liability incurred by him
or her in any such capacity, or arising out of such person's status as such,
whether or not AerCo Limited would have the power to indemnify him or her
against such liability under Article 77.
ITEM 21. EXHIBITS
(a) Exhibits
The following is a list of exhibits to this Registration Statement:
<TABLE>
<C> <S>
3.1 Memorandum and Articles of Association of AerCo*
4.1 Indenture dated as of July 15, 1998 by and among AerCo and
Bankers Trust Company, as trustee with respect to the Notes*
4.2 Form of Global Note (included in Exhibit 4.1)*
4.3 Registration Rights Agreement dated July 15, 1998 by and
between AerCo and Morgan Stanley & Co. International
Limited*
5.1 Opinion of Davis Polk & Wardwell as to the legality of the
securities being registered hereby*
5.2 Opinion of Mourant du Feu & Jeune 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)*
8.2 Opinion of KPMG as to certain Irish tax matters*
8.3 Opinion of McCann FitzGerald as to certain Irish tax
matters*
8.4 Opinion of Mourant du Feu & Jeune as to certain Jersey tax
matters*
9.1 Trust Instrument constituting AerCo Holding Trust*
9.2 Shareholders Undertaking between Mourant & Co. Trustees
Limited as trustee of AerCo Holding Trust the Nominees, GPA
Group, AerCo and the trustee*
</TABLE>
II-1
<PAGE> 222
<TABLE>
<C> <S>
10.1 Administrative Agency Agreement dated as of July 15, 1998
among AerCo, AerFi Administrative Services Limited, as
Administrative Agent, Bankers Trust Company, as security
trustee GPA Group, as Guarantor and each subsidiary of
AerCo*
10.2 Cash Management Agreement dated as of July 15, 1998 among
AerCo, Bankers Trust Company, as security trustee, GPA Cash
Manager II Limited, as Cash Manager GPA, as Guarantor and
each subsidiary of AerCo*
10.3 Security Trust Agreement dated as of July 15, 1998 among
AerCo, Bankers Trust Company, as Security trustee and as
trustee, GPA Cash Manager II Limited, as Cash Manager, AerFi
Administrative Services Limited, as Administrative Agent,
Lively Limited, GPA Group, Babcock & Brown Limited, Mourant
& Co. Secretaries Limited and each subsidiary of AerCo*
10.4 Reference Agency Agreement dated as of July 15, 1998 among
AerCo, Bankers Trust Company, as reference agent and as
trustee and GPA Administrative Services Limited, as
Administrative Agent*
10.5 Servicing Agreement dated as of July 15, 1998 among AerCo,
Babcock & Brown Limited as Administrative Agent and each
subsidiary of AerCo*
10.6 Share Purchase Agreement dated July 15, 1998 between AerCo,
GPA Group and Skyscape Limited*
10.7 Deposit Agreement dated as of July 15, 1998 between AerCo
and Bankers Trust Company, as book-entry depositary*
21.1 Subsidiaries of AerCo*
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 Arthur Andersen, Chartered Accountants
23.6 Consent of KPMG (included in Exhibit 8.2)*
23.7 Consent of McCann FitzGerald (included in Exhibit 8.3)*
23.8 Consent of Mourant du Feu & Jeune (included in Exhibit 8.4)
23.9 Consent of KPMG, Chartered Accountants
24.1 Directors' 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*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letters to DTC Participants*
99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant*
99.5 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft*
99.6 Appraisal of BK Associates, Inc. relating to the Aircraft*
99.7 Appraisal of Airclaims Limited relating to the Aircraft*
99.8 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft dated January 18, 1999*
99.9 Appraisal of BK Associates, Inc. relating to the Aircraft
dated January 18, 1999*
99.10 Appraisal of Airclaims Limited relating to the Aircraft
dated January 18, 1999*
</TABLE>
* Previously filed.
II-2
<PAGE> 223
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an 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.
(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 as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other Items of the
applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment 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 offerings thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other that the payment by the registrant of expenses
incurred or paid by a director, officer of 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 of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant, AerCo
Limited, has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Shannon, Ireland, on March 8,
1999.
AERCO LIMITED
By: /s/ FREDERICK W. BRADLEY, JR.
------------------------------------
Independent Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frederick W. Bradley, Jr., Kenneth N. Peters, G.
Adrian Robinson, Edward Hansom and Rose Hynes his/her true and lawful
attorneys-in-fact and agent, each acting alone, with full powers of substitution
and resubstitution, for him/her and in his/her 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/her said attorneys-in-fact and agents or any of them or his/her 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ FREDERICK W. BRADLEY, JR. Independent Director March -- ,
- ----------------------------------------------------- (principal executive officer) 1999
Frederick W. Bradley, Jr.
/s/ KENNETH N. PETERS Independent Director March -- ,
- ----------------------------------------------------- (principal accounting 1999
Kenneth N. Peters officer)
/s/ G. ADRIAN ROBINSON Independent Director March -- ,
- ----------------------------------------------------- (principal financial officer) 1999
G. Adrian Robinson
/s/ EDWARD HANSOM Director March -- ,
- ----------------------------------------------------- 1999
Edward Hansom
/s/ ROSE HYNES Director March -- ,
- ----------------------------------------------------- 1999
Rose Hynes
Authorized Representative in the United States
/s/ FREDERICK W. BRADLEY, JR.
- -----------------------------------------------------
Name: Frederick W. Bradley, Jr.
</TABLE>
II-4
<PAGE> 225
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
TO THE BOARD OF DIRECTORS
OF AERCO LIMITED ("AERCO")
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Aircraft Lease Portfolio Securitization
94-1 Limited (ALPS 94-1) and the financial statements appearing under the
heading "AerFi transferred aircraft" for the year ended June 30, 1998 included
in this registration statement and have issued our reports thereon dated
November 23, 1998. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole.
The schedule included within the registration statement on S-2 is the
responsibility of AerCo's management and is presented for the purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
KPMG
Chartered Accountants
5 George's Dock
IFSC
Dublin 1
Ireland
/s/ KPMG
January 26, 1999
S-1
<PAGE> 226
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
TO THE BOARD OF DIRECTORS
OF AERCO LIMITED (THE "AERCO")
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Aircraft Lease Portfolio Securitization
94-1 Limited (ALPS 94-1) and the financial statements appearing under the
heading "AerFi transferred aircraft" for the years ended June 30, 1996 and June
30, 1997 included in this registration statement and have issued our reports
thereon dated December 2, 1997. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The schedule included within the registration statement on S-2 is the
responsibility of the AerCo's management and is presented for the purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN
Chartered Accountants
St Helier, Jersey
/s/ ARTHUR ANDERSEN
January 26, 1999
S-2
<PAGE> 227
ALPS 94-1 LIMITED/AERFI TRANSFERRED AIRCRAFT
VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE
SCHEDULE II
ALPS 94-1 LIMITED
<TABLE>
<CAPTION>
BALANCE AT CHARGED/(RELEASED) DEDUCTIONS BALANCE AT
BEGINNING TO COSTS AND (WRITE-OFFS/ END
OF YEAR/PERIOD EXPENSES TRANSFERS) OF YEAR/PERIOD
-------------- ------------------ ------------ --------------
($'000)
<S> <C> <C> <C> <C>
Year ended June 30,
1996........................ 0 0 0 0
1997........................ 0 0 0 0
1998........................ 0 0 0 0
</TABLE>
AERFI TRANSFERRED AIRCRAFT
<TABLE>
<CAPTION>
BALANCE AT CHARGED/(RELEASED) DEDUCTIONS BALANCE AT
BEGINNING TO COSTS AND (WRITE-OFFS/ END
OF YEAR/PERIOD EXPENSES TRANSFERS) OF YEAR/PERIOD
-------------- ------------------ ------------ --------------
($'000)
<S> <C> <C> <C> <C>
Year ended June 30,
1998........................ 212 413 0 625
</TABLE>
S-3
<PAGE> 228
INDEX TO EXHIBITS
<TABLE>
<C> <S>
3.1 Memorandum and Articles of Association of AerCo*
4.1 Indenture dated as of July 15, 1998 by and among AerCo and
Bankers Trust Company, as trustee with respect to the Notes*
4.2 Form of Global Note (included in Exhibit 4.1)*
4.3 Registration Rights Agreement dated July 15, 1998 by and
between AerCo and Morgan Stanley & Co. International
Limited*
5.1 Opinion of Davis Polk & Wardwell as to the legality of the
securities being registered hereby*
5.2 Opinion of Mourant du Feu & Jeune 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)*
8.2 Opinion of KPMG as to certain Irish tax matters*
8.3 Opinion of McCann FitzGerald as to certain Irish tax
matters*
8.4 Opinion of Mourant du Feu & Jeune as to certain Jersey tax
matters*
9.1 Trust Instrument constituting AerCo Holding Trust*
9.2 Shareholders Undertaking between Mourant & Co. Trustees
Limited as trustee of AerCo Holding Trust the Nominees, GPA
Group, AerCo and the trustee*
10.1 Administrative Agency Agreement dated as of July 15, 1998
among AerCo, AerFi Administrative Services Limited, as
Administrative Agent, Bankers Trust Company, as security
trustee GPA Group, as Guarantor and each subsidiary of
AerCo*
10.2 Cash Management Agreement dated as of July 15, 1998 among
AerCo, Bankers Trust Company, as security trustee, GPA Cash
Manager II Limited, as Cash Manager GPA, as Guarantor and
each subsidiary of AerCo*
10.3 Security Trust Agreement dated as of July 15, 1998 among
AerCo, Bankers Trust Company, as Security trustee and as
trustee, GPA Cash Manager II Limited, as Cash Manager, AerFi
Administrative Services Limited, as Administrative Agent,
Lively Limited, GPA Group, Babcock & Brown Limited, Mourant
& Co. Secretaries Limited and each subsidiary of AerCo*
10.4 Reference Agency Agreement dated as of July 15, 1998 among
AerCo, Bankers Trust Company, as reference agent and as
trustee and GPA Administrative Services Limited, as
Administrative Agent*
10.5 Servicing Agreement dated as of July 15, 1998 among AerCo,
Babcock & Brown Limited as Administrative Agent and each
subsidiary of AerCo*
10.6 Share Purchase Agreement dated July 15, 1998 between AerCo,
GPA Group and Skyscape Limited*
10.7 Deposit Agreement dated as of July 15, 1998 between AerCo
and Bankers Trust Company, as book-entry depositary*
21.1 Subsidiaries of AerCo*
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 Arthur Andersen, Chartered Accountants
23.6 Consent of KPMG (included in Exhibit 8.2)*
23.7 Consent of McCann FitzGerald (included in Exhibit 8.3)*
</TABLE>
<PAGE> 229
<TABLE>
<C> <S>
23.8 Consent of Mourant du Feu & Jeune (included in Exhibit 8.4)*
23.9 Consent of KPMG, Chartered Accountants
24.1 Directors' 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*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letters to DTC Participants*
99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant*
99.5 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft*
99.6 Appraisal of BK Associates, Inc. relating to the Aircraft*
99.7 Appraisal of Airclaims Limited relating to the Aircraft*
99.8 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft dated January 18, 1999*
99.9 Appraisal of BK Associates, Inc. relating to the Aircraft
dated January 18, 1999*
99.10 Appraisal of Airclaims Limited relating to the Aircraft
dated January 18, 1999*
</TABLE>
* Previously filed.
<PAGE> 1
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
Of AerCo Limited (the "Company")
As independent public accountants, we hereby consent to the use of our report
dated December 2, 1997 and June 23, 1998 on the financial statements (as
restated) of Aircraft Lease Portfolio Securitization 94-1 Limited and Aerfi
Transferred Aircraft included in the Prospectus, which is part of this
Registration Statement, and to all references to our firm included in or
made a part of this Registration Statement of Form F-4 (file no. 333-66973) of
AerCo Limited.
/s/ Arthur Andersen
Arthur Andersen
Chartered Accountants
St Helier, Jersey
March 30, 1999
<PAGE> 1
Exhibit 23.9
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
of AerCo Limited (the "company")
We consent to the inclusion of (i)our report dated November 23, 1998 on the
financial statements of Aircraft Lease Portfolio Securitization 94-1 Limited,
(ii) our report dated November 23, 1998 on the financial statements of
AerFi transferred aircraft and (iii) our report dated March 8, 1999 on the
balance sheet of AerCo Limited included in the Prospectus, which is part of this
Registration Statement, and to all references to our firm included in or made a
part of this Registrations Statement of Form F-4 (file no. 333-66973) of AerCo
Limited.
/s/ KPMG
KPMG
Chartered Accountants
5 George's Dock
IFSC
Dublin 1
Ireland
March 30, 1999
