UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
__________________
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
__________________
Commission File No. 333-69864
__________________
LEASE INVESTMENT FLIGHT TRUST
-----------------------------
(Exact name of registrant as specified in its charter)
51-65219
(IRS Employer Identification No.)
DELAWARE
(State or other jurisdiction of incorporation or organization)
1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890
(302) 651-1000
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
This document consists of 17 pages.
Lease Investment Flight Trust
FORM 10-Q - For the Quarterly Period Ended March 31, 2002
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Consolidated Balance Sheets - March 31, 2002 and
December 31, 2001................................................3
b) Consolidated Statement of Operations - Three Months Ended
March 31, 2002...................................................4
c) Consolidated Statement of Changes in Beneficial
Interest Holders' Deficit and Comprehensive Loss -
Three Months Ended March 31, 2002................................5
d) Consolidated Statement of Cash Flows - Three Months Ended
March 31, 2002...................................................6
e) Notes to Consolidated Financial Statements.......................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.................................................13
Part II. Other Information
Item 5. Other Information...........................................15
Item 6. Exhibits and Reports on Form 8-K............................15
Signatures ............................................................16
2
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
Lease Investment Flight Trust and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
March 31, December 31,
2002 2001
--------- ------------
(unaudited)
Assets
Cash and cash equivalents $ 98,640 $ 97,499
Restricted cash 11,155 10,468
Rents receivable 2,627 3,186
Prepaids 161 315
Aircraft, net 1,280,511 1,291,759
Debt issuance cost, net and other deferred
charges 20,560 18,358
----------- -----------
Total assets $ 1,413,654 $ 1,421,585
=========== ===========
Liabilities and Beneficial Interest Holders' Deficit
Accounts payable and accrued liabilities $ 5,107 $ 4,434
Deferred rental income 5,165 5,343
Derivative financial instruments 13,317 23,541
Security and other deposits 20,783 16,960
Notes payable:
Class A-1 400,000 400,000
Class A-2 260,000 260,000
Class A-3 392,002 401,767
Class B-1 58,201 58,739
Class B-2 80,512 81,255
Class C-1 69,000 69,000
Class C-2 72,000 72,000
Class D-1 35,000 35,000
Class D-2 25,000 25,000
Unamortized Class D discounts (14,939) (15,317)
----------- -----------
Total notes payable, net 1,376,776 1,387,444
----------- -----------
Total liabilities 1,421,148 1,437,722
----------- -----------
Beneficial interest holders' equity:
Beneficial interest 5,823 7,404
Accumulated other comprehensive loss (13,317) (23,541)
----------- -----------
Total beneficial interest holders' deficit (7,494) (16,137)
----------- -----------
Total liabilities and beneficial interest
holders' deficit $ 1,413,654 $ 1,421,585
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
3
Lease Investment Flight Trust and Subsidiaries
Consolidated Statement of Operations
(unaudited)
(dollars in thousands)
Three Months
Ended
March 31, 2002
--------------
Revenues:
Rental income from operating leases $ 35,782
Interest income 481
--------
Total revenues 36,263
--------
Expenses:
Interest 23,005
Depreciation and amortization 12,042
Operating 1,268
Administration and other 1,529
--------
Total expenses 37,844
--------
Net Loss $ (1,581)
========
The accompanying notes are an integral part of
these consolidated financial statements.
4
Lease Investment Flight Trust and Subsidiaries
Consolidated Statement of Changes in Beneficial Interest
Holders' Deficit and Comprehensive Loss
(unaudited)
(dollars in thousands)
Accumulated Total Beneficial
Other Comprehensive Beneficial Interest Interest
Income (Loss) Holders' Equity Holders' Deficit
------------- --------------- ----------------
Balance at December 31, 2001 $(23,541) $ 7,404 $(16,137)
Comprehensive income:
Net loss -- (1,581) (1,581)
Other comprehensive income
changes in fair value of derivative
financial instruments 10,224 -- 10,224
--------
Total comprehensive income 8,643
-------- -------- --------
Balance at March 31, 2002 $(13,317) $ 5,823 $ (7,494)
======== ======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
5
Lease Investment Flight Trust and Subsidiaries
Consolidated Statement of Cash Flows
(unaudited)
(dollars in thousands)
Three Months
Ended
March 31, 2002
--------------
Cash flows from operating activities:
Net loss $ (1,581)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,042
Note discount amortization 378
Changes in assets and liabilities:
Rents receivable 559
Restricted cash (687)
Prepaids 154
Deferred charges (2,996)
Accounts payable and accrued liabilities 673
Deferred rental income (178)
Security and other deposits 3,823
--------
Net cash provided by operating activities 12,187
--------
Cash flows from financing activities:
Repayment of notes payable (11,046)
--------
Net cash used in financing activities (11,046)
--------
Net increase in cash and cash equivalents 1,141
Cash and cash equivalents at beginning of period 97,499
--------
Cash and cash equivalents at end of period $ 98,640
========
Supplemental cash flow information:
Cash paid for interest expense $ 22,230
========
The accompanying notes are an integral part of
these consolidated financial statements.
6
Lease Investment Flight Trust and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2002
Note 1 - Organization
Lease Investment Flight Trust ("LIFT") is a special-purpose statutory
business trust that was formed on June 13, 2001 under the laws of the State of
Delaware. On June 26, 2001 (the "Closing Date"), LIFT acquired one direct
subsidiary, LIFT Trust Sub-1 ("LIFT 1"), a Delaware business trust, from
Automatic LIFT I, LP ("Automatic"), its beneficial owner. LIFT 1 has various
domestic and foreign subsidiaries that own or lease aircraft. The authorized
business of LIFT and its subsidiaries, all of which were organized prior to the
Closing Date (collectively, the "LIFT group"), is limited to acquiring,
financing, re-financing, owning, leasing, re-leasing, selling, maintaining and
modifying commercial aircraft.
On the Closing Date, LIFT 1 and its subsidiaries entered into an
agreement to acquire 39 commercial jet aircraft (the "Initial Aircraft") from
General Electric Capital Corporation and certain of its affiliates (together,
the "Seller") from the proceeds of bridge notes issued on the same date (the
"Bridge Notes"). Also on the Closing Date, LIFT completed a securitization
transaction in which it received proceeds from a private placement offering of
notes (the "Initial Notes") and simultaneously paid for the cash purchase price
of LIFT 1 and repaid the Bridge Notes on behalf of LIFT 1.
On December 18, 2001, LIFT completed an exchange offer whereby it
issued seven classes of new notes, also designated Class A-1, Class A-2, Class
A-3, Class B-1, Class B-2, Class C-1, and Class C-2 (the "Exchange Notes" and,
together with the Initial Notes, the "Notes"), in exchange for the seven
corresponding classes of the Initial Notes. The terms of the Exchange Notes are
identical in all material respects to the Initial Notes, except that the
Exchange Notes are registered under the Securities Act of 1933, as amended. The
Class D-1 and Class D-2 Notes were not exchanged and remained unregistered. $10
million of the Class A-2 and $34 million of the Class A-3 Initial Notes were not
tendered in the exchange offer and remain outstanding.
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the Securities and
Exchange Commission for interim financial statements. Accordingly, these interim
statements do not include all of the information and disclosures required for
complete financial statements. In the opinion of the controlling trustees, based
upon the advice of LIFT's administrative agent, all adjustments (consisting
solely of adjustments of a normal recurring nature) necessary for a fair
statement of these interim results have been included. All intercompany accounts
and transactions have been eliminated. The results for the interim periods are
not necessarily indicative of the results to be expected for the year ending
December 31, 2002.
These interim unaudited consolidated financial statements should be
read in conjunction with the LIFT group's consolidated financial statements and
accompanying notes included in LIFT's Annual Report on Form 10-K (Registration
7
No. 333-69864) for the year ended December 31, 2001 filed with the Securities
and Exchange Commission on March 28, 2002 (the "Annual Report").
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. While the controlling trustees, based upon
the advice of LIFT's administrative agent, believe that the estimates and
related assumptions used in the preparation of the consolidated financial
statements are appropriate, actual results could differ from those estimates.
Significant estimates are made in the assessment of the collectibility of
receivables, depreciable lives and estimated residual values of leased aircraft.
Risks and Uncertainties
The controlling trustees are not aware of any trend or uncertainty that
is reasonably likely to have a material effect on the LIFT group's financial
condition or results of operations other than risks and uncertainties disclosed
in the Annual Report.
Reclassifications
Certain reclassifications have been made to prior year data to conform
with the current year.
Note 3 - Derivative Financial Instruments
Interest Rate Swap Agreements
At March 31, 2002, LIFT was a party to an interest rate swap agreement
which it entered into on June 13, 2001 and which became effective on the Closing
Date. Under the agreement, LIFT pays a fixed rate of interest to the
counterparty based on an amortizing notional amount and, in turn, the
counterparty pays LIFT a rate of interest based on the same amortizing notional
amount based on LIBOR as set out below (dollars in thousands):
Rate to be Rate to be
Notional paid by received by Maturity Estimated
Amount LIFT LIFT Date Fair Value
------ ---- ---- ---- ----------
$1,190,410 5.79% LIBOR June 15, 2011 $ (13,317)
On March 31, 2002, the fair value of the interest rate swap was a
liability of approximately $13.3 million compared to a liability of
approximately $23.5 million on December 31, 2001, an increase in fair value of
the derivative of $10.2 million.
The one-month LIBOR with respect to the interest rate swap as of March
31, 2002 was 1.90%.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
On the Closing Date, LIFT issued $1,429.0 million of Initial Notes in
nine classes: Class A-1, Class A-2, Class A-3, Class B-1, Class B-2, Class C-1,
Class C-2, Class D-1 and Class D-2. LIFT used the proceeds from the sale of the
Initial Notes to fund cash reserves, pay transaction expenses and make the
payments described in the following paragraph. Also on the Closing Date, LIFT 1
issued $1,310.5 million of Bridge Notes to Credit Suisse First Boston
Corporation, the proceeds of which were used by LIFT 1 to pay to the Seller the
full aircraft purchase price for all 39 Initial Aircraft.
Also on the Closing Date, LIFT agreed with Automatic to purchase LIFT 1
and its subsidiaries under a beneficial interest purchase agreement, to pay to
Automatic the cash purchase price of approximately $5.5 million and to repay the
Bridge Notes on behalf of LIFT 1. As a result, LIFT 1 became a part of the LIFT
group on the Closing Date.
LIFT and its subsidiaries are special-purpose entities, a number of
which own aircraft subject to operating leases. The LIFT group's business
consists of aircraft leasing activities. The LIFT group may also engage in
acquisitions of additional aircraft and sales of aircraft. Any acquisitions of
additional aircraft and the related issuance of additional notes will require
confirmation by the rating agencies rating the Notes that they will not lower,
qualify or withdraw their ratings on the outstanding Notes as a result. The LIFT
group's cash flows from its leasing activities will be used to service the
interest and principal on the outstanding Notes and to distribute any remaining
amounts to the holders of the beneficial interest certificates, after the
payment of expenses incurred by the LIFT group.
The LIFT group's ability to generate sufficient cash from its aircraft
assets to service the outstanding Notes and any additional notes will depend
primarily on the rental rates it can achieve on leases, the lessees' ability to
perform according to the terms of the leases and the prices it can achieve on
any aircraft sales. The LIFT group's ability to service the outstanding Notes
and any additional notes will also depend on the level of the LIFT group's
operating expenses, including maintenance obligations that are expected to
increase as the aircraft age, and any unforeseen contingent liabilities. The
Indenture, dated June 26, 2001, under which the Notes were issued (the
"Indenture") requires that LIFT maintain a cash reserve balance on deposit in a
collections account and permits LIFT to establish a credit facility in order to
provide a source of liquidity for its obligations.
LIFT, may, under certain circumstances, issue additional notes to
acquire additional aircraft.
References in this Form 10-Q to the initial appraised value of the
Initial Aircraft mean the average of the three appraisals of the Initial
Aircraft as of December 31, 2000. For a further discussion of the appraisals,
see page 22 of the Annual Report.
Recent Developments
The Aircraft and Lessees
In January 2002, LIFT Arizona, LLC entered into a restructuring
agreement with a lessee based in the United States with respect to a B737-300
aircraft. This agreement reduces the rent for seventeen months starting in
December 2001 and extends the lease for nineteen months. The aircraft with
respect to this lessee represents approximately 1.1% of the aggregate initial
appraised value of the Initial Aircraft.
9
In January 2002, LIFT RS Brazil, LLC issued a notice of default to a
Brazilian lessee with respect to a B737-500 aircraft after this lessee failed to
make payments to LIFT RS Brazil, LLC. LIFT RS Brazil, LLC is expected to enter
into a restructured lease agreement in May 2002 as discussed below. The aircraft
with respect to this lessee represents approximately 1.7% of the aggregate
initial appraised value of the Initial Aircraft.
In February 2002, LIFT Ireland Leasing Limited signed contracts with a
lessee based in Singapore for two-year leases of two MD-82 aircraft. One
aircraft is currently off-lease and is expected to be delivered in May 2002. The
other aircraft was delivered in March 2002 upon return from the previous lessee
based in Tunisia, who had extended the lease of the aircraft to meet the lease
return conditions. These aircraft represent approximately 2.5% of the aggregate
initial appraised value of the Initial Aircraft.
In February 2002, LIFT Portugal, LLC signed an early termination
agreement, in exchange for an early termination fee, with a lessee based in
Portugal with respect to a B737-300 aircraft. This early termination fee, which
is to be paid by this lessee in twelve equal monthly installments commencing
April 2002, will be recognized as other income. The aircraft was returned in
March 2002 and was delivered to a British lessee for a five-year lease in March
2002. This aircraft represents approximately 2.0% of the aggregate initial
appraised value of the Initial Aircraft.
In February 2002, LIFT Morocco, LLC entered into an agreement with a
lessee based in Spain for a three-year lease of a B737-800 aircraft. This
aircraft was delivered in April 2002 upon its early return from the previous
lessee based in Morocco. The aircraft with respect to this lessee represents
approximately 2.7% of the aggregate initial appraised value of the Initial
Aircraft.
In March 2002, LIFT VG Brazil, LLC entered into a restructured lease
agreement with a Brazilian lessee for a B737-300 and a B737-700 aircraft, which
reduces rents starting from September 2001 and extends the leases for 24 months.
The aircraft with respect to this lessee represent approximately 4.2% of the
aggregate initial appraised value of the Initial Aircraft.
In April 2002, MD82 Aircraft Leasing I Corporation signed a letter of
intent with a lessee based in China for a three-year extension with respect to
an MD-82 aircraft. This aircraft represents approximately 1.2% of the aggregate
initial appraised value of the Initial Aircraft.
In April 2002, MD82 Aircraft Leasing II Corporation signed a letter of
intent with a lessee based in China for a three-year extension with respect to
an MD-82 aircraft. This aircraft represents approximately 1.2% of the aggregate
initial appraised value of the Initial Aircraft.
In April 2002, MD82 Aircraft Leasing III Corporation signed a letter of
intent with a lessee based in China for a three-year extension with respect to
an MD-82 aircraft. This aircraft represents approximately 1.2% of the aggregate
initial appraised value of the Initial Aircraft.
In May 2002, LIFT RS Brazil, LLC is expected to enter into a
restructured lease agreement with respect to a B737-500 aircraft, currently
leased to a Brazilian lessee, to defer a portion of the rent for six months
commencing in October 2001 and to extend the lease for fifteen months beyond the
current lease expiry. The deferral will be repaid with interest over a 36-month
period beginning March 2003. The aircraft with respect to this lessee represents
approximately 1.7% of the aggregate initial appraised value of the Initial
Aircraft.
10
The lease restructuring events discussed above and in pages 31 to 33 of
the Annual Report caused a reduction of $1.2 million in the LIFT group's
revenues for the three months ended March 31, 2002 (the "Quarter") and could
result in a permanent reduction in the LIFT group's revenues as well. These
events and any similar future events may give rise to the possibility that the
LIFT group may not be able to pay scheduled interest on certain Note classes on
a monthly basis or may not be able to repay in full the principal of certain
Note classes by the final maturity dates of those classes. For a description of
the impact of assumed increased levels of delinquency on gross revenues and of
permanent changes in gross revenues on the expected maturities, weighted average
lives and yields of the respective classes of Notes, see pages 93 to 100 of the
Form S-4 Registration Statement of LIFT (Registration No. 333-69864), as
amended, relating to the issuance of the Exchange Notes (the "Registration
Statement").
Other Developments
As a result of the recession, the terrorist attacks of September 11,
2001 and the significant adverse financial impact that these attacks have had on
the airline industry, the rating agencies that rate the Notes have re-evaluated
their ratings of securities issued by aircraft lease securitization vehicles. On
October 30, 2001, Moody's placed the Class D Notes on review for possible
downgrade. On March 18, 2002, Moody's downgraded the Class D Notes from Ba2 to
Ba3. On September 27, 2001, Standard & Poor's placed the Class D Notes on credit
watch with negative implications. On September 20, 2001, Fitch placed the Class
A, B, C and D Notes on rating watch negative, but on December 21, 2001 they
removed the Class A, B and C Notes from this placement without any change to the
ratings of these classes.
As of March 31, 2002, LIFT had repaid $37.3 million of principal on the
Notes, as compared to an estimate of $36.8 million that, based on revenue and
expense assumptions found in pages 93 to 95 of the Registration Statement, was
projected to have been repaid by March 31, 2002.
Results of Operations
The LIFT group reported net loss of $1.6 million during the Quarter on
total revenues of $36.3 million. The net loss was primarily caused by the
reduction in revenue due to the recent lease restructuring events, discussed
above under "Recent Developments - The Aircraft and Lessees". The LIFT group's
revenues consisted of rental income from operating leases and interest income
earned on cash balances.
Interest income was $0.5 million for the Quarter. The LIFT group's cash
balances are invested in short-term highly liquid investments as permitted by
the Indenture. The amount of interest income earned varies based upon the
current interest rates paid on such investments and the level of cash balances
held by the LIFT group.
Interest expense, including interest rate swap expense of $11.8
million, was $23.0 million for the Quarter. Interest expense is paid on LIFT's
outstanding Notes. The weighted average interest rate on the Notes for the
Quarter was 6.5%. The outstanding balance of the Notes at March 31, 2002 was
$1,376.8 million, net of unamortized note discounts of $14.9 million. Interest
expense varies based on the actual interest rates on the floating rate Notes,
the interest rate swap costs or proceeds and the outstanding principal balances
of the Notes.
Depreciation and amortization expense was $12.0 million for the
Quarter.
Operating expense was $1.3 million for the Quarter. Operating expense
consists primarily of aircraft maintenance expense and lease-related costs. Most
of the LIFT group's lease contracts require the lessee to bear the obligation
11
for maintenance costs on airframes and engines, and require the lessee to make
certain payments to the lessor, calculated on measures of usage to cover the
expected costs of scheduled maintenance charges, including major airframe and
engine overhauls. Under the provisions for many leases, for certain airframe and
engine overhauls, the lessee is reimbursed for costs incurred up to, but not
exceeding, related payments made by the lessee to the lessor based on those
measures of usage. Reserves are maintained at amounts considered adequate to
cover those expected payments for maintenance costs.
Administrative and other expenses were $1.5 million for the Quarter.
These expenses consist primarily of fees paid to service providers and other
general and administrative costs. The most significant of these fees was the
servicer fee, which amounted to $1.1 million for the Quarter. A significant
portion of the fees paid to the servicer corresponds to rental payments due and
received. These fees are based upon a fixed percentage of rental receipts and
will vary with rental income of the LIFT group.
Liquidity
The LIFT group held cash and cash equivalents of $98.6 million, and
restricted cash of $11.2 million, at March 31, 2002. The liquidity reserve
amount, which is included in cash and cash equivalents, was $83.0 million at
March 31, 2002. The liquidity reserve amount is required under the terms of the
Indenture and is intended to serve as a source of liquidity for the LIFT group's
swap and interest payments, maintenance obligations and other contingent costs.
The Class A contingent collateral amount of $3.0 million, funded by the
initial beneficial interest holders on the Closing Date, will be returned with
interest to the initial beneficial interest holders under the terms found in
pages 123 and 124 of the Registration Statement. In very limited circumstances
the Class A contingent collateral amount will be available to support the Class
A Notes.
Cash Flows from Operating Activities
The LIFT group's cash flows from operating activities depend on many
factors, including, but not limited to, the performance of lessees and the LIFT
group's ability to re-lease aircraft, the average interest rates of the Notes,
the efficiency of its interest rate hedging policies and the ability of interest
rate swap providers to perform under the terms of the swap agreements.
Net cash provided by operating activities for the Quarter amounted to
$12.2 million, primarily reflecting non-cash depreciation and amortization
expense of $12.0 million, security and other deposits of $3.8 million, and
accounts payable and accrued liabilities of $0.7 million. These were partially
offset by a net loss of $1.6 million, deferred charges of $3.0 million and
restricted cash of $0.7 million.
Cash Flows from Financing Activities
Net cash used for financing activities for the Quarter amounted to
$11.0 million, which reflects principal repayment on the Notes. As a result, the
balance of the Notes was $1,376.8 million, including unamortized discount of
$14.9 million, at March 31, 2002. Generally, principal and interest is repaid on
the Notes monthly based upon the cash collected, the anticipated expenses and
the cash balances held by the LIFT group on the calculation date. As a result,
monthly principal payments on the Notes will vary depending on the LIFT group's
revenues and expenses for the month.
At March 31, 2002, LIFT was a party to an interest rate swap agreement
which it entered into on June 13, 2001 and which became effective on the Closing
Date. The net aggregate amounts due to be paid or received by LIFT under the
agreement are determined monthly and are due on the same day as the payments
under the Notes. The net economic effect of the interest rate swap is to hedge
12
LIFT's variable interest rate exposure against movements in interest rates over
the duration of certain lease terms. Please see "Item 3. Quantitative and
Qualitative Disclosures about Market Risk" for further information about this
interest rate swap agreement.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest incurred by LIFT on the Notes and the rental income received
by the LIFT group under operating leases are based on combinations of variable
and fixed measures of interest rates. The LIFT group is exposed to interest rate
risk to the extent that the mix of variable and fixed interest obligations under
the Notes do not correlate to the mix of variable and fixed rents under
operating leases. The LIFT group has engaged advisors to monitor interest rates
in order to mitigate its exposure to unfavorable variations. LIFT utilizes
interest rate swaps that shift the risk of fluctuations in floating rates to the
counterparty in exchange for fixed payments by LIFT. Risks in the use of these
instruments arise from the possible inability of the counterparties to meet the
terms of their contracts and from market movements in securities values and
interest rates.
The controlling trustees of LIFT, with the assistance of Credit Suisse
First Boston Corporation, are responsible for reviewing and approving the
overall interest rate management policies and transaction authority limits.
Counterparty risk will be monitored on an ongoing basis. Counterparties will be
subject to the prior approval of the controlling trustees. Currently, LIFT's
counterparty is an affiliate of Credit Suisse First Boston Corporation. Future
counterparties may consist primarily of the affiliates of major United States
and European financial institutions, including special-purpose derivative
vehicles, that have credit ratings or that provide collateralization
arrangements consistent with maintaining the ratings of the Notes.
LIFT has issued nine classes of Notes. The estimated fair value of the
Notes at March 31, 2002 was approximately $1,273.6 million. The terms of each
class of the Notes, the outstanding principal amount at March 31, 2002 and the
estimated fair value of each class of the Notes are as follows (dollars in
thousands):
Outstanding Expected
Principal Final Final Estimated
Class of Note Amount Interest Rate Payment Date Maturity Date Fair Value
------------- ------ ------------- ------------ ------------- ----------
Class A-1 $ 400,000 LIBOR + 0.390% July 15, 2003 July 15, 2031 $ 388,000
Class A-2 260,000 LIBOR + 0.430% July 15, 2004 July 15, 2031 252,200
Class A-3 392,002 LIBOR + 0.430% August 15, 2010 July 15, 2016 381,222
Class B-1 58,201 LIBOR + 1.120% May 15, 2018 July 15, 2031 49,471
Class B-2 80,512 7.124% May 15, 2018 July 15, 2031 72,461
Class C-1 69,000 LIBOR + 2.120% May 15, 2018 July 15, 2031 55,200
Class C-2 72,000 8.093% May 15, 2018 July 15, 2031 54,000
Class D-1 35,000 LIBOR + 2.000% May 15, 2018 July 15, 2031 12,250
Class D-2 25,000 8.000% May 15, 2018 July 15, 2031 8,750
---------- ----------
$1,391,715 $1,273,554
========== ==========
13
At March 31, 2002, LIFT was a party to a single floating-to-fixed
interest rate swap with an affiliate of Credit Suisse First Boston Corporation
under which LIFT receives monthly payments based on one-month LIBOR and makes
monthly payments based on a fixed rate, each measured against an amortizing
notional balance. The following table presents, as of March 31, 2002, the terms
and estimated fair value of LIFT's swap agreement (dollars in thousands):
Rate to be Rate to be
Notional paid by received by Maturity Estimated
Amount LIFT LIFT Date Fair Value
------ ---- ---- ---- ----------
$1,190,410 5.79% LIBOR June 15, 2011 $ (13,317)
LIFT expects to enter into additional swaps, or sell at market values
or unwind part or all of its initial swap and any future swaps on a periodic
basis, in its efforts to mitigate its exposure to unfavorable changes in
interest rates. Any changes in LIFT's policy regarding its use of interest rate
hedging products will be subject to periodic review by the rating agencies.
The LIFT group is not exposed to significant foreign exchange risk
since rents from the lessees are made in US dollars.
14
Part II. Other Information
--------------------------
Item 5. Other Information
Forward Looking Statements
Any statements contained herein that are not historical facts, or that
might be considered opinions or projections, whether expressed or implied, are
meant as, and should be considered, forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements include, among others, statements relating to the
LIFT group's future plans, objectives, expectations and intentions and the
assumptions underlying or relating to such plans, objectives, expectations and
intentions, and may be identified by the use of words such as "expect," "may,"
"anticipate," "intend," "plan," "should," "believe," "estimate," "predict,"
"potential," "continue," or similar terms that relate to the future or express
uncertainty. Forward-looking statements are based on assumptions and opinions
concerning a variety of known and unknown risks. If any assumptions or opinions
prove incorrect, any forward-looking statements made on that basis may also
prove materially incorrect. Important factors that could cause actual results to
differ materially from the results reflected in the forward-looking statements
contained herein are described in Exhibit 99.1. The LIFT group assumes no
obligation to update any forward-looking statements to reflect actual results or
changes in the factors affecting such forward-looking statements.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits (numbered in accordance with Item 601 of Regulation S-K)
99.1 Other information - Important risk factors.
b. Reports on Form 8-K
During the quarterly period ended March 31, 2002, the LIFT group filed
reports on Form 8-K dated January 15, 2002, February 15, 2002 and March
15, 2002. Such reports on Form 8-K included copies of the monthly
reports to holders of the Notes.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEASE INVESTMENT FLIGHT TRUST
by Wilmington Trust Company,
not in its individual capacity but
solely as the Owner Trustee
May 7, 2002 By: /S/DAVID VANASKEY, JR.
----------- ----------------------
Date Name: David Vanaskey, Jr.
Title: Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/JOSEPH E. FRANCHT, JR. Independent Controlling Trustee May 7, 2002
- ------------------------- -----------
Joseph E. Francht, Jr.
/S/JONATHAN M. SCHOFIELD Independent Controlling Trustee May 7, 2002
- ------------------------ -----------
Jonathan M. Schofield
/S/DAVID H. TREITEL Equity Trustee and Controlling May 7, 2002
- ------------------- Trustee -----------
David H. Treitel
/S/DAVID VANASKEY, JR. Owner Trustee May 7, 2002
- ---------------------- -----------
Wilmington Trust Company, not
in its individual capacity but
solely as the Owner Trustee
16
Exhibit 99.1
Important Risk Factors
For a description of important factors that could cause actual results
to differ materially from the results reflected in the forward-looking
statements contained in this Form 10-Q, see pages 6 to 17 of the Annual Report
on Form 10-K (Commission File No. 333-69864) filed with the Securities and
Exchange Commission on March 28, 2002, which is hereby incorporated by
reference.