Aircraft-Lease Offerings Appear on Horizon
Several large investment banks are assembling aircraft-lease securitizations on behalf of clients, potentially ending a two-year drought in the sector.
BNP Paribas, Credit Agricole, Goldman Sachs, J.P. Morgan are among the institutions preparing such deals. Guggenheim Partnersí underwriting unit also appears to have some offerings in the works. The transactions would total $300 million to $1 billion each, and could start hitting the market late this year.
Why the sudden interest? Aircraft-finance shops are purchasing increased numbers of new jets for their fleets, causing their financing needs to outgrow the availability of secured and unsecured credit from commercial banks. Some bond sales also could finance acquisitions of older aircraft, as opposed to the newer and more easily sold planes favored by banks as loan collateral.
Lessors also are looking at ways to cut capital-raising costs amid reductions in OECD subsidies for aircraft exports, and pullbacks by banks including RBS that had been supplying much of their funding but now are bracing for economic instability at home. Meanwhile, investors are taking notice of the fact that outstanding aircraft-lease securitizations have performed well through the downturn ó and could satisfy a need for added yield.
The annual volume of aircraft-lease securitizations peaked at $9 billion in 2007 but then tapered off amid the credit crisis, according to Asset-Backed Alertís ABS Database. There hasnít been an offering in the sector since United Continental predecessor Continential Airlines sold $644 million of bonds in October 2009, with Morgan Stanley running the books.
In part, the reliance of lessors on bank loans in the meantime reflects ties that many shops maintain to investment-grade parents, which helps keep borrowing costs down. Players fitting that profile include General Electricís GE Capital Aviation and AIG unit International Lease Finance. Some smaller shops have sold equity. Air Lease, established in 2010 by International Lease Finance founder Steven Udvar-Hazy, raised $802 million through an initial public offering on April 18. Avalon Aircraft also secured a $650 million financing package at the beginning of this year that included $250 million of private equity backing.