Entering the fourth quarter of 2019, ‘big league’ aircraft lessors have made a beeline to the debt capital markets. The low interest rate environment makes capital raising easier and migrates asset class allocation to so-called “alternative investments.” Liquidity is prevalent as investors from private equity, insurance companies, fund managers, and capital markets, are attracted to the aviation sector by a fundamentally strong growth rate and long-term, real asset-based returns.
Alternative allocations keep on rising, and in-house expertise is being strengthened on so-called real assets at institutional investors globally. For example, in late May, Aviva Investors, the fund arm of UK insurer Aviva, said it would combine its real estate, infrastructure and private debt businesses into a new unit called Aviva Investors Real Assets. In Germany, active players in both equity and mezzanine investment include pension funds, insurers and family offices, all chasing yield pickup in the low interest rate environment. In South Korea, names seen investing in mezzanine debt over the past two years include the Police Mutual Aid Association, Construction Workers Mutual Aid Association, Public Officials Benefit Association (POBA) and Yellow Umbrella Mutual Aid, a savings fund for small and medium-sized enterprises (SMEs). China’s Ping An International Financial Leasing is expected to sell its aircraft leasing unit to Japanese mega-bank Mizuho Financial Group.
While aircraft are classified as alternative investments, approximately 50% of all aircraft in service have been acquired on off-balance sheet operating leases by operators, making investments into the sector commonplace.
October has started off with a bang for aircraft lessors.
Amsterdam-headquartered AerCap Holdings, the largest owner of commercial aircraft in the world and an active aircraft trader, announced on Oct. 4 pricing of $750 million of 5.875% fixed-rate reset junior subordinated notes due 2079. AerCap, with $43.1 billion of assets, including over 1,000 owned and managed aircraft and over 300 aircraft on order, is funded by a long-term capital structure
The $750 million debt issue will be guaranteed on a junior subordinated basis by certain AerCap subsidiaries. Net proceeds are earmarked for general corporate purposes.Credit Suisse Securities, BofA Securities and J.P. Morgan Securities are joint book-running managers for the underwritten public offering.
California-based Aviation Capital Group (ACG), with approximately 500 owned, managed and committed commercial jet aircraft leased to approximately 90 airlines, announced on Oct. 3 the issuance of $477 million of fixed-rate secured notes by MACH 1 Cayman Ltd. and MACH 1 USA LLC, comprised of $403 million of Series A notes rated as single-A with an initial loan-to-value (LTV) ratio of 66.9%; and $74 million of Series B notes rated as triple-B with an initial LTV of 79.2%, assigned by Kroll Bond Rating Agency (KBRA).
Proceeds from the issuance will be used by ACG to acquire a portfolio of 24 aircraft on lease to 19 lessees located in 15 countries. As of July 31, the initial weighted average age of the portfolio is approximately 7.8 years with a weighted average remaining lease term of approximately five years. The portfolio consists of 12 A320-200 aircraft, 10 B737-800s, one B737-900ER and one B737-700.
Sole structuring agent, global coordinator and left lead bookrunner is Mizuho Securities USA, while BNP Paribas is liquidity facility provider.
As previously reported in FreightWaves, Pacific Life Insurance Co, majority shareholder in ACG, has entered into an agreement where Tokyo Century Corporation will acquire from Pacific Life all of its outstanding interest in ACG. Tokyo Century initially acquired from Pacific Life a 20% interest in ACG in 2017 and has since contributed additional equity capital to ACG, increasing its ownership to 24.5%. The transaction is expected to close by the end of 2019 (www.freightwaves.com/news/tokyo-century-acquires-lessor-acg).
Wings Capital Partners, owned by private equity firms Sightway Capital, a Two Sigma Company, Corrum Capital and the Wings management team, announced on Oct. 1 the issuance of $678 million of fixed-rate secured notes by WAVE 2019-1 LLC and WAVE 2019-1 Ltd., comprised of $555.5 million of 3.597% Series A notes, $81.7 million of 4.581% Series B notes, and $40.8 million of 6.413% Series C notes.
Proceeds from the issuance will be used to acquire a portfolio of 23 Airbus and Boeing jet aircraft consisting of 100% in-production narrowbody jet aircraft on lease to a pool of 17 customers in 13 countries.
Goldman Sachs is global coordinator, lead bookrunner and lead structuring agent; Deutsche Bank Securities is a joint lead bookrunner and Credit Agricole Securities is a joint structuring agent and joint lead bookrunner. In addition, Credit Suisse Securities (USA), MUFG, Natixis and BNP Paribas are passive bookrunners for the transaction. Credit Agricole Corporate and Investment Bank (New York branch) is providing the liquidity facility and a standby letter of credit for the benefit of the issuers.