ACG issues $900million unsecured senior notes

Dino D'Amore
By Dino D'Amore September 18, 2015 17:04

ACG issues $900million unsecured senior notes

Aviation Capital Group (ACG) has closed the sale of $900 million of unsecured senior notes consisting of $600 million of its 2.875% unsecured senior notes, due September 17, 2018 at a price of 99.553% of par, and $300 million of its 4.875% unsecured senior notes, due October 1, 2025 at a price of 99.597% of par. Proceeds from the offering will be used for general corporate purposes, including repayment of existing indebtedness, and to fund strategic opportunities. The notes are not guaranteed by ACG’s parent company, any of ACG’s subsidiaries, or any third party.

ACG is rated BBB- by Fitch ratings and BBB- by Standard & Poor’s.

Credit Agricole-CIB, Credit Suisse, Deutsche Bank, JPMorgan and Mizhuo are joint active bookrunners. BNP Paribas, Citi, Goldman Sachs, MUFG, RBC Capital Markets and Wells Fargo Securities are passive bookrunners.

“[This] debt issuance demonstrates our ongoing commitment to efficiently fund the business in a manner consistent with our asset liability management program while maintaining financial and operational flexibility,” says Eric Blau, treasurer, Aviation Capital Group. Including this transaction, ACG has raised more than $8 billion of debt financing since the beginning of 2010.

The issuance compares favourably with that of its peers, which have also tapped the unsecured corporate bond market earlier in 2015. Most recently, AerCap raised $1bn – upsized from $800 million – in July 2015 with $500million five-year senior unsecured bond priced at 4.250% and $500 million seven year bonds priced at 4.625%. Like ACG, Air Lease Corp (ALC), which is similarly rated to ACG, tapped the ten-year senior unsecured bond market in September 2014 with a $500million issuance priced at 4.25%, while its four-year bonds priced at 2.125%. This was followed up in January of this year with a further issuance from ALC of $600 million unsecured seven-year senior notes due 2022, priced at 3.750%, which were offered to the public at a slight discount at 99.289% of par.

In 2014, aircraft lessors raised $12.5bn in US dollar-denominated unsecured senior bonds and so far in 2015, US dollar unsecured bonds have been issued by BOC Aviation, Air Lease Corp, Aircastle, American Airlines, LATAM and now ACG. The senior unsecured bond market makes sense for rated lessors. It is relatively quick and easy to do, there is a great deal of investor appetite in the market searching for yield since US treasuries remain depressed and interest rates remain low, all of which leads to most issuances being significantly oversubscribed in the current market, and pricing is low. The pricing for corporate bonds is very competitive compared to secured aircraft financing – ACG’s three year $600million bonds at 2.875% and ten year bonds paying 2.875% is very competitive in this market.

At the start of the year, JPMorgan predicted $10-20bn of US dollar debt issuance during 2015 (this figure includes EETC issuance and ABS deals), so more deals are expected from the aviation sector before the end of the year.

With that in mind, the next ABS deal to come to the market will likely be BOC Aviation’s first asset backed securitisation transaction that is reported to be holding roadshows at the moment. Speaking to Airline Economics in May, CEO Robert Martin estimated that the deal size would be around $750 million to $1bn, although more recent reports state the size is predicted to be around $500 million and secured on a portfolio of 24 aircraft. For BOC Aviation ABS deals are to be used as an exit strategy, since it is such an expensive form of funding. BOC Aviation would remain as servicer for the aircraft, which would increase the size of its managed fleet that was 22 out of a fleet of 251 in May.

The deal is being coordinated by Steven Townsend, Deputy Managing Director and Chief Commercial Officer for Americas, Europe and Africa, out of BOC Aviation’s London office and is expected to launch soon. Citigroup is the global coordinator on the deal with BOC International and Goldman Sachs.

Dino D'Amore
By Dino D'Amore September 18, 2015 17:04