Busy week for aviation finance, with lessors taking centre stage

Dino D'Amore
By Dino D'Amore May 17, 2016 20:53

Busy week for aviation finance, with lessors taking centre stage

The capital markets are flooded with aviation deals at the moment. The BOC Aviation IPO roadshows in full sway, ICBC Leasing has closed a $1.3bn bond offering and AerCap entering the market again with a new senior notes issuance. On top of all of this action, Airbus and Boeing have both issued jumbo bonds this week.

ICBC Leasing’s $1.3bn three-tranche 144A/Reg S bond offering was split between three-year, five-year and 10-year notes. The $500 million three-year, A2 rated notes final price was 157 basis points (bps) over Treasuries, with the $500 million five-year, A rated notes priced at $170bps. The $300 million ten-year, A rated notes priced at 200bps.

ICBC, Morgan Stanley, Goldman Sachs, HSBC and ANZ were joint global coordinators, while Citi, Bank of America Merrill Lynch and Well Fargo were joint bookrunners.

The offering was reportedly oversubscribed with commitments scaled back. ICBC Leasing intends to use the proceeds to fund its overseas operations and general corporate purposes.

AerCap is preparing to launch a benchmark priced senior notes offering. The notes will be fully and unconditionally guaranteed on a senior unsecured basis by the company. Proceeds will be used for general corporate purposes.
Barclays Capital, Mizuho Securities, RBC Capital Markets and Wells Fargo Securities are serving as joint book running managers.

Airbus and Boeing have also been in the market with jumbo bonds. Airbus closed its €900 million single tranched 1.375% notes, due May 2031, offering under its €5bn Euro Medium Term Notes programme. While Boeing launched a $1.2bn senior secured notes offering. The Boeing paper is issued in three tranches: $400 million 1.875% senior notes due 2023 with a spread to Treasuries of +55bps; $400 million 2.250% senior notes due 2026, with a spread to Treasuries of +62.5bps; and $400 million 3.375% senior notes due 2046, which have a spread to Treasuries of +95bps.

There were large bank groups on all of the tranches, all lead by Merrill Lynch. Joint bookrunners for the seven year tranches were Merrill Lynch, Barclays Capital, Wells Fargo, Credit Agricole Securities, Santander and US Bankcorp. Joint bookrunners on the 10 year notes were Merrill Lynch, Goldman Sachs, Morgan Stanley, BNP Paribas, Deutsche Bank and RBC Capital. Merrill Lynch led the 20 year notes issuance with Citigroup, JPMorgan, Mitsubishi UFJ, Mizhuo and SMBC as fellow joint bookrunners.

Although the stated aim for the proceeds of the issuance is for general corporate purposes, Fitch Ratings suggests in a recent release that the issuance could be considered a re-financing of $1 billion of notes maturing later this year ($500 million at subsidiary Boeing Capital Corporation in August and $500 million at BA in November).

Meanwhile, in Hong Kong, the BOC Aviation initial public offering is already oversubscribed ahead of the team hosting roadshows in the US later this week. Yesterday we pondered over why there were so many cornerstone investors brought into the deal, over 50% while the norm is more 25%. The fact is that investors were clamouring to get into this deal with cornerstone status so rather than scale back, the lessor decided to bring them all into the deal. A wise move since this eliminates risk for the remainder of the offering of course, but it also aids the value of the remaining shares since half the offering will now be tied up for six months, which should help secondary trading.

There has been some concerns voiced by the market over the involvement of CDB as a cornerstone investor, with some suggesting this could be an incentive for BOC to invest in the IPO of CDB’s own leasing arm, but such fears have already been allayed during negotiations and no such arrangement exists. The fact is, this IPO is a huge shot in the arm for the Hong Kong market and the aircraft leasing sector in the region and more broadly, which means everybody is keen to be involved. BOC Aviation is reportedly close to achieving book value of 1.35x (1.25x after IPO discounts), which is a tremendous endorsement for the leasing company. Competing leasing companies are eager for this offering to do well since it broadens the sector for all and specifically those companies seeking to list soon will be watching this IPO’s performance with an eye on the optimal timing of their own listings.

And finally, we would like to pass on our congratulations to Gordon Welsh who has been promoted to board member and head of the business group at UK Export Finance. Rest assured, Welsh plans to remain a big part of the aviation world.

Dino D'Amore
By Dino D'Amore May 17, 2016 20:53