E/M/P brings new investors into the aviation sector while many contemplate the return of the airline ETF

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By TESTCustomwebLP TESTCustomwebLP January 22, 2015 11:30

E/M/P brings new investors into the aviation sector while many contemplate the return of the airline ETF

It is well over a year now since the Guggenheim ETF closed due to lack of interest, even though it was performing well, but US Global Jets ETF (JETS) has filed in the USA. The JETS ETF will attach weight to the companies on the basis of the square root of their average daily volume seen in the trailing three months, with a target of between 25 and 40 airline stocks across the global market. Fees are being set at 60 bps. The ETF will have to be heavily weighted towards the US airline market due to the fact that it remains the only real solid base for any airline ETF, with a target of above 25 airline stocks it is likely that easyJet, Ryanair, IAG will be high on the target list from the outset.

This is great news for the aviation industry because, even though the IYT ETF remains active with 45% airline exposure, there is no true airline ETF remaining in the market right now. But the joke is this – any airline ETF running over the past five years would have brought-in very large returns, however the expected increase in margins due to low oil prices in 2015 are more or less already built-in to airline stock prices. So can any airline ETF launching this quarter actually go anywhere but down over the next three years?

As investors get their heads around any new airline ETF’s potential, there is one company out there that is attracting new investors into the aviation sector: Virgin Atlantic and German investment manager EMP have entered into a long-term finance lease for one Boeing 787-9 with scheduled delivery in August 2015. EMP placed the volume to German insurance and pension companies – DEKA Bank provided a partial senior loan for further syndication to German investors. A Luxembourg securitization vehicle issued with senior notes with investment grade rating and junior notes.

MDT advised Virgin Atlantic. Law firms involved in the deal were Bird & Bird, CMS, Freshfields, Vedder Price and Norton Rose.

This is the debut transaction from the Munich-based investment manager EMP Structured Assets and the first aircraft securitization transaction for solely German institutional investors. EMP is operationally led by the former alternative investment team of Helabas German KG arranger Hannover Leasing.

All but one of the four investors in this innovative deal are new to the aircraft sector. Although this deal is far from the start of a new phenomenon in aircraft finance, it does indicate the growing appetite in demand for aviation assets from insurers and pensions funds eager to seek yield in sectors away from traditional real estate assets. Further details of the deal were not disclosed however it is understood the deal is above $120 million and pricing was very attractive. Moreover a repeat deal is expected in the near-term future with this credit and others. Watch this space.

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By TESTCustomwebLP TESTCustomwebLP January 22, 2015 11:30