Intrepid’s first capital market issuance; the emerging market problem

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By TESTCustomwebLP TESTCustomwebLP January 27, 2014 20:22

Intrepid’s first capital market issuance; the emerging market problem

Intrepid Aviation Group has launched its first capital market issuance. The $300 million issuance of senior notes due 2019 are co-issued by Intrepid’s wholly-owned subsidiary, Intrepid Finance.

The Notes will bear interest at a rate of 6.875% per year and were priced at par. Intrepid intends to use the net proceeds of the Offering for general corporate purposes, including the purchase of aircraft, both for current forward orders and for future growth.

The Notes will be senior unsecured obligations of Intrepid and Intrepid Finance. The Offering is subject to customary conditions, and there can be no assurances that the Offering will be consummated.

Joint bookrunners on the deal are Bank of America Merrill Lynch and Jeffries. Co-managers are Goldman Sachs and DVB. Meanwhile, the main problem for airlines in emerging markets right now is the one we all knew would lead news stories – as US Federal Reserve tapering begins (or at least the rhetoric preparing the way gathers momentum) so a basket of currencies comes under pressure. The currencies are the same ones that saw terrific pressure in 2013: South African Rand, Indian Rupee, Brazilian Real, Indonesian Rupiah, were all hardest hit again. Currency troubles in Venezuela and Argentina are the most serious at this time and have been born out of domestic political mismanagement. The cluster of airlines taking revenues in Argentinian Peso and Venezuelan Bolivar are at this moment in a serious situation, those airlines (you know who they are) with aircraft on lease will be hit hardest and it is well worth taking a second serious look at what these airlines are doing to ensure their survival.

Meanwhile Air India will no doubt have kept its revival on course through the recent sale and leaseback of four 787s. The Investec-led deal secured a profit of around $15 million per aircraft as Air India took the aircraft back on 12 year leases with options to extend by three years. The deal also included an impressive claw-back option where Air India will receive a share of the residual value in the event of a sale at lease end, if residuals are as or better than expected of course. This once again shows, if any indications were needed, that the sale and leaseback market remains an impressive rear-guard for many airlines. Air India is currently in talks with Deutsche Bank for more sale and leaseback deals.

Air India has also requested that the Indian finance ministry allow it to issue tax-free bonds to raise Rs 10,000 crore so that this money can be used to retire long-term debt. If this is allowed then it will open the floodgates to many such deals for Indian airlines.

Thus far Air India has raised Rs 2,000 crore from the markets at 10-11% – an unsustainably expensive source. The fact is that Air India has annual expenses running at Rs 24,000 while revenue is expected to come in at around Rs 19,500.00 for this current year.

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By TESTCustomwebLP TESTCustomwebLP January 27, 2014 20:22
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