Intrepid funds one 747F using AFIC structure; AFIC’s Bob Morin speaks at Airline Economics Growth Frontiers Dubai

Eleanor Steed
By Eleanor Steed October 3, 2017 15:26

Intrepid funds one 747F using AFIC structure; AFIC’s Bob Morin speaks at Airline Economics Growth Frontiers Dubai

The 12th aircraft using the Aircraft Finance Insurance Consortium (AFIC), a non-payment insurance product designed for banks and capital markets investors that are funding aircraft purchases from Boeing, has been closed that finances a Boeing 747 freighter for Intrepid Aviation. The financing used the Greensill Aircraft Finance Structure, which is underwritten by four leading global insurance companies: Allianz, AXIS Capital, Sompo International and Fidelis. Greensill Capital is a specialist provider of working capital solutions

Lex Greensill, CEO and Founder of Greensill Capital, said: “Our greatest strength at Greensill is our ability to innovate with speed and efficiency to devise financing solutions that enable our clients to succeed. This aviation finance transaction is a first in both the cargo and lessor sectors for Greensill, and we are honoured to have found a new partner in Intrepid.”

Michael Lungariello, CFO of Intrepid Aviation, said: “We are delighted to welcome Greensill as a new partner. This financing also represents the first private placement for the company, which further diversifies our funding sources.”

Norwegian Air Shuttle was the first airline to deploy the Greensill Aircraft Finance Structure for the purchase of six 737 MAX 8 aircraft between June and August 2017.

Bob Morin, managing director, transaction and business leader at Marsh’s AFIC, who spoke today at the second annual Airline Economics Growth Frontiers Dubai conference held at the Ritz Carlton, described the AFIC product as the closest possible you can get to an export credit guarantee but one that is more flexible, free from the bounds of the Aircraft Sector Understanding and country politics. As the product pays out the principle and interest within 10 days of first proof of loss – first default payment – and continues to make the next six consecutive quarterly payments, and at the end of the period it will pay the full outstanding balance. The structure has been compared to the enhanced equipment trust certificates (EETC) product, however in those cases the investors are only repaid in a default situation when the aircraft is sold.

Morin confirmed that 12 aircraft has been funded using this structure with debt from commercial banks and with private placement institutional investors – the goal is to expand that product line with capital markets debt in the US or outside. Two euro-denominated deals have already closed with more mandated. As Morin highlighted, this is a flexible product that has the potential to access $10bn plus in new liquidity for the industry.

The product has been greeted favourably by the industry but there are still some that would prefer that sovereign guarantee that provides a halo over repayment certainty, while insurers are still corporates that can fail. Morin and the AFIC team are confident that this is a close as it gets to an export credit sovereign guarantee, which will only gain in popularity as volumes increase and the first capital markets deals are closed.

Meanwhile, following the collapse of Monarch, analysts have once again been examining the impact on aircraft-linked bonds. Bill Blain, Head of Capital Markets and Alternative Assets at Mint Partners, says that the large number of new investors looking at the potential of the aircraft investments in terms of exposure to “real assets” at a time when bond yields are so low due to QE and central bank zero-interest policies, are looking closely at what happens regarding the Monarch unwind because it highlights the credit quality issues around the airlines leasing aircraft, and the investors will want to see how quickly the asset value can be preserved in terms of re-leasing Monarch aircraft and getting these assets earning again.

“Some investors will be scared away from the sector,” he says. “Others will look for bargains. We don’t think investors will be that concerned on airlines – interestingly many competitor airline stocks rose in the wake of the announcement. Monarch has been in the critical room for many years, so it wasn’t a massive surprise the axe finally fell. With Air Berlin and Alitalia also past the point of no return, there aren’t so many shocks on the horizon.”

In terms of the aircraft to be released, this could get interesting, Blain adds: “While older A320 series aircraft may be more difficult to re-lease, they also could provide the opportunities for best returns should the current lessors decide to sell. That could open up opportunities. New aircraft financing has become a “crowded trade” because aircraft yields are attracting more and more return-hungry buyers.”

Bank of England warnings of potential risks facing financial markets, such alternative long-term yielding assets such as aircraft will become even more popular as the financial industry prepares for changing economic conditions.

Eleanor Steed
By Eleanor Steed October 3, 2017 15:26