Sumisho Air Lease has disclosed the closing of a $4bn senior notes offering by Takeoff Merger Sub. Sumisho Air Lease will be formed as part of the acquisition of Air Lease Corporation.
Net proceeds will be used to fund a portion of the $7.4bn acquisition by a consortium that includes Sumitomo Corporation, SMBC Aviation Capital, and affiliates of Apollo Global Management. Proceeds will be used to pay related fees and expenses, as well as to repay some existing debt and other general corporate purposes.
Upon completion of the deal, Takeoff Merger Sub will merge with Air Lease Corporation and operate under the new name Sumisho Air Lease Corporation.
The financing package comprises four tranches: $800 million of 4.400% notes due 2028, $1.2bn of 4.500% notes due 2029, $1.5bn of 4.850% notes due 2031, and $500 million of 5.550% notes due 2036.
The offering is priced at US Treasuries plus 106 basis points.
A spokesperson for SMBC Aviation Capital said to Airline Economics that the bond issuance received “very strong demand”. Orders reached over $21bn at their peak, making it over 5 times oversubscribed.
“The high level of investor demand for this bond offering reflects the quality and scale of Sumisho Air Lease’s business, and the benefits that SMBC Aviation Capital brings as servicer to the portfolio,” said Sumisho Air Lease CEO Nori Hiruta.
The merger agreement was first announced in September last year. Upon completion of the merger, Air Lease’s common stock will be delisted from the New York Stock Exchange.
Under the new ownership, Sumisho Air Lease’s branding will align more with its primary shareholder Sumitomo Corporation, while SMBC Aviation Capital will become the servicer to the majority of Sumisho Air Lease’s fleet.
“Sumisho Air Lease is set to become a central pillar of what will be the world’s largest global aviation financing platform, enabling us to drive value for our customers and investors,” said Hiruta.
“The very positive reception our debut bond offering has received from the capital markets is a strong endorsement of our portfolio and go-forward strategy, positioning Sumisho Air Lease optimally for the future,” said Sumisho Air Lease chief commercial officer David Swan.
Fitch Ratings gave the notes offering an expected rating of BBB. The ratings agency assigned investment grade credit ratings of BBB with a negative outlook for Sumisho Air Lease.
In Fitch’s rationale, the agency cited the added complexity for Air Lease/Sumisho Air Lease under the new ownership structure, as well as “uncertainty around the lessor’s longer-term business profile and franchise strength” and the “evolution of its operating strategy post-acquisition and rebranding”.
“Fitch believes the sale of Air Lease’s orderbook to SMBC Aviation Capital as part of the transaction increases uncertainty regarding Air Lease’s business profile strength on a forward-looking basis,” said Fitch.
The ratings agency said Air Lease’s credit profile benefits from its “highly liquid portfolio” and established franchise, as well as its expected funding and business profile benefits associated with Sumitomo and SMBC Aviation Capital.
Additionally, the company was assigned investment grade credit ratings of A- with a stable outlook by Kroll and BBB, stable outlook, by S&P Global.
Given the investment grade profile, it is expected that the majority of existing Air Lease debt comprising senior unsecured notes and commercial bank debt will transition to Sumisho Air Lease following the merger’s completion.
Paul Hastings advised SMBC Nikko Securities America, Citigroup Global Markets, Goldman Sachs and the other initial purchasers involved in the offering.