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A series of successful bond deals for aircraft leasing companies reflects investor opinion that this niche in the travel industry is a safer way to bet on an industry recovery.
In total, seven leasing companies, which own planes they lease from airlines, raised a total of $ 14.9 billion in January, Dealogic data shows, with several receiving borrowing costs. at discounted price.
Investors said the deals nonetheless offered attractive returns in a corner of the airline industry more shielded from further fallout from the spread of the coronavirus.
“Of the entire travel industry, they are probably one of the best positioned,” said Monica Erickson, head of the investment grade corporate team at DoubleLine Capital. “It will be a while before anything normalizes, but the types of planes they have will stay there. The conditions they have with the airlines. . . they can withstand the expected slowdown.
Last week, Aircastle raised a seven-year, $ 750 million bond with an additional yield, or spread over US Treasuries, of 2.3%, against an initial indication of 2.6% when the deal was first marketed to investors, according to people familiar with it. with the operation. Air Lease also raised $ 750 million, this time for three years with a spread of 0.72%.
Earlier this month, AerCap raised $ 1 billion. The five-year deal came with a 1.55% spread, down from the original price of about 1.8%.
Most lessors typically have long leases, which get them through tough times for the airline industry. Their main risks come from the non-payment of airline rents, or even from their bankruptcy. But since airlines have secured capital to help survive the shock of the pandemic, this in turn has strengthened the position of donors.
The returns offered to investors by lessor bonds are historically low, but they remain attractive compared to comparable bonds on the market. Most lessors are at the lower end of the investment rating scale, clinging to sought-after status while unsecured bond ratings of some airlines have fallen into “junk”. The average investment grade corporate bond with a maturity of five to seven years currently has a spread of only 0.77 percent.
The borrowing costs of donors have fallen sharply. Air Lease’s previous debt issue in November was a 10-year bond with a coupon of 3.13%. As the exuberance over the coronavirus vaccine rollout intensified, the bond yield fell to 2.75%.
“We’ve had a lot of capital increases and we’re only three weeks into the year,” said Helane Becker, analyst at Cowen Securities. “As more and more vaccines get into people’s arms, I think people will be more willing to travel. “
Another sign of encouragement for the industry, investment firm Castlelake last week sold the first securitized bond backed by a set of aircraft leases since the pandemic took hold last year.
Evan Carruthers, co-founder of Castlelake, said the $ 595 million deal included a number of changes from pre-pandemic obligations, such as ensuring funds were diverted to better debt tranches. noted in the event of non-payment of leases.
“I think it’s a sign of redress,” he said. “This is to address concerns about what happens if this pandemic lasts another 12 to 18 months and there are collection issues. How do you ensure that the deal still works? I think there is an increased awareness of the risk in aircraft leasing.