Investors are continuing to back aircraft leasing companies even in the midst of the global pandemic, demonstrated by the success of the latest bond from Air Lease Corporation (ALC). The lessor went to market with a planned $500 million five year unsecured bond, maturing July 1, 2025, but on the back of strong demand, the issuance was upsized to $850 million at +3.25 spread to yield a coupon of 3.375%. BofA Securities, JPMorgan, MUFG and Wells Fargo are joint bookrunners.
Due to the six times oversubscription, attracting all of the largest institutional investors such as Fidelity, BlackRock, GIC, Loomis, Vanguard, ALC upsized the offering and succeeded in tightening the credit spread above the benchmark treasury from 375bps to 325bps. This is a far lower rate than achieved by some of the largest US and European airlines and other lessors.
Speaking to Airline Economics, Steven F Udvar-Hazy, Executive Chairman of ALC, said that the company’s liquidity position was strong with no maturities falling due until 2021 and a $6.2bn unsecured an undrawn revolver at the company’s disposal, and with capex declining due to a delay in aircraft deliveries, this issuance was not essential but it demonstrated to the market the strength of the company and the industry over the long-term. “This bond shows that there is still strong investor demand for quality aviation companies, rather than attracting high-yield investors,” he says. “We felt that it was important for ALC to go to market to demonstrate that the street still places value in a quality operating lessor franchise.”
Although the market has expressed concern that investors may have pulled back from aviation assets since airlines have been hardest hit by the pandemic, this deal shows that those investors remain for quality issuers. ALC has been assisted in this regard – and perhaps on the pricing of this bond – by being named on the recently-announced Federal Reserve corporate bonds purchase program, where the US government plans to purchase existing securities of highly rated, investment-grade firms on the open market. “We were gratified to see ALC included in the Fed’s list; it may have also helped to squeeze down a few basis points,” added Udvar-Hazy.
As demonstrated by the discussions during Airline Economics State of the Industry Virtual Conference on June 17 (available on demand now here), many people are worrying about a second wave of the pandemic and the potential additional impact on airlines. It is also clear from the level of capital raising and cash conservation shown by the stronger airlines, and indeed by strong lessors like ALC, that the industry is in much better health to combat the pressures of a downturn, more so than in the past. “For the past five years, the airline industry posted record results in its entire history – many investors came to the market, with a lot of capital flooding in, some of those investors will stay with us in the long-term as long as they see entities that are minimising risk and avoiding major bankruptcies. We were very lucky because we avoided some of the more troubled airlines like Norwegian, LATAM and Avianca.”
Udvar-Hazy adds: “Our successful bond issuance helps to send a positive signal that we are going to be there for the airlines and that the industry will endure and come back stronger in the long-term.”