It has now been confirmed publicly that MUFG Bank’s acquisition of DVB’s Aircraft Asset Management (AAM) and DVB Aviation Investment Management (AIM) businesses has not been completed due to “regulatory issues”.
MUFG Bank and BOT Lease (BOTL), an affiliate of MUFG, acquired DVB Bank’s entire aviation finance client lending portfolio, along with its employees and other parts of its operating infrastructure, from DZ Bank in November 2019. The transaction was intended to include the acquisition of the AIM and AAM businesses, which were to be transferred to a newly established subsidiary of BOT Lease, however MUFG Bank was not able to complete the acquisition due to a complex regulatory situation in the US and Japan.
MUFG clarified in a statement to Airline Economics: “The transfer of the Aviation Finance lending business was completed on 18 November 2019. Upon discussion with related parties including Regulatory Authorities, it has become clear that it will not be possible to complete the sale of the remaining Aviation Investment Management (AIM) and Aviation Asset Management (AAM) elements as originally envisaged. MUFG and BOTL are now discussing the handling of the AAM/AIM business going forward with DVB.”
The AAM team provides the full range of asset management services, including third-party aircraft remarketing, lease management, and technical and general consultancy services.
AIM acts as the investment consultant and asset manager to the Deucalion Aviation Funds, a series of investment vehicles principally focused on the acquisition of engines and aircraft. AIM also invests in aircraft engines and airline equity as well as secured aircraft bonds and mezzanine loan investments.
Earlier in July, DVB announced on its website that that the closing of the AIM and AAM elements of the transaction had first been delayed due to regulatory restrictions associated to the purchasers' operations, which they been unable to resolve thus terminating the sale.
DVB and DZ Bank stated that “it will not be possible to complete the sale as originally envisaged” but that “both parties are exploring paths to move forward”.
DVB and DZ Bank comment in a recent notice from Fitch Ratings, which has put the Lunar Aircraft ABS 2020-1 bonds on rating watch negative, that they “remain fully committed to the aviation finance businesses, including DVB AAM, and are providing all required support, in parallel to exploring alternative options including proceeding with a sale.”
The rating action by Fitch was driven by the termination of purchase agreements for six aircraft due to novate into the Lunar pool before November 2020. The remaining pool of 12 aircraft, Fitch notes, has a potentially higher level of concentration risk and hence the need for the notes to be put on rating watch negative. Fitch also notes that despite the sale of AAM – which is the servicer to the Lunar portfolio – falling through, it deems the servicer AAM to be “adequate to service ABS based on its experience as a lessor, overall servicing capabilities, and historical ABS performance to date. In a recent corporate update call, DVB AAM informed Fitch that there have been no material changes to their business or management/operational teams in 2020 and no impact due to the sale of the business not materializing.”
Sources close to the deal suggest that DVB and DX Bank will be successful in finding a buyer despite the COVID-19 impact on the market and likely resulting in a lower valuation. Goldman Sachs served as exclusive financial advisor to DZ Bank for the original sale. MUFG will be disappointed with the loss of the two businesses since they complemented the aviation loan portfolio well. Indeed, one observer notes that in the post-COVID-19 period, AAM skills and expertise in managing and remarketing aircraft will be in high demand. AIM equity investments, however, will be less so given the decline in aircraft valuations.