United Airlines is seeking to raise $3bn through an A class enhanced equipment trust certificate (EETC) issuance, which is secured on collateral pool of spare parts, spare engines and aircraft, valued at $5.8bn.
The collateral package comprises all of United’s spare parts inventory, 99 spare engines – representing all of the airline’s spare engines, which United says it uses almost daily and averages 350 engine changes annually – and 352 aircraft across 11 variants, which has a WAL of 19 years and represents 43% of United’s mainline operating fleet.
The composition test of the package must comprise a minimum of: 25% of all value must be spare engines and spare parts – and 55% of this must consist of rotables and spare engines; a minimum of 60% of all aircraft must be narrowbody aircraft, and no more than 15% of all aircraft can consist of regional jet aircraft. There is also a covenant on the spare parts pool for a minimum of 85% of spare parts must be at designated locations. The transaction also comprises three separate semi-annual notional LTV tests for each collateral pool and all assets are to be re-appraised semi-annually.
The class A notes have a seven year tenor, 4.1 year weighted average life (WAL) and a loan-to-value (LTV) ratio of 51.6%. There is also a balloon payment representing 24% of the initial principal balance. This is a lower starting LTV than United’s past EETC transactions and because the average amortisation is 11% per annum over the seven-year period, the LTV curve declines significantly despite the depreciation profile of the assets.
The aircraft collateral, which is 67% of the collateral pool, amortise across 4-7 years, which ensures the de-levering over the life of the EETC. Debt associated with the Tier 1 aircraft in the portfolio, which comprises aircraft that are younger than 20 years, amortises over seven years; while debt associated for Tier 2 aircraft – which are older than 20 years – amortise over four years.
Goldman Sachs is the structuring agent and joint bookrunner with Citi. The structure also features an 18-month liquidity facility provided by Goldman Sachs Bank.
United will use the proceeds to refinance in full $2.75bn of outstanding 364-day term loans due in 2021 with the remainder for general corporate purposes. The airlines says that it may add further tranches of notes in the future.