Virgin Australia has successfully launched its first capital markets deal, which is also the first EETC-like deal to be launched out of Australia.
The US$732.623 million Enhanced Equipment Notes (EEN) Series 2013-1 is a three tranche transaction.
The US$474.049 million class A notes have a final maturity of October 23, 2023, with a weighted average life of four years and a loan to value ratio of 55.5% are rated Baa2/A by Moody’s and Fitch. Pricing expectations for the Class A was set at 5%.
The US$120.667 million Class B tranche matures on October 23, 2020, with a WAL of 3.3 years and a 69.7% LTV, was rated Ba3/BB+. Pricing is set at 6% .
The slightly larger Class C tranche at US$137.907 million, which matures on October 23, 2018, has a WAL of 2.8 years and a high LTV of 85.8% was rated B2/B+. Pricing is set at 7.125%.
The weighted average coupon over the expected life of the three classes is approximately 5.5%. Settlement of the offering is expected to occur later in October 2013 and is subject to customary settlement conditions.
The deal refinances 21 737-800 aircraft, two 737-700 aircraft and one 777-300ER aircraft, which are currently owned by wholly-owned subsidiaries of Virgin Australia Holdings.
Goldman Sachs is sole structuring agent and lead bookrunner, with joint bookrunners Credit Agricole Securities and Natixis. Credit Agricole is the depository, while Natixis is the liquidity provider.
Virgin Australia Chief Financial Officer Sankar Narayan said: "This represents Virgin Australia’s first issue in the international debt capital markets. Virgin Australia is the first airline from the Asia-Pacific region and only the fourth non-US airline globally to access the EETC market. The transaction is part of our ongoing commitment to diversify our funding sources and further supplement the Company’s liquidity position. We are very pleased with the strong global investor support for this issue, which demonstrates confidence in Virgin Australia’s strategy and competitive position”.
The structure of this transaction is very similar to the EETC model but with significant differences, chiefly the governing law. The EEN is structured under Australian law neither US Section 1110 nor the Cape Town Convention, which is not implemented in Australia. The deal is structured to take full advantage of the robust Australian bankruptcy rules for finance leases. The use of the finance leasing structures was very attractive to credit rating agencies and investors, as it took full advantage of special rules around repossession for finance leases. There were several other smaller differences from the EETC structure including the fact that notes were used instead of certificates and subordinated debt was required from the issuers to set up the finance leases, but for all intents and purposes the structure works as close to a EETC as possible to help attract investors. This was proven to be a winning strategy since the deal was four times oversubscribed and was the most global investor book of any of the non-US EETCs closed recently, which enabled the pricing on the As to be pushed down from mid-5% to 5%.
“The transaction was very well received by the global markets, achieving a substantial level of oversubscription allowing for pricing at the tight end of the price talk,” said Greg Lee, Co-Head of Structured Finance and Head of Airline Investment Banking at Goldman Sachs. This is another first for the aviation finance industry and another EETC-like structure that has been closed successfully without the need for the protection offered by the Cape Town Convention. I ask again – is it needed anymore in countries with established legal and financial markets?
A full indepth analysis of this deal will appear in the forthcoming Issue 16 of Airline Economics - subscribe today to ensure you receive it by clicking here.