American Airlines' $268 million debt financing deal, which includes 10 used Boeing aircraft as collateral, marks the first time Chicago-based RPK Capital Partners (RPK) has closed a secure loan with an airline. The eight-year loan matures in 2020.
RPK's President Jim Raff tells Flightglobal that debt transactions have been part of the financier's strategy since 2010, when private equity backer The Carlyle Group committed its initial $600 million to the company. "It was always going to be part of our strategy", he says.
"RPK is an aviation investment company and not just a lessor. At the right pricing we can buy bonds and issue debt, while at the same time continue to pursue our traditional leasing and trading business," he adds.
RPK is able to provide higher loan to value debt (HLTV) than the typical 65-75% lending provided by traditional lenders. Raff also points out that these HLTV transactions can be a meaningful alternative to sale and leasebacks. The RPK loan is secured by two Boeing 777-200ERs built in the early 2000s and eight 737-800s that were manufactured before 2005.
Raff says RPK is not driven by any particular aircraft type. "We will have exposure to Boeing and Airbus products and though we can do regional jets, these transactions can be more difficult. All aircraft are possible depending upon asset values and in turn loan to values".
With this transaction, the company adds debt financing to the existing investment portfolio of leasing, trading and purchasing aircraft debt and is seen as entirely complementary to these existing activities. "Ultimately there is no preference between the different products. If the transaction makes sense, we can close," he says.
RPK is not capital constrained, according to Raff. The Carlyle Group, which controls the stock and credit committee, is a long term player in this market and supportive of the diversified strategy, even if the transactions exceed the original equity commitment. "If the deal makes sense, RPK/Carlyle will be there," says Raff, and he remains confident that more debt transactions can be closed in the future. "Going into 2013, market conditions will encourage such transactions as there will be less traditional sources of lending available," he states.
"We have other deals in the pipeline and are hopeful some of these come to fruition."