British Airways' first enhanced equipment trust certificates (EETC) offering priced in the middle of non-US transactions despite recent anxiety in the bond markets, but wider than similar domestic financings.
BA's class A bonds have an annual coupon, payable quarterly, of 4.625%, while the class B bonds carry an annual coupon, payable quarterly, of 5.625%.
Certain market observers have questioned the timing of BA's move as it coincides with a wide sell-off in the bond markets since Federal Reserve chairman Ben Bernanke told US Congress on 22 May that the central bank could wrap-up its $85 billion bond-buying programme next year. However, the strong collateral and airline credit backing the deal should help ensure the financing's success, says a banker source.
The $927 million EETC, which is backed by Japanese operating lease tax equity, is secured by 14 new aircraft, including six Airbus A320s, two Boeing 777-300ERs and six 787-8s.
The first non-US EETC this year, Air Canada's $714.5 million financing in April, priced slightly tighter than BA's capital markets transaction. The $424.4 million senior A tranche carries a coupon of 4.125% and a final distribution of May 2025, while the $181.9 million subordinate B tranche has a 5.375% coupon and a May 2021 distribution. The deal also features a $108.3 million C tranche, which has a 6.625% coupon and a bullet May 2018 maturity.
The three-tranche financing is secured by five Boeing 777-300ER with deliveries from this June through February 2014.
However, BA's offering priced lower than Doric Nimrod Air Two, which became the fist non-US EETC to come to market since the financial crisis of 2008. The deal, which financed four Airbus A380s for Emirates Airline, closed in June 2012.
The $434 million Class A certificates have an annual rate of 5.125% and a final expected distribution date of 30 November 2022. The $154 million Class B certificates carry an annual coupon of 6.5% with a final expected distribution date of 30 May 2019.
Doric brought another EETC to market this week, again financing four A380s for Emirates, but the deal has yet to price.
Backed by a strong wave in investor demand for yield in May, Hawaiian Airlines achieved a new milestone in EETC pricing with its $444.5 million financing. The $328.3 million, 14-year senior A tranche carries a 3.9% coupon, while the $116.3 million,10-year subordinate B tranche has a 4.95% coupon. The deal is backed by six new Airbus A330-200s with deliveries from this November through October 2014.
US Airway's $819.6 million EETC, which closed in April, also features attractive pricing. The $620.1 million senior A tranche has a 3.95% interest rate, while the $199.5 million B tranche carries a 5.375% interest rate.
The deal is backed by 14 Airbus A321 and four A330-200 deliveries.
However, BA's EETC priced in line with American Airlines' $663 million two-tranche private placement in March.
The $506.7 million class A tranche features a coupon of 4% and the $156.6 million class B tranche has a coupon of 5.625%, The senior A notes mature in July 2025 and the subordinate B notes in January 2021.
The 2013-1 EETC issue is backed by eight Boeing 737-800s, one Boeing 777-200ER and four Boeing 777-300ERs.