ANALYSIS: Ex-Im bond pricing to further drop as transactions increase

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Pricing on US Export Import Bank (Ex-Im) guaranteed-bonds will continue to fall as more airlines issue these transactions to finance their fleets, say aviation financiers.

Boeing Capital Corporation's (BCC) managing director of capital markets Kostya Zolotusky says that pricing on Ex-Im transactions is "heading in the direction" of earlier financings, which were priced at extremely favourable levels as low as Libor plus five basis points, or even Libor flat in some cases.

While Zolotusky admits pricing on Ex-Im deals will not match levels in the past, he says "pricing can definitely go lower".

"The more capital market transactions you close, the more the product gets efficient. At the end of the day customers benefit from an efficient funding of the US government debt."

Zolotusky says Ex-Im transactions are equivalent to a seven-year US Treasury rate from a risk standpoint.

An aviation financier agrees pricing on Ex-Im bonds could erode further.

"Theoretically, [Ex-Im bond] pricing could go as low any US government bond of the same duration - maybe even better, since is it backed by an asset as well as the full faith and credit of the US government," says a financier. "I don't think there really is that much difference between the two. However, since one originates from the private sector, there will probably remain a small premium. As investors come to realise that their only credit risk in these deals is the US government, spreads should continue to tighten towards the government bond pricing," he says.

The average life of Ex-Im bonds would be five years for 10-year loans and six years for the 12-year loans and, according to the financier, there may be a "little more room" to go depending on the flatness of the yield curve.

So far in 2012 a total of 19 issuances have hit the market, totalling more than $3.5 billion. This compares with $587 million worth of transactions last year and $2.48 billion in 2010. Latam is the biggest issuer this year with $954 million raised through three issuances covering six Boeing 767-300ERs, two 777-300ERs, one 777F and one 787 aircraft.

Middle East carriers Emirates Airline and Etihad Airways have also tapped the market with a total of $942 million and $433 million, respectively covering 777-300ER deliveries.


BNP Paribas (BNPP) has underwritten about $900 million worth of Ex-Im bond issuances since the beginning of the year with transactions on different asset types like 737-900ERs for Lion Air, 747-8F for Atlas Air or more popular aircraft such as 777-300ER for Air China.

BNP Paribas's managing director, head of origination and head of aviation finance Americas Olivier Trauchessec says the bank's policy is to continue playing a major role in this market.

"For BNPP the strategy is simple: we want to be a leader in the Eximbond market both as arranger and underwriter. That said, BNPP want to be equally active in Export Credit Agency guaranteed financings as well as other products like commercial debt markets and Enhanced Equipment Trust Certificates (EETCs)," he says.

Trauchessec says investor's appetite has further grown this year. "More and more investors have come to this asset class since the beginning of the programme in 2009. "More investors are willing to buy the paper and this creates good condition for pricing."