BA closes EETC as global bond market sell-off persists

London
Source: Flightglobal.com
This story is sourced from Flightglobal.com

British Airways has closed its first enhanced equipment trust certificates (EETC) offering as the sell-off in the global bond markets, which forced two other issuers to rethink their financings, continues for the sixth week.

According to a BA spokesperson, the carrier's $927 million EETC with Japanese operating lease tax equity closed after launching last week, and the settlement will take place on Wednesday, 3 July.

However, unstable bond market conditions, triggered by a warning by Ben Bernanke, the US Federal Reserve chairman, on 22 May of a posssible slowdown in US quantitative easing, forced Air Canada to scrap its $1.1 billion offer to buy back outstanding debt.

Quantitative easing, the US bond-buying programme,  has been instrumental in boosting demand for corporate debt as investors seek high yielding financings.

Michael Rousseau, chief financial officer of Air Canada, said in a 27 June statement: "The recent volatility in the debt and capital markets, which has interfered with the immediate financing plans of many companies, including Air Canada was such that available terms were no longer attractive to us."

Also, operating lessor Avolon has decided to postpone an asset-backed capital markets financing until markets improve.

"Avolon has been monitoring the capital markets but as rates remain volatile, the company believes the time is not right to commence with this type of transaction. It is entirely discretionary for Avolon at this stage, so it has put any decision on hold for the near-term," a spokesperson for the lessor tells Flightglobal Pro.

BA's bond issue follows the sale of a 12.1% stake in IAG by Bankia, the nationalised Spanish lender that is the airline group's largest shareholder.

Bankia sold its IAG stake for €675 million ($877 million) in a placement with institutional investors, resulting in a €167 million capital gain. The disposal was required under the terms of a European Union recovery plan for the financier, which last year was the subject of the largest bank rescue in Spanish history.

Global investors

BA's EETC launched after a week of non-deal investor meetings and calls in Europe, the USA and Asia, according to Citi, which acted as lead structuring agent, global coordinator and lead bookrunner on the deal.

The Class A certificates priced at 4.625%, while the Class B certificates priced at 5.625%. The EETC is secured by 14 new aircraft, including six Airbus A320s, two Boeing 777-300ERs and six 787-8s.

BA is not the only one braving bond market dislocation. Last week, Doric Nimrod Air Finance Alpha (DNA Alpha) returned to the capital markets with a $630 million pass through certificates offering to finance four Airbus A380s under 10-year operating leases with Emirates Airline.

The $462 million of Class A notes carry a final maturity of 9.9 years and an average life of 5.7 years, while the $168 million Class B notes a mature in 6.4 years with an average life of 3.8 years. The Class A certificates priced at 5.25% and the Class B certificates priced at 6.125%.

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.

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.