ISTAT 2012: Financing continues to flow to Ex-Im deals

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Money is finding its way to US Export Import Bank (Ex-Im Bank) guarantees from new global financiers attracted to higher returns, a stronger balance sheet at the Private Export Funding Corporation (PEFCO) and the public markets, according to the head of the US Export Import Bank's (Ex-Im) transportation division.

"Higher pricing has attracted more financial institutions from across the globe. About half a dozen banks, which weren't active before, have expressed interest in funding Ex-Im guaranteed aircraft financings," says Bob Morin, in an interview with Flightglobal Pro. "We have seen interest from Japan, the US and even one European bank."

According to Morin, none of these institutions was active when margins were lower, but now that margins are at "what each of these institutions considers to be an acceptable level for that institution, each is eager to a win mandate."

The pricing on Ex-Im Bank guaranteed aircraft financings has increased since 2010, but this is not a result of "problems at Ex-Im or the USA losing its AAA credit rating from S&P", says Morin.

"Banks must meet certain regulatory capital levels and they can do that by raising capital or shrinking their balance sheets. Therefore, now when banks use their scarce balance sheet to lend, they want to make sure they get acceptable returns and this means higher pricing."

Increased funding for Ex-Im guaranteed loans will also come from PEFCO, which was established more than 40 years ago to assist in the financing of exports. This is because PEFCO has "raised more equity and its existing portfolio has amortised down, thereby freeing up capacity and allowing PEFCO to potentially become more active than in 2011," says Morin.

Morin also anticipates many more transactions will be funded by the capital markets through Ex-Im guaranteed bonds.

"The concept of an Ex-Im guaranteed bond started in the fourth quarter of 2008 and it was developed to address the concern that, due to the credit crisis, there would not be sufficient funding available for Ex-Im guaranteed loans from commercial banks and PEFCO."

Emirates was the first carrier to actually tap the Ex-Im guaranteed bond market, which it did in the fourth quarter of 2009.

In that deal, Emirates financed the delivery of three Boeing 777-300ER aircraft.

Since then 22 other financings have been completed - all have been US-dollar denominated fixed-interest rate transactions except for one euro-denominated floating interest rate deal.

From late 2010 to November 2011, a full year went by without any capital market funded Ex-Im Bank guaranteed aircraft financings. But, then in November 2011, BNP Paribas arranged a capital market funded deal for Air China, which Morin believes should "kick-start bond market activity again".

"To date, approximately $3.5 billion in deals were funded through the capital markets and these were deals PEFCO and the commercial banks did not have to fund. This new source of funding may be why there were no direct loans from Ex-Im last year," says Morin.

Morin anticipates 2012 will mimic 2011 as another year without Ex-Im Bank needing to make any direct loans to aircraft customers.

However, due to continuing uncertainty regarding the capacity of the commercial banks to fund the increased number and amount of Ex-Im Bank guaranteed aircraft financings, Morin admits Ex-Im is looking at new funding tools to assist customers.

"We are always at looking at the markets and trying to determine if new products or new approaches are needed. Ex-Im exists to complement and supplement what the commercial banking market can do. What we do not want is for any problems in the credit markets to adversely impact the manufacturing industry, the real economy and US employment levels."