Airbus expects operating lessors to continue tapping the capital markets for unsecured transactions.
“It is in their best interest to go unsecured. Interest rates are still at low levels so they can lock them up in a unsecured deal,” says Nigel Taylor, the group’s senior vice-president of customer, project, and structured finance.
Taylor points out that some lessors got rated last year, which is attractive for unsecured deals.
Recent market conditions have also favoured unsecured notes’ issuance as the gap between secured and unsecured is no longer wide. Banking sources say the delta is around 50 to 60 basis points.
“Lessors are prepared to pay extra to get flexibility on the tenor,” says Taylor.
Last month, US-based operating lessor Intrepid Aviation tapped the unsecured market for the first time, with a five-year $300 million senior notes offering pricing at 6.875%.
Air Lease issued $25 million in unsecured notes maturing in February 2024 and bearing interest at a rate of 4.9% per annum.
In December 2013, Aircastle issued an aggregate principal amount of $400 million in senior unsecured notes with a five-year term. The 2018 notes priced at 4.625%.
FLY Leasing priced its seven-year senior unsecured notes at 6.75% in December. The operating lessor announced the sale of senior unsecured notes with an aggregate principal amount of $250 million on 2 December and amended the offering to $300 million a week later.
Operating lessors have increased their market share of the Airbus and Boeing deliveries.
Leasing companies increased their market share last year, in terms of new deliveries, to an estimated 276 Airbus aircraft, or 44% of the manufacturer’s total deliveries.
Airbus handed over 159 new aircraft directly to operating lessors in 2013, out of a total of 626 aircraft.
Another 117 units were acquired by lessors under purchase-and-leaseback agreements. This compares with 122 new aircraft directly acquired from the manufacturer out of 588 units in 2012, and 114 units obtained under purchase-and-leaseback agreements.
Taylor estimates that about half of bank’s portfolios are now with operating lessors. “Banks tend to lend to lessors on partial non-recourse basis,” he says.
“The market is as strong as in the pre-Lehman period. Interest rates are at low levels and many companies are fixing rates” But the question is where the capital markets go next, because there’s competition on the liquidity front from the banking sector. Banks can easily provide an amortised floating-rate debt structure compared with a fixed capital market structure with a balloon at maturity.”