Investment grade ratings boost demand for dollar bond offerings from Chinese aircraft lessors

Upgraded ratings enable Chinese-owned aircraft lessors CDB Aviation and Avolon to issue dollar bonds while placing big orders for planes

Chinese lessors continue to drive pricing in the global aircraft leasing market and are taking advantage of strong demand from investors for their dollar bonds.

During the first half of the year, Avolon achieved its objective of getting an investment grade rating, and has been tapping both the bond and bank loan markets. Last November Orix Corporation of Japan completed the acquisition of a 30% stake in Avolon from Bohai Leasing, which owns Avolon, for US$2.2 billion.

The addition of Orix, itself an investment grade institution, diversifies and strengthens the financial profile of Avolon’s shareholder base, and has helped the company move up to investment grade.

The latest investment grade rating comes from Kroll Bond Rating Agency (KBRA), which on July 15 upgraded its rating on Avolon’s senior unsecured notes to BBB+.

Back in May, Avolon successfully repriced its senior secured Term Loan B Facility. The facility, which has a maturity date of January 2025, was repriced at Libor plus 1.75% with a Libor floor of 0.75%, subject to an Original Issue Discount set at 99.875%. In conjunction with this repricing, Avolon also repaid US$800 million of the facility, bringing the current outstanding balance to US$2.58 billion.

Avolon CFO Andy Cronin said that this further reduction of secured debt in the capital structure reflects an ongoing commitment to transition towards an unsecured structure, which in turn will further enhance the company’s unencumbered asset and risk profile.

Cronin said that achieving an investment grade rating was a key corporate objective for 2019. He noted that the April US$2.5 billion investment grade senior unsecured offering, which was upsized from an initial launch size of US$1.8 billion, met with strong demand from institutional investors. That offering comprised US$750 million of 3.625% three-year notes, US$1 billion of 3.950% five-year notes, and US$750 million of 4.375% seven-year notes.

Upon the successful completion of this offering, Moody’s Investors Service upgraded Avolon’s corporate family and senior unsecured ratings to investment grade (Baa3). Fitch Ratings and S&P Global Ratings, on successful completion of the offering, also upgraded Avolon’s issuer and senior unsecured debt ratings to investment grade (both BBB-).

Already in March, Avolon had closed its inaugural US$500 million three-year unsecured term loan facility. The transaction was oversubscribed and upsized by over 60% based on the original launch size of US$300 million. The financing was led by Natixis and Sumitomo Mitsui Trust Bank, who acted as joint mandated lead arrangers, underwriters and bookrunners for the deal. Lenders to the facility consist of a group of 13 international banks from across Asia, Europe and the United States.

In its second quarter update on July 8, Avolon said that it owned and managed a fleet of 530 aircraft, with total orders and commitments for another 393 planes. It executed a total of 24 lease transactions in the quarter comprising new aircraft leases, follow-on leases and lease extensions. The company delivered a total of 15 new aircraft to 10 customers and transitioned 11 aircraft to follow-on lessees.

At the Paris Air Show on June 18, Avolon announced an order for 140 LEAP-1A engines from CFM International, to power 70 Airbus A320neo family aircraft in its order book. The order is valued at US$2 billion at list prices.

Avolon has placed orders for a total of 240 Airbus A320neo family aircraft, 42 of which are delivered. Following the Paris Air Show announcement, CFM LEAP-1A engines will power 105 of these aircraft.

CDB Aviation has also received its own investment grade ratings in 2019.

On April 25, CDB Aviation Lease Finance Designated Activity Company, a wholly owned Irish subsidiary of China Development Bank Financial Leasing Co (CDB Leasing), announced that the big three global credit rating agencies had each assigned strong investment grade issuer credit ratings to CDB Aviation.

The company said that this important milestone had been reached on schedule, as part of CDB Aviation’s strategic effort to transform its aircraft leasing platform into a global full-service lessor.

Moody’s Investors Service assigned its A1 local currency and foreign currency issuer ratings with a stable outlook. S&P Global Ratings assigned its A long-term issuer credit rating with an outlook of stable. Fitch Ratings assigned its long-term Issuer Default Rating (IDR) of A+ with a stable outlook. Credit Agricole Corporate and Investment Bank acted as CDB Aviation’s Ratings advisor.

CDB Aviation is backed mainly by the China Development Bank. CDB is under the direct jurisdiction of the State Council of China and is the world’s largest development finance institution. It is also the largest Chinese bank for foreign investment and financing cooperation, long-term lending and bond issuance, and has the same rating as China’s sovereign credit rating.

On July 4, Moody's Investors Service affirmed China's A1 long-term issuer and senior unsecured ratings and the (P)A1 foreign-currency senior unsecured shelf rating. The outlook is maintained at stable.

The A1 rating is supported by Moody's assessment that, while economy-wide leverage will likely continue to rise and pockets of financial stress will periodically become apparent, the authorities have the financial and policy means to contain the rise in leverage, mobilize resources to support stressed public sector entities and maintain financial stability.

At the Paris Air Show on June 19, CDB Aviation announced an order for CFM International’s LEAP-1A engines to power 45 Airbus A320neo aircraft. The engine order is valued at more than US$1.3 billion at list price.

This is the CDB Aviation’s second LEAP-1A engine order. In November 2016, the company selected LEAP-1A engines to power 100 percent of its first batch of A320neo aircraft.  This order takes its LEAP-1A/A320neo fleet to 90 aircraft.

Another major Chinese lessor, China Aircraft Leasing Group Holdings Limited (CALC) has been tapping both the dollar and RMB markets. On June 11, Hong Kong-listed CALC announced that the group’s wholly-owned subsidiary, China Asset Leasing Company Limited, issued its first tranche of corporate bonds at the nominal value of 1 billion yuan. The three-year bonds pay a fixed coupon of 5.20%.

China Merchants Securities was the lead underwriter and bookrunner for the transaction, while CITIC Securities acted as joint-underwriter. The main purpose is to provide supplemental funding for developing the group’s aircraft full value-chain solution business, including but not limited to aircraft acquisition and purchasing of aircraft materials.

The initial size of the deal was 500 million yuan, increased to 1 billion yuan in the face of strong demand. Both the issuer and the corporate bonds were rated AA+ by China Cheng Xin International Credit Rating Co.

“The group has been striving to develop both its domestic and international financing platforms over the years, as well as exploring more diversified funding channels to secure sufficient capital in support of its business development,” Winnie Liu, Deputy CEO and chief commercial officer, commented at the time. “These corporate bonds will broaden the group’s domestic financing platform further, increasing the flexibility of financing, and lowering capital costs.” The offering attracted mainstream financial institutions including domestic large-scale banks, insurance companies and asset managers.

On May 27, CALC signed a five-year unsecured revolving syndicated loan totalling US$840 million to finance part of pre-delivery payments (PDP) for new aircraft orders. A series of pre-delivery payments is required by manufacturers such as Airbus and Boeing while aircraft are on the production line. 

The syndicated loan launched at US$500 million and closed at US$840 million due to overwhelming market response, becoming Asia’s largest aircraft PDP financing to date.

A total of 17 banks were involved in the syndicated loan. Bank of Communications - Hong Kong Branch, China Everbright Bank - Hong Kong Branch, Chiyu Bank, Chong Hing Bank, ICBC (Asia), Nanyang Commercial Bank, Agricultural Bank of China - Hong Kong Branch, Ping An Bank - Shenzhen Branch, and Shanghai Pudong Development Bank acted as the mandated lead arrangers of the deal and the first six banks acted as bookrunners.

For the other banks, ICBC (Thai) and Tai Fung Bank acted as lead arrangers; Mega Bank - Hong Kong Branch, China Mingsheng Banking - Hong Kong Branch, Bank of East Asia, Bank SinoPac - Macau Branch, China Mingsheng Bank - Shanghai Pilot Free Trade Zone Branch, and Far Eastern Bank were arrangers of the deal.

Meanwhile, Hong Kong Stock Exchange-listed BOC Aviation continues to grow its business. As of March 31, the company had a total fleet of 507 aircraft owned, managed and on order.

BOC Aviation is part of the Bank of China group, and has its headquarters in Singapore with offices in Dublin, London, New York and Tianjin.

In May, BOC Aviation Limited delivered to Air Europa the first of seven new Boeing 787-9 Dreamliners. These are part of a purchase and leaseback transaction. The remaining six aircraft are all scheduled for delivery in 2020.

On July 22, BOC Aviation delivered its first Airbus A330-900neo aircraft to Lion Air. And on July 11, BOC Aviation delivered the first of three Airbus A330 Freighter aircraft committed for lease to Sichuan Airlines. All three aircraft are part of the company’s existing owned and managed portfolio. The remaining two aircraft are scheduled for delivery to Sichuan Airlines in the second half of 2019. 


24 Jul 2019

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