China’s domestic market has been a hotbed in recent years for market development in structured finance, but it was an offshore issue that broke new ground this year when BOC Aviation printed the first asset-backed securities for an Asia-based aircraft-leasing company.
BOC Aviation, a Singapore-based subsidiary of Bank of China, sold a portfolio of 24 aircraft to Shenton Aircraft Investment I (SAIL), which issued ABS of US$808m backed against the assets.
The aircraft in the initial asset pool have been leased to 21 airlines in 18 countries. The assets have a relatively young weighted average age of 4.6 years and weighted-average remaining lease of 5.7 years, attracting investors with the quality and diversification of the portfolio.
The US$747.444m Class A notes, with A ratings from both S&P and Fitch, paid a coupon of 4.75%, yielding 5.00%, while the US$60.532m Class Bs, rated BBB/BBB, paid 5.75%, yielding 5.875%. Both notes have a legal maturity of October 15 2042. An equity tranche was sold to an institutional investor.
Although the issuer has not retained any of the notes, some management fee income is subordinated, meaning BOC Aviation is incentivised to make sure the assets perform well. The company’s A–/A– ratings (S&P/Fitch), the highest among major global aircraft-leasing companies, have also helped reassure investors that it will continue to service the portfolio.
The securities, marketed under the 144A/Reg S format, were popular in the US, where investors were more familiar with aircraft as an asset class, but investors from across Asia and the Middle East also flocked to the offering. High-quality asset managers, pension funds and insurers all took part, following global roadshows.
SAIL left a little on the table for investors, since it was a debut issue, ensuring that the ABS performed well in secondary with the aim of improving its chances of returning to the capital markets in the future.
Citigroup was sole global coordinator and joint bookrunner with BOC International and Goldman Sachs.
Other Asian leasing companies jumped into action, following the success of the SAIL issue, and are expected to bring ABS offerings to the market in future, though few have a track record comparable to BOC Aviation, which was established in 1993 as Singapore Aircraft Leasing Enterprise. Others in the region may have to wait a little longer, but the benchmark has been set.
As a pioneer in Asia’s underdeveloped offshore securitisation market, SAIL’s US$808m ABS is IFR Asia’s Structured Finance Deal of the Year.
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