North America ABS Issue: Air Lease's US$545m securitisation

IFR Awards 2018
3 min read
Joy Wiltermuth

Air Lease changed the arcane world of aircraft finance with a new structure that raises the bar for transparency, efficiency and liquidity.

Air Lease was able to raise US$544.87m in July through the sale of Thunderbolt II (TBOLT 2018-A), a new kind of aircraft securitisation that took weeks to price instead of months, opened up its financials to the public and turned illiquid equity notes into tradable securities.

“We took the view, along with Air Lease, that you had to do more than just change the form,” said Carl Anderson, a managing director at Bank of America Merrill Lynch, who worked on the transaction.

“You had to go a step further in terms of information to make this work.”

For the first time, investors in Thunderbolt II – irrespective of whether they were buying debt or equity – were given the same level of information at exactly the same time during the marketing process.

“Before in this market, you never had any clue how much equity was contributed, nor what the equity was getting as a return, and no idea what the manager was earning for their performance,” said Ryan McKenna, head of corporate strategy at Air Lease.

“That seemed very wrong.”

To forge a new path, McKenna spent months building a web-based financial model that would be updated regularly and report everything from engine maintenance reports to aircraft lease extensions.

“I thought, if we provide this level of disclosure, all participants would know exactly where the money is flowing and how to track it.” McKenna said.

The strategy has more than paid off.

The deal’s biggest slug of Single A rated notes narrowed to be priced at 130bp over interpolated swaps from talk in the 135bp range. And its novel tradable “GAPS” equity notes narrowed to 17% from initial talk around 18%.

The number of equity investors also rose from three in Thunderbolt I to 20 in Thunderbolt II. And in secondary trading, pricing on the tradable equity notes has narrowed to 16.3%, according to Bank of America Merrill Lynch data.

Carla Schriver, a vice-president at Goldman Sachs, said that Thunderbolt II has changed the old ways of doing business in aircraft ABS, which previously had been more akin to negotiated M&A transactions with a handful of key investors rather than broadly syndicated securitisations.

“Thunderbolt just fundamentally changed that,” Schriver said.

Bank of America Merrill Lynch was global coordinator, and a joint structuring agent with Mizuho and Goldman Sachs. Citigroup, BNP Paribas and MUFG were also joint bookrunners.

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