Flight of fancy
2021 was a year when the US dollar market demonstrated its depth. But few issuers jumped into the Yankee market with the ambition of AerCap, which achieved impressive execution even when interest-rate volatility was heating up and the industry was still struggling with the coronavirus pandemic.
The US$21bn nine-part deal from Ireland-based aircraft lessor AerCap was the largest US dollar bond on record from a financial issuer, brought to finance the acquisition of GE Capital’s aviation leasing arm in a deal announced in March. Afterwards, it became the 11th biggest constituent of US investment-grade bond indices, a long way from when it had a limited presence in US capital markets.
“By any measure, it was a significant undertaking for a low Triple B rated name,” said Peter Aherne, Citigroup's co-head of North America debt capital markets.
The bond took out most of the US$24bn of committed financing AerCap had lined up for the GE Capital Aviation Services acquisition.
AerCap had to navigate regulatory scrutiny from multiple jurisdictions, including China, pushing the timing of the offering to a choppy October, a move that could have cost the issuer dearly.
Yet strong demand enabled leads to keep new issue concessions flat and drive spreads tighter by around 20bp–30bp from initial price thoughts.
In fact, the wait may have played in AerCap’s favour as it gave investors time to become acquainted with the aircraft lessor, which was still waiting for air travel to return to pre-pandemic levels. The ample pre-marketing helped the deal land an astounding order book of US$75bn at its peak.
That was particularly impressive given "aircraft leasing isn’t everyone’s cup of tea", said Temmy Lizarzabal, Citigroup's co-head of North America financial institutions DCM.
The offering took AerCap to the long end of the yield curve, an area that aircraft lessors had struggled to reach. AerCap was the first of its peers to issue a senior unsecured note over 10 years after the 2008 financial crisis.
AerCap increased its weighted-average maturity by 2.6 years to 5.3 years and reduced its average interest costs by around one percentage point to 3.33%.
The strong showing reflected how leads had correctly sized up the depth of the US investment-grade debt market, which was able to swallow the bond as a single transaction. Bookrunners started the deal in the Asian session through London and then the US to take advantage of global demand.
AerCap also tapped the hunger for more liquid, large benchmark issuance among investors who had been deprived of jumbo M&A-related bonds in 2021.
The offering was made up of a US$1.75bn two-year fixed, a US$500m two-year floater, a US$3.25bn three-year fixed, a US$1bn three-year non-call one fixed, a US$3.75bn five-year, a US$3.75bn seven-year, a US$4bn 10-year, a US$1.5bn 12-year and a US$1.5bn 20-year. The deal came in at 70bp, 68bp over SOFR, 90bp, 100bp, 125bp, 150bp, 165bp, 175bp and 175bp, respectively.
Citigroup and Goldman Sachs were global coordinators.
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