ILFC plane deal to mirror sale of ‘benchmark’ plane portfolio

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To mitigate concerns that ILFC co-founder Steven Udvar-Hazy would be purchasing a package of aircraft from the top lessor at an unfair discount, a benchmark portfolio mimicking Hazy’s package of assets has been created, sources following the situation told dealReporter. The copycat will be sold to the open market to help determine the appropriate price for Hazy’s deal, these sources said.

Bids for the benchmark portfolio are due tomorrow, 4 December, said the first source, estimating each package to carry USD 2.5bn worth of planes.

While a seemingly just way to determine a market value for the aircraft, the first source and a second source said complaints about this sale process continue to percolate. The second source claimed to have heard that bidders of the benchmark portfolio were not being given full information about these assets making their bids more theoretical than practical. In some cases, he claimed to have heard that certain parties were not getting rents for the aircraft, while others did have access to lease information.

Adding to the complexity of reaching both deals is the amount of limited leveraging debt available to suitors. It is understood that Credit Suisse has approximately USD 1.9bn in preliminary commitments with another USD 300m in commitments expected to trickle in for the AIG (NYSE:AIG) subsidiary package deal from between five to 10 banks.

The first and second source each said they were under the impression Credit Suisse was not only arranging the package but also a participating lender.

As a highly fluid situation that continues proving an uphill battle with participating banks and its creditor committees, it was noted that some aspects of the pricing and conditions on the debt financing were expected to change. It was further said that the latest financing proposal has yet to be presented to the creditor committees of the participating banks.

Current industry metrics suggest that the pricing on the fresh debt will be in the LIBOR +400bps range, said the second and a third source, with an advance rate of about 60%.

This news service previously reported that the equity contribution to the Hazy aircraft deal was believed to be between USD 1bn and USD 2bn; a range that might allow him and his consortium to purchase between USD 4bn to USD 5bn in airplanes. Moreover, it was reported the portfolio of purchased aircraft could be used to raise between USD 1.5bn and USD 2bn in the bank market on a secured basis with a 60% plus LTV.

While certainly an impressive number for the struggling aircraft bank market, it remains unclear whether this financing would be directed towards Hazy’s package, the benchmark portfolio, or both. The second source estimated that the bank market for airplanes is probably a USD 2bn to USD 3bn market per year, leaving bidders for the benchmark portfolio and Hazy with a small financing pool.

Moreover, whereas Credit Suisse has been scouring the market for sometime to raise this money, bidders for the benchmark portfolio would need to come up with their own package in a very short window, said the first source. Unless a cash rich buyer emerges, cash-strapped strategics would also need financial leverage while financial sponsors without an existing aircraft leasing platform or management team would not likely bid for the assets, the second source said.

Presumably, bidders for the benchmark portfolio would turn to the specialized aircraft lessor banks, a majority of which are based in Europe, said the sources. However, these institutions have been faced with increasingly limited, if any, budgets, while many have simply had to shut their doors.

All the sources agreed that while a deal could theoretically be signed ahead of the year end, it would almost certainly not close by that time. Even an inked deal might be subject to the receipt of financing commitments, said the first source, who noted that a deal would take at least four months to close given the complexity of negotiating leases on each of the aircraft.

Assuming Credit Suisse does in fact have preliminary commitments, the second source said he believed those early numbers could be turned into final commitments in roughly 10 days. “It’s going to be a photo finish,” he said, while the first source cautioned that European specialty aircraft banks like Calyon and DVB are not fond of being pressured.

A fourth source claimed to have heard a rumor that a board meeting would be held in December where Hazy would officially resign, subsequent to which announcements relating to a deal could be made. However, the first source was skeptical about this timing, noting that Hazy “hasn’t hit a single timeline that he’s been talking about for the last year.”

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