March was a record month for fundraising by US airlines. Sparked into action by the coronavirus crisis and less than comfortable liquidity levels, the US airlines actively worked their unencumbered assets and their banking relationships to raise a total of $12.4 billion.
Most of the airline group moved to draw their undrawn commitments, presumably taking greater comfort from cash in their bank accounts than a commitment letter in the vault. One can be fairly sure also, that the airlines will have moved their temporary excess of cash to banks with whom they do not have borrowing relationships, for avoidance of “set-off” risk.
With the exception of the $1 billion secured equipment notes issued by Delta Air Lines, the other facilities are all “Covid-19 bridges” with a one-year tenor or, in Spirit’s case, two years. This would seem to show a degree of optimism that the global economy and travel industry will be functioning with some semblance of normalcy by the first quarter of 2021 – though presumably at lower levels than 2020.
Assets deployed in support of these financings covered the entire spectrum – aircraft (young and old), slots, gates, route authorities, spare engines, spare parts, ground equipment, flight simulators, real property and executives’ future bonuses (joking).
There were some unique financings in the mix. Airfinance Journal’s favourite is United’s $2 billion 364-day term loan secured by 362, repeat 362 aircraft. Just two more and it would have been one-per-day of the loan. We think this must be a world record for the most aircraft involved in a single facility. Closer examination reveals the reasons – the collateral package involves mostly mature aircraft and some less than liquid types and had an average age in excess of 20 years. By Airfinance Journal’s calculations the LTV was approximately 41% based on pre-Corona values, which is reflective of current market conditions and the quality of the collateral.
Other notable facilities are American’s “delayed draw” term loan that was fully drawn a week later and Delta’s $2.6 billion secured term loan of which $2.3 billion was drawn before the end of the month. Airfinance Journal understands the collateral pool includes younger and core fleet and that the LTV was close to 70%. Delta also drew $3 billion under its existing revolving credit facility. Jetblue’s facility was secured by a young (average age 3.9 years) portfolio of seven A320neo and 17 A321 aircraft, which must have helped achieve the attractive pricing of LIBOR plus 1.75%.
Among the smaller carriers, Jetblue raised and drew its $1 billion term loan secured by aircraft and spare engines.
Alaska Air Group arranged two facilities, $425 million secured by aircraft and $388 million secured by aircraft and a broad selection of other asset types. Spirit came late to the refuelling party with a new $110 million revolving credit (with an accordion feature that can increase the facility to $350 million subject to approval of the new lenders) which Airfinance Journal believes is presently undrawn. Advice to Alaska and Spirit: take a leaf out of your bigger brothers’ books and draw those facilities fast!
The pricing range was wide, reflecting the differences in credit quality and collateral. Pricing (all expressed as a spread over LIBOR) ranged from a low of 1.00% for Southwest to a high of 2.75%-3.5% for the United spare parts facility. Spirit achieved a very creditable 2.00% supported by its varied collection of collateral.
Analysis of the 8-Ks and press releases reveals that JP Morgan, Citi, Morgan Stanley, Bank of America and Goldman Sachs were the most active arrangers.
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