UPDATE 1-AerCap preps US$2.6bn M&A high-yield bond

Tue May 6, 2014 4:20pm EDT

(Adds background, ratings)

By Natalie Harrison

NEW YORK, May 6 (IFR) - Aircraft leasing company AerCap Holdings is looking to raise US$2.6bn from a three-tranche high-yield bond this week to finance its acquisition of International Lease Finance Corp (ILFC), a subsidiary of American International Corp.

UBS and Citi are joint physical bookrunners on the deal, which comprises three, five and seven-year bullet tranches, and will refinance the US$2.75bn committed bridge financing put in place when the deal was announced in December.

AIG has also provided AerCap with a committed US$1bn, five-year revolving credit.

AerCap has one bond outstanding - the 6.375% May 2017 issue - that is trading at a yield-to-worst of 2.94%, according to Trace, and will be one of the pricing benchmarks for the new offering.

"This (new deal) will come tight," said one banking source.

The bond, which as it stands would be the eighth biggest high-yield deal of the year according to IFR data, is expected to price later this week following investor meetings in New York on Wednesday, and Boston on Thursday. An investor call will also be held on Wednesday.

GOOD CONDITIONS

The deal should attract strong demand from investors who are still struggling to get decent allocations on deals in current market conditions.

The asset class has returned 3.9% year-to-date, according to Bank of America Merrill Lynch, which is higher than equity markets at 2.2% and a touch below investment-grade at 4%.

US high-yield supply currently stands at US$108bn, according to Thomson Reuters data, down from US$117.8bn the same period a year ago.

The expected high rating on the new AerCap bonds, and the fact that it is M&A related - offering investors a chance to buy a rare issuer - should also bode well for the transaction.

April's US$38.84bn supply - the biggest month of the year according to IFR - included jumbo M&A related issues including the biggest on record for Numericable which flew off the shelf.

Fitch said it expects to assign a BB+ note to the issue.

The sale of ILFC by AIG represents the last transfer of a large fleet of leased aircraft (more than 900), following RBS's sale of its leased aircraft fleet in 2012 and CIT's re-emergence from bankruptcy, according to Fitch.

"Once the AerCap deal closes, material consolidation in the industry will be complete, with two large players (AerCap and GECAS) controlling close to half of all lessor-owned aircraft globally," the rating agency said. GECAS is the aircraft financing arm of General Electric.

"However, there may still be M&A opportunities for the smaller players."

AerCap is buying 100% percent of ILFC. In exchange, AIG will receive US$3bn in cash and 97.6m AER shares. The cash portion of the consideration was funded through a combination of new debt and cash of the combined company.

The bond will be issued by AerCap Ireland Capital Limited (Irish Issuer) and AerCap Global Aviation Trust (Delaware Issuer) - subsidiaries of AerCap Holdings - and will benefit from a guarantee of the parent company and various other subsidiaries.

Barclays, Bank of America Merrill Lynch, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, RBC and RBS are joint bookrunners. (Reporting by Natalie Harrison, IFR Markets; Editing by Shankar Ramakrishnan)