ABS Deal of the Year — Global Jet Capital: Business Jet Securities 2020-1
Global Jet Capital spent many years in meeting after meeting and conference after conference explaining to investors a simple truth - that business aviation is its own market entirely. In 2020, the message hit home. The commercial sector remained in disarray even after lockdowns ended. Business jet travel bounded back sharply. Commercial aviation ABS investors were exposed to firms whose very existence was in doubt. Business aviation ABS investors were exposed to wealthy individuals and successful firms in an array of different industries. At the height of the pandemic while commercial ABS hit collateral triggers, Global Jet Capital hit the primary market with a transaction the market overwhelmingly voted ABS deal of the year.
The $552 million triple-tranche BJETS 2020-1 was Global Jet Capital’s fourth ABS deal after an inaugural transaction in 2018. Business aviation ABS remains a niche product in an already niche market, and the latest deal’s success was a testament to the firm’s effort at investor education. “We’ve spent a lot of time with investors over the years taking a couple of hundred phone calls and meetings every year,” says Paul Rerick, the firm’s CFO. “It’s paid off and we saw that in the interest for this deal.”
The firm’s wider portfolio was resilient throughout the whole of 2020, with no covenants tripped on outstanding deals. “The pandemic and associated impacts on commercial aviation didn’t have a big impact on us at all,” says Rerick. “That’s when investors really started to see the differentiation we’ve been highlighting for years between business aviation and the commercial space.”
A commercial aircraft might fly for 3,000 to 4,000 hours a year - a business aircraft for only 300 to 400. The BJETS 2020-1 portfolio was made up of 55 business jets either on a loan or lease to corporates and high net worth individuals engaged in highly profitable businesses diversified across the economy. “These are corporations and individuals that have the financial wherewithal to support an operating lease, loan or finance lease for an aircraft that they need for operations,” says Rerick. “The aircraft is a key business productivity tool.”
Global Jet Capital also managed concentration risk very closely, making sure that there was no significant exposure to any one underlying industry in the deal’s portfolio. This was important given that many sectors of the economy were struggling at the time. “With oil down to $30 a barrel during 2020, we got questions around that sector,” says Rerick. “But the oil and gas sector only made up around 2% of the pool.” No one sector represented more than 10% of the total pool, according to a pre-sale report by Kroll. Overall, about 67% of the BJETS 2020-1 portfolio was rated BB- or above and approximately 25% was rated BBB and above.
The loans and leases are also triple-net obligations, which means that things like maintenance and insurance are the lessee’s or borrower’s responsibility. So, unlike a commercial aircraft ABS deal there was no maintenance cash flow and related payments under the payment priority. Rerick notes one of the clearest signs of the portfolio’s resilience was an acceleration in aircraft maintenance when flights were grounded. “High net worth individuals knew they had events to get to in the second half of 2020 and were soon going to be able to start flying again,” he says. “Similarly, large corporations need their aircraft for visits to plants and offices. They were all getting maintenance done early so that when the world opened up, they could get in and go.”
Resilience, differentiation and diversity saw investors pile into the BJETS 2020-1. The class ‘A’ notes were priced with a coupon of 2.98%, the class ‘B’ notes with a coupon of 3.97% and the ‘C’ notes with a coupon of 7.14%. The low pricing surprised onlookers given the economic backdrop and headline risk around air travel. The deal marked Global Jet Capital’s lowest cost of capital and greatest number of investor orders at the time.
Buoyed by the success of BJETS 2020-1, in early 2021 Global Jet Capital rode the wave of interest back into the market and enjoyed an even higher level of oversubscription, the highest advance rate of any BJETS transaction and the lowest cost of capital. That deal in March 2021 was seven times oversubscribed, with one hopeful investor putting in an order for the entire deal. “BJETS 2020-1 really hit home and people started to take notice of us,” Rerick says. “We’ve built on the success of that deal in 2021.” GC
For more information on Global Jet Capital, please see their website https://www.globaljetcapital.com/