A unit of San Francisco-based Pegasus Aviation Inc. plans to enter an interest-rate swap on the back of an upcoming USD1.127 billion bond issue backed by aircraft leases. In the securitization, the leases are sold to a special purpose vehicle, PALS Holding Co. III, which in turn issues the bonds, said Chandra Gopinathan, associate analyst at Moody's Investors Service in New York. Moody's is rating the deal. Ratings on the tranches are expected to range from Ba2 to Aa2.
Lease payments from the airline are for the most part fixed, while the notes pay floating coupons. The initial 10-year swap will have a notional size of USD987 million, which represents 95% of the note issuance, said Gopinathan. In the swap, the spv will pay a rate of 5.56%, and receive one-month U.S. dollar LIBOR. One month LIBOR was 5.05% on Wednesday. The notes mature in 30 years, except for a single 14-year tranche.
PALS's counterparty in the transaction is Credit Suisse First Boston International, a subsidiary of Credit Suisse First Boston. Gopinathan noted that CSFB is the financial advisor for the deal. An official at Pegasus Aviation declined comment.