Meritz Sec to buy $540 mn aircraft portfolio from DAE Capital

  • 2018-12-13

Meritz Securities Co. Ltd. will acquire 18 used aircraft from Dubai Aerospace Enterprise (DAE) Capital for $540 million, for which it is to complete the public sale of senior debts against the planes in the United States on Dec. 14.

The deal will be the second portfolio aircraft investment by Meritz Securities since it bought 20 aircraft from GE Capital Aviation Services (CAS) for $900 million in late 2016 via a joint aviation fund with Mizuho Securities Co. Ltd., according to the South Korean company’s announcement on Dec. 13.

For the acquisition, Meritz Securities issued senior notes with coupon rates of 4.25~5.5% arranged by Mizuho Securities for an undisclosed amount.

Despite the US Federal rate increases, the coupon rates are about 30 basis points lower than the 4.5% and 5.8% of the A and B notes which were sold in 2016 to finance the $900 million portfolio deal with GE CAS.

It reflects tightening credit spreads of securities backed by aircraft and other real assets as aircraft investments are gaining momentum, according to Meritz Securities.

“Given the diversity of the aircraft and the lessees in the portfolio, we concluded that they have a low investment risk,” Seung-young Lee, a Meritz executive, told the Korean Investors.

They are leased to 15 airlines from 13 countries, including American Airlines, Qantas Airways and Garuda Indonesia.

Meritz Securities will buy about 20% equity and mezzanine tranche in an aviation fund launched for the acquisition. It did not disclose the amount of its principal investment for the transaction.

The South Korean brokerage firm has sold down most of the mezzanine debt to domestic institutional investors for an expected investment period of seven years. It will hold part of the equity to show its dedication to the portfolio.

DAE Capital, the world’s sixth-largest aircraft lessor, is selling the planes, including best-selling Airbus A320 and A330 and Boeing 737, as part of asset adjustment. It owned airplanes at end-2017.

The planes are nine years old on average with a remaining lease term of about four years and five months.

South Korean brokerage companies are ramping up aircraft investments, while domestic banks are pushing into aircraft-backed lending market for diverse investments generating a steady stream of cashflows.

Recently, Korea Investment & Securities Co. Ltd. has acquired two Air France-leased Boeing aircraft for $217 million via a domestic fund which raised $125 million in dollar-denominated syndicated loans from South Korean banks.

By Daehun Kim

<Edited by Yeonhee Kim>

Photo: Getty Images Bank