Intrepid Aviation refi kicks out maturities, opens up path to deleveraging through aircraft sales — Deal Preview

Intrepid Aviation’s new unsecured notes offering takes advantage of a favorable backdrop in aircraft leasing to push out near-term maturities, giving management space to delever through aircraft sales over the next two years, according to four buysiders tracking the deal.

Led by Jefferies, the aircraft lessor is roadshowing a three-year non-call one USD 515m senior unsecured note through Thursday (26 July), with pricing thereafter. The deal is rated B by S&P and B+ by Fitch. Initial price whispers are circulating in the 6.5% area, said one of the buysiders and a trader.

Along with USD 10m of cash on hand, proceeds from the new bonds will refinance Intrepid’s USD 515m 6.875% senior unsecured notes due 2019, which last traded in size on 31 May at 98.875 to yield 8.545%, according to MarketAxess. Pro forma the deal, the company’s liquidity will consist of USD 40m of cash on hand.

Intrepid is 8.15x levered, based on USD 2.61bn in total debt and USD 320.4m in LTM adjusted EBITDA at 31 March, according to deal documents.

In a recently struck partnership with aviation asset manager Amedeo Capital, the company’s business plan includes “the potential sale of a significant number of aircraft” within the next year or two, which could be used to pay down debt or for further narrowbody and widebody aircraft investments, according to deal documents.

“The Amedeo agreement might help the company get the deal done around whispers, because one of the main concerns for investors of this company or even this sector is the high leverage,” one buysider said.

Intrepid and its sponsors Centerbridge Partners and Reservoir Capital Group entered into the strategic partnership and management agreement with Amedeo on 29 June 2018. The sponsors will receive a total 40% equity stake in Amedeo and, in exchange, Amedeo will provide management and aircraft support services to the company, said the deal documents.

Intrepid has invested more than USD 3.5bn in aircraft acquisitions over the last five years, according to company documents.

The company benefits from a young fleet and long lease duration, said three of the buysiders. The average age of the company’s 30 aircraft was 3.8 years as of 31 March, while the average remaining lease term was 7.9 years, according to deal documents.

Intrepid’s fleet consists of 89% widebody aircraft, with a total net book value of just over USD 3bn, according to deal documents.

“Widebody aircraft are decent aircraft, but they’re less liquid than narrowbody,” said one buysider. “All of [Intrepid’s] aircraft are on lease, but once those leases expire and if they come back, they’re harder to re-lease than narrowbody. In today’s market, it should be fine, but if there’s a downturn, it would be a concern.”

One buysider expected the bond to have a strong roll component from existing holders.

“A 6.5% coupon is not exactly thrilling for this kind of company and this sector,” the buysider said. “On the other hand, existing bondholders already believe in the company and are comfortable with the leverage and sector, so they’ll probably invest. Others might be more resistant to pulling the trigger.”

One buysider noted that the projections for global air traffic growth, from a report by Alton Aviation Consultancy cited in a company presentation, indicate a promising future for the aircraft leasing market. Global traffic growth is forecast to increase by 4.7% over the next 20 years, according to the Alton report.

Smaller, higher, wider

Although Intrepid does not have an exact comp, sources pointed to larger airplane lessors such as Avation and Aircastle.

Avation, which only reports at the half year, is 8.7x levered based on LTM non-adjusted EBITDA of USD 98.7m and total debt of USD 862.1m as of 31 December.

Aircastle, meanwhile is lower levered at 5.3x, based on adjusted EBITDA of USD 799.3m and total debt of USD 4.22bn as of 31 March.

With Avation’s average aircraft age younger than Intrepid’s at 2.9 years and its average remaining lease term the same, Intrepid should come in line with or a touch wider than Avation, one source said. Though Aircastle’s fleet is older and its lease term is shorter than Intrepid, its lower leverage and greater diversification means Intrepid should come substantially wide of Aircastle, the source added.

Avation’s USD 300m 6.5% senior unsecured notes due 2021, rated B by S&P last traded at 101.125 on Tuesday (23 July) to yield 6.053%. Aircastle’s BBB-/Ba1 USD 500m 5.125% senior unsecured notes due 2021 last traded on 20 July at 102.635 to yield 4.061%, according to MarketAxess.

Intrepid’s management plans to continue issuing long-term leases, with rental income accounting for USD 340.4m or 90% of Intrepid’s LTM total revenues as of 31 March, company documents say.

Before purchasing additional aircraft, Intrepid should focus on using proceeds from the potential aircraft sales to delever, said sources.

“If they buy more planes instead of delevering, they would increase their leverage ratio and bring in more supply, neither of which would be good for their credit metrics. They wouldn’t be able to say anymore that all of their aircraft are leased out, and they’d be sitting on un-leased assets,” one of the buysiders said.

Intrepid did not respond to requests for comment; Jefferies declined to comment.

2018 Debtwire

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