HG bonds: Aviation Capital locks in lower funding costs with 2026 notes; terms

Aviation Capital Group LLC today completed a $750 million offering of 1.95% five-year notes due Jan. 30, 2026, at T+165, or 2.151%.

The issue was printed through the tight end of guidance in the T+180 area, and through initial whispers in the T+212.5 area.

Proceeds will be used for general corporate purposes, which may include the purchase of commercial aircraft and repayment of debt. Of note, the company's next long-term maturity is $750 million of 6.75% notes due in April, followed by $500 million of 1.175% notes due in June, according to S&P Capital IQ.

Amid stiff pandemic headwinds for the aviation sector, Aviation Capital last tapped the market in July 2020, when it placed a $1 billion offering of 5.5% 4.5-year notes due December 2024 at T+545.9, or 5.75%.

The Newport, Calif.-based company owns, manages and leases jets to commercial airlines.

Of note, in December 2019, Aviation Capital was acquired by Tokyo Century Corp., which already owned a 24.5% stake in the company, from previous owner Pacific Life Insurance.

The change of ownership to Tokyo Century Corp. triggered a multi-notch downgrade by S&P Global Ratings to BBB- from A-.

S&P Global Ratings and Moody's maintain negative outlooks on both sides.

In April 2020, S&P Global Ratings revised its outlook to negative, from stable, on the back of weaker-than-expected revenue due to the COVID-19 pandemic. In June, the agency assigned a BBB rating and negative outlook to parent Tokyo Century. The outlook reflected the adverse effects of the global pandemic on the company's asset quality and revenue.

Meanwhile, Moody's, which assigned first-time Baa2 ratings to Aviation Capital in December 2019 following the change of ownership, confirmed its rating and gave it a negative outlook in September 2020, after placing the rating on review that June. "ACG's negative outlook reflects Moody's expectations of a more extended and weaker recovery in air travel that results in higher risks to earnings, cash flow, liquidity and capital positions," Moody's said at the time.

"ACG's ratio of debt to tangible equity of 2.0x at 30 June 2020 was materially lower than rated peers, whose ratios range from 2.3x to 3.1x at the same reporting date. Moody's expects that ACG will continue to maintain a strong capital cushion with debt-to-tangible equity leverage of less than 2.5x, which is a key support of the company's ratings. Moody's expects that Tokyo Century will be supportive of ACG's conservative financial targets," Moody's also noted. Terms: