AerCap targets 2.7x leverage in 2022 with $23 billion debt sold in Q3

By Devika Patel

Knoxville, Tenn., Nov. 12 – AerCap Holdings NV intends to get its leverage back to its target of 2.7x in 2022 after selling $23 billion of debt to very strong demand last quarter to fund an acquisition.

On March 10, the company announced it would acquire GE Capital Aviation Services from General Electric Co. for a consideration valued at more than $30 billion, which was completed earlier this quarter.

Under the terms of the acquisition, General Electric received about $24 billion in cash, 111.5 million ordinary shares, equivalent to around 46% ownership of the combined company with a market value of about $6 billion as of March 9, 2021, and $1 billion paid in AerCap notes and/or cash upon closing.

“We continue to maintain a very strong balance sheet,” chief financial officer Peter Juhas said on the company’s third quarter ended Sept. 30 earnings conference call on Wednesday.

“Our leverage ratio on a standalone basis at the end of the quarter was 2.3x, which means that pro forma for the [GE Capital Aviation Services] transaction, our leverage ratio was 2.8x.

“That puts us well on our way to get back down to our target ratio of 2.7x in 2022,” he said.

The company sold $21 billion of senior unsecured notes in October and completed a $2 billion secured institutional term loan in November to finance the GE Capital Aviation Services acquisition with an average coupon of approximately 2.6% and an average tenor of 7.1 years.

“We had very strong demand for our recent financings and both our $21 billion unsecured bond offering, and our $2 billion secured term loan were heavily oversubscribed, which demonstrates the market’s confidence in AerCap as well as the sector generally and, of course, the interest cost of around 2.6% for an average tenure of just over seven years on those financings positions us well for the lower cost of debt going forward,” Juhas said.

Cash and cash equivalents were $1,311,234,000 as of Sept. 30, 2021, compared to $1,248,772,000 as of Dec. 31, 2020.

Total liquidity was about $18 billion at the end of the quarter.

“We continue to maintain a strong liquidity position,” Juhas said.

Long-term debt was $497,178,000 as of Sept. 30, 2021, compared to $600,321,000 as of Dec. 31, 2020.

On March 30, AerCap entered into a $4.35 billion revolver, a $19 billion bridge credit agreement and a $5 billion term loan with Citibank, NA as administrative agent on all three.

Citi and Goldman Sachs had provided AerCap with $24 billion of committed financing for the GE Capital Aviation Services acquisition.

The bridge agreement and the term loan replaced the $24 billion of commitments under the debt commitment letter.

On Oct. 21, AerCap Ireland Capital DAC and AerCap Global Aviation Trust sold an upsized offering of $21 billion of senior notes in nine parts (Baa3/BBB/BBB-).

The registered notes, which are guaranteed by AerCap Holdings., was initially marketed at $20 billion in size.

The company priced

• $1.75 billion of 1.15% senior notes due 2023 at par to yield 1.15%, or a spread to the Treasury benchmark of 70 basis points. Price talk was in the Treasuries plus 90 bps area;

• $3.25 billion of 1.65% senior notes due 2024 at 99.878 to yield 1.692%, or a spread to Treasuries of 90 bps. Talk was in the 110 bps area over Treasuries;

• $1 billion of 1.75% senior notes due 2024 at 99.878 to yield 1.792%, or a spread to Treasuries of 100 bps. Price talk was in the Treasuries plus 120 bps area;

• $3.75 billion of 2.45% senior notes due 2026 at 99.832 to yield 2.486%, or a spread to Treasuries of 125 bps. Price talk was in the Treasuries plus 150 bps area;

• $3.75 billion of 3% senior notes due 2028 at 99.818 to yield 3.029%, or a spread to Treasuries of 150 bps. The notes were talked in the 175 bps area over Treasuries;

• $4 billion of 3.3% senior notes due 2032 at 99.624 to yield 3.344%, or a spread to Treasuries of 165 bps. Price talk was Treasuries plus 190 bps.

• $1.5 billion of 3.4% senior notes due 2033 at 99.57 at 3.444%, or a spread to Treasuries of 175 bps. Price talk was in the Treasuries plus 205 bps area;

• $1.5 billion of 3.85% senior notes due 2041 at 99.765 at 3.867% or a spread to Treasuries of 175 bps. Price talk was in the Treasuries plus 205 bps area; and

• $500 million of floating-rate senior notes due 2023 at par to yield SOFT plus 68 bps.

The fixed-rate notes feature make-whole calls. The 2023 notes have a make-whole call at Treasuries plus 15 bps, and the two 2024 tranches have a Treasuries plus 15 bps make-whole call prior to Sept. 29, 2024 and Oct. 29, 2022 for the two tranches, followed by par calls.

The five-year notes have a make-whole call at Treasuries plus 20 bps prior to Sept. 29, 2026, then a par call; the seven-year notes and the long 10-year notes have a make-whole call at Treasuries plus 25 bps prior to Aug. 29, 2028 and Oct. 20, 2031 respectively, then par calls. The 12-year notes and the 20-year notes have a make-whole call at Treasuries plus 30 bps prior to July 29, 2033 and April 29, 2041 respectively, then par calls.

The floating-rate notes are not callable, but they are subject to a mandatory redemption at 101 plus accrued interest if the GECAS transaction is not completed by June 9, 2022.

The dollar notes were initially expected to have six tranches.

Citigroup Global Markets Inc. and Goldman Sachs & Co. Ltd. were joint global coordinators and joint bookrunning managers together with BofA Securities Inc., Barclays, Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Mizuho Securities USA LLC, Morgan Stanley & Co. LLC, RBC Capital Markets, LLC, Santander Investment Securities Inc., BNP Paribas Securities Corp., Credit Suisse Securities (USA) LLC, HSBC Securities (USA) Inc., TD Securities (USA) LLC, Truist Securities, Inc., Wells Fargo Securities, LLC, MUFG, SG Americas Securities, LLC and Fifth Third Securities, Inc.

Proceeds were earmarked to fund a portion of the $24 billion cash consideration to be paid in the GE Aviation acquisition, with any excess proceeds to be used for general corporate purposes.

AerCap is acquiring the part of the GECAS business that includes GE Aviation’s 50% joint venture ownership in Shannon Engine Support Ltd.

On Nov. 2, AerCap Holdings (Setanta Aircraft Leasing DAC) reduced pricing on its $2 billion seven-year term loan B (Baa2/BBB) to Libor plus 200 bps from talk in the range of Libor plus 225 bps to 250 bps.

Also, the original issue discount on the term loan was tightened to 99.75 from 99.5.

The term loan still has 0% Libor floor and 101 soft call protection for six months.

There is no amortization on the term loan, but it is subject to a loan-to-value threshold.

Citigroup Global Markets Inc. and Goldman Sachs Bank USA were the joint mandated lead arrangers on the deal. Citigroup is the administrative agent.

Proceeds were earmarked to help fund the GE Capital Aviation Services acquisition and for general corporate purposes.

On Nov. 10, AerCap Global Aviation Trust and AerCap Ireland priced $1 billion of 1.899% senior global notes due 2025, which were issued to a subsidiary of General Electric in connection with the closing of the acquisition.

The notes have a make-whole call with a Treasuries plus 20 bps discount rate and accrued interest, followed by a par call on Oct. 1, 2025.

They have a change of control put at 101.

Bank of New York Mellon Trust Co. NA is trustee of the issue.

AerCap is an independent aircraft leasing company based in Amsterdam.

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