Aviation Finance “Goshawk: Innovation not pricing the key to future growth”

Close on the heels of closing its first unsecured debt facility last June, a $345m bank RCF, Goshawk Aviation has made its debut on capital markets with a $231 million note issuance placed with 10 US institutional investors. CEO Ruth Kelly and CFO Anand Ramachandran spoke to Aviation Finance correspondent John Stanley about the rationale for the funding approach adopted and the company’s ambitious growth plans.

Goshawk, owned by Chow Tai Fook Enterprises Limited, NWS Holdings Limited and Investec Bank plc, was established in November 2013 as an aircraft leasing platform focused on young, new technology, in-production aircraft with a large and diversified asset-type and operator base.

Its current $3 billion portfolio of 71 aircraft is set to grow to 85 planes worth $4.2 billion with the delivery of aircraft later this year and next and allowing for some disposals already in train. The expanded portfolio will include four new Boeing 787-9s to be acquired in a sale and leaseback transaction with Etihad Aviation Group announced last month, which will deliver through 2017. Reflecting this growth and also the needs of the future, Goshawk’s current team is expected to expand from 32 currently to about 40 by the end of this year.

True to its platform focus, the average age of the fleet is currently less than three years, but this will drop to around two and a half as new aircraft deliveries are made next year. The average remaining lease term is currently slightly over eight years.

While the fleet is young, Goshawk is committed to active trading of aircraft. ‘We have sold about 10 per cent of the portfolio to date. The aircraft sold have all been older, part of acquired portfolios. But we do see ourselves as active traders of aircraft and we are currently in the process of trading a number of aircraft. We believe we will trade some aircraft every year, mainly for portfolio management reasons,’ said CEO Ruth Kelly speaking with Aviation Finance this week.

‘In many respects the key for us is to grow a strong solid business and we’re not driven by growth for growth’s sake,’ she said. ‘We want to transact and buy aircraft in situations which make sense for us. We’ve said previously we have a loose ambition to growth the business by around $1 billion of assets a year and we’re there or there abouts, probably slightly ahead of that. So we’re happy with the growth. But the key is not growth for its own sake but to build a solid portfolio of aircraft.’

Kelly said Goshawk continues to look at the sale and leaseback market for opportunities as well as possible acquisitions from other lessors. But so far this year it has acquired just one aircraft from the lessor market and everything else has been sale and leasebacks. ‘We are primarily a narrow body lessor, in that the majority of our portfolio is narrowbodies, but we do selectively look at wide bodies, such as the 787s this year with Etihad,’ she said.

Goshawk recognises that to achieve its growth objectives it needs to do something different to stand out from the crowd. ‘The sale and leaseback market remains really competitive and in a lot of cases there always seems to be an additional angle to a transaction which helps us to have a competitive edge,’ she said. ‘It’s rarely that we win on price, there’s always some other dimension to a transaction which we have to work hard on.

‘The recent Etihad deal is a good example. We’ve been eager to add Etihad to our client portfolio for some time and were doubly pleased that it was in conjunction with our first 787 aircraft. But key to the transaction was the PDP facility involved and we were quite innovative in terms of what we did on that facility. In fact, we’ve managed to win quite a few mandates on that basis this year. We continue to have to work hard on innovation, but that’s the nature of the market we’re in.’

CFO Anand Ramachandran agrees. ‘Innovation is a fundamental aspect and it’s part of our ethos. We try to think outside of the box and come with solutions which are helpful to the airlines and help us win,’ he said.

Asked about the possibility of non-organic growth Kelly said: ‘Obviously there are certain leasing businesses for sale out there and for us it’s all about looking at things that would make sense for us – that the price would make sense and the portfolio mix would fit our strategy and our desires in terms of how we want the business to look. So yes, we look at things in the market, but we would be very selective. We look at things all the time.’

Discussing the funding side of the business, Kelly said: ‘In terms of our debt book we now have a mix between bank facilities, our RCF, which we closed earlier in the summer, and this latest private placement, both of which are unsecured, and we also have a warehouse facility.

‘We’re continuing to grow the business, so we will obviously have a requirement to add more debt. We will look to get the right mix between bank facilities and institution facilities and also between secured and unsecured facilities.

‘We’ll be trying to continue to develop relationships with all of those debt providers and therefore we’ll be using a variety of different structures to ensure that we’re able to satisfy the needs of the debt providers in addition to meeting our own needs.’

The private placement was launched as a $200 million senior notes issuance. Following a six week marketing phase the final demand was close to $300 million. The issuance was priced on the Wednesday following the Brexit referendum vote and the final issuance was $231 million, split between 5 year and 7 year tenors.

The joint lead agents were Citibank, Natixis and HSBC Bank plc. Credit Agricole CIB was a co-lead agent. O’Melveny & Myers LLP acted as Goshawk’s legal counsel while Greenberg Traurig Maher LLP acted as the investors’ legal counsel.

It follows the closing at end June of a $345 million four year Revolving Credit Facility with the potential to be upsized to $750 million through an accordion feature.

While declining to disclose the pricing of the note issuance, Kelly said ‘We were very pleased with the pricing we achieved. We were happy with the level of interest and very happy about being oversubscribed on our first issuance.’ Ramachandran revealed that the split between five and seven year tenors was more or less 50/50. The decision to adopt a two tenor approach was ‘driven largely by us managing our own balance sheet, our own leveraged pool, and obviously we’re trying to broadly match our debt stream to our revenue stream and then we were marrying that up with appetite and pricing in the market. So really we were optimising tenors, split, pricing and structure with the appetite that was out there,’ he said.

He concedes that the result of the Brexit vote was a surprise. ‘At the back of our minds we didn’t expect Brexit to happen, it caught everyone unawares. But at the same time we were quite confident about our story. We priced it on a Wednesday when the Brexit had come out on the previous Friday.’

Kelly added: ‘The key is that the market was resilient to Brexit. The institutional investors have the funds that they want to invest and they didn’t turn the tap off on the Brexit outcome. Don’t forget it’s a dollar business, the lenders are dollar lenders, we were dollar borrowers and we’re a global business not reliant on the UK.’

The 10 investors in the placing vary from some very large institutions that would do large ticket sizes to some that are smaller. ‘So I think we covered the range,’ she said. ‘One of the key objectives for us, as a growing business, was to begin building relationships with the institutional investors to give us diversification in terms of our sources of funding. Having access to a different pool, which is very wide and very deep, was one of the key objectives.

‘We’re pleased with the profile of the institutions and to have accessed that market at such a young age. I think the market liked our story and liked what we are building. It was highly validating for us that another source of capital feels that Goshawk is an entity they want to have a relationship with.’

Ramachandran added: ‘As a growing company we’re looking for diversification and flexibility in our funding sources. (In the future) we will tap new sources of bank markets that we haven’t tapped before and we will also look at the debt capital markets to provide the diversity and flexibility. Our focus will always be to diversify our sources of funding as a growing business; I think that’s fundamentally the key.’

(Article published in Aviation Finance 11. August 2016 edition  http://www.aviationfinance.aero/articles/16093/Goshawk%3A-Innovation-not-pricing-the-key-to-future-growth)

 

Goshawk debuts with its first unsecured issuance

Goshawk Aviation Limited (“Goshawk”) has completed its first issuance of unsecured notes to institutional investors in the US market. The deal was launched as a USD 200 million senior notes issuance (“Notes”). Market demand was close to USD 300 million and the final issuance was USD 231 million, split between 5 year and 7 year tenors. The pricing of the transaction was completed at the end of June, immediately post the UK Brexit referendum. Proceeds from the Notes will be used for aircraft acquisitions and general corporate purposes.

The joint lead agents were Citibank, Natixis and HSBC Bank plc. Crédit Agricole CIB was a co-lead agent. O’Melveny & Myers LLP acted as Goshawk’s legal counsel while Greenberg Traurig Maher LLP acted as the investors’ legal counsel.

Anand Ramachandran, CFO of Goshawk, says “We are pleased to have followed the recent closing of our $345m unsecured bank RCF with a successful debut unsecured capital markets issuance. This provides Goshawk with another diversified source of capital and this support from US institutional investors is a strong endorsement of the progress the company has made in less than 3 years.”

Goshawk was established in November 2013 as an aircraft leasing platform to focus on building an asset portfolio of young, new technology, in-production aircraft with a large and diversified asset-type and operator base. With support from its principal shareholders, Chow Tai Fook Enterprises Limited, NWS Holdings Limited and Investec Bank plc, the Goshawk portfolio has grown to 71 delivered aircraft since inception. Together with the planned aircraft in the pipeline, the total asset value of Goshawk is estimated at approximately USD4 billion.

Chow Tai Fook Enterprises Limited

Chow Tai Fook Enterprises Ltd. (“CTFE”) is a private Hong Kong-based holding company owned and controlled by Dato’ Dr. Cheng Yu Tung and family. CTFE is the parent company of New World Development Company Limited. (Hong Kong stock code: 17), a listed blue chip conglomerate in Hong Kong. The principal activities of the CTFE group of companies include investment holdings, property development and investment, hospitality services, infrastructure, department stores, jewelries and other consumer and retail businesses.

NWS Holdings Limited

NWS Holdings Limited (“NWS Holdings”, Hong Kong stock code: 659), the infrastructure and service flagship of New World Development Company Limited, operates businesses in Hong Kong, Mainland China and Macau. Its Infrastructure portfolio includes Roads, Environment, Logistics and Aviation projects. Its Services portfolio comprises Facilities Management (the management of Hong Kong Convention and Exhibition Centre and Free Duty), Construction & Transport (construction, bus and ferry services) and Strategic Investments.

Investec Bank plc

Investec is an international specialist bank and asset manager that provides a diverse range of financial products and services to a niche client base in two principal markets, the United Kingdom and South Africa, as well as certain other countries. The group was established in 1974 and currently has approximately 8,200 employees. In July 2002, the Investec group implemented a dual listed company structure with listings on the London and Johannesburg Stock Exchanges. The combined group’s current market capitalisation is approximately GBP5.4 billion. Investec has a strong aviation franchise, which provides solutions across a wide product offering to airlines, lessors and investors in the sector. The Investec Aviation Finance team has over USD4.0 billion of aircraft assets under management including its managed equity and debt funds.