Following the €500 million ($629 million) placement of the first aircraft covered bond in early July, the head of origination at the issuing bank Norddeutsche Landesbank, Thomas Cohrs, believes the prospects are good for further issuance.
In a commentary published by the European Mortgage Federation, Cohrs said that given the current make-up of aircraft financing and the outlook for growth, issuance of about $3 billion annually over the next 20 years would be a conservative forecast.
The projection is partly grounded in the expectation that we will see a move away from aircraft finance by export credit agencies, which have provided about 30% of funding in the last couple of years. Cohr estimated that capital market funding will cover about 10% or $10 billion of new aircraft deliveries this year.
Cohrs argues that the registerability and security of aircraft assets make them appealing candidates for covered bonds. Aircraft loans “are typically evidenced by mortgages and carry all the trappings of security in the form of register rights and contractual collateral requirements and enforcement, respectively,” he said. “This makes them similar to shipping assets which have found their way into not only German but also some Nordic legislation, for example.”
Moody’s Investors Service rated the transaction ‘A2’, a grade that Cohr found “disappointing.”
He said while that while the coupon provided a significant pick up from comparable investments, it still gave the issuer a better cost of funding than the leading sources of unsecured funding.
As of April 30, the pool consisted of 74 financings worth a total €950 million. They were broken down into direct loans to airlines (43% of cover pool), aircraft operating leases (48%), and aircraft finance leases (9%). All financings are backed by aircraft mortgages.