http://www.AVBUYER.com AVBUYERMAGAZINEVol 23 Issue 8 2019 43
F AVBUYER.comUnderstand What Motivates the Lender
According to Paul Jebely, who from Hong Kong
leads private wealth and asset finance practice of law
firm Pillsbury Winthrop, “There has without question
been a very significant slowdown in business aircraft
financing over the past 12 months.” Systemic
uncertainty in the financial markets is making
business jet lenders more cautious, he adds.
But there is still a range of organizations
competing to lend tens of million dollars for a jet
purchase. The first is for those who don’t really need
to raise the money but want to because their wealth
is in illiquid assets, or because they want to park part
of the risk with someone else.
Private banks – the likes of Credit Suisse and UBS- might lend money for a jet because they already
handle, or want to handle, your money. There was a
time, not long after the financial crisis of a decade
ago, that such lenders would give you $30m, say, if
you had $30m with them.
They might have relaxed that somewhat, but as
Jebely says, the best way to increase your chances of
getting the funding is “acting like you don’t need the
funds at all”.
As he says, “a key motivator for many business jet
financiers is to keep or win your business. This is
most apparent for private banks that have sizeable
requirements for assets under management.”
These institutions, whose loan is based more on
the borrower than the asset, might be a good source
of funds for clued-up buyers purchasing an aircraft
from a trickier jurisdiction (i.e. from some African
countries), suggests Brendan Lodge, UK-based
aircraft acquisitions specialist with Support Services
Inc. Such lenders might also provide funds at keen
rates - maybe just one or two points over Libor.
And as Aiofe O’Sullivan, partner at the specialist
London-based practice The Air Law Firm, points out,
they prefer to keep funds separate so even if a
problem arises they won’t automatically magic the
money out of the funds invested with them.
Then there are the more traditional aircraft
lenders, such as Investec. They’re not frightened of
offshore structures and will typically be offering 80%
or better loan-to-value figures with competitive
margins of probably 2-3% above Libor, with large
corporations maybe getting a better deal.
Close Brothers is also shaving its margins by
taking extra special care with the loans it is
underwriting. And then there are the newer funds
such as Shearwater Aero Funding that are more
comfortable taking greater risks in less easy
jurisdictions – those that have a very different legal
system, or a high corruption index, say.
These lenders (which have risen in the 10 years
since the global credit crisis) might be more
attractive for some cross-border deals as they base
their loan on the asset rather than the borrower.
They want a ceiling of 60-65% of loan to value,
and they will charge a higher margin of 6-8% above
Libor, possibly more. But Lodge says he expects
competition between the high-margin funds to bring
their rates down over the next year.Rohit Jaggi holds airplane and helicopter
licenses and frequently conducts flight
tests of airplanes and helicopters for
print and video. He held a number of
news editing and reporting posts with
the Financial Times before becoming
a freelance writer. Find out more via
[email protected]Finance 1.qxp_Finance 15/07/2019 16:24 Page 2