The Globe was enthralled with the new Air Canada equipment financing:
Air Canada said on Wednesday it plans to acquire five new Boeing 777-300ER series aircraft with funds raised through offering two tranches of enhanced equipment trust certificates (EETCs) worth a total of
$606.3 million.The EETC market has been one of the main sources of funding that U.S. carriers have used to fund aircraft purchases in the
last two decades.This market has been off limits to airlines in Canada until late last year, when the Canadian government signed an accord that now allows domestic airlines to seek funding from this market, which offers lower interest rates than other forms of
aircraft financing.
My interest was further piqued by S&P’s rating announcement – which noted that the rating was “(sf)” – structured finance:
The pass-through certificates will be issued by pass-through trusts that will hold equipment notes issued by Loxley Aviation Ltd. Loxley Aviation is a newly formed company whose assets will consist of the aircraft to be financed, in part, with the proceeds of this offering and contract rights under its conditional sale agreements for the aircraft with Air Canada. We will assign final ratings after concluding a legal review of the documentation.
We base the preliminary ‘B'(sf) rating on the credit quality of Air Canada (B-/Stable/–); substantial collateral coverage by good-quality aircraft; and the legal and structural protections available to the pass-through certificates. The company will use proceeds of this offering and those of the 2013-1 class A and class B series to finance 2013 and 2014 deliveries of five Boeing B777-300ER aircraft to be acquired by Loxley Aviation and conditionally sold to Air Canada. Each aircraft’s equipment notes are cross-collateralized and cross-defaulted under the indentures, and cross-collateralized and cross-defaulted to the conditional sale agreements, which we believe increases the likelihood that Air Canada would cure any defaults and agree to perform its future obligations, including its payment obligations, under the conditional sale agreements in an insolvency-related event of the airline.
So, I wonder, what’s the deal with these things? How are they different from a normal mortgage bond, which is to say, debt secured by a physical asset?
Nothing on SEDAR.
A little digging and I learn that it’s a private placement:
The certificates are being offered and sold only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act. The certificates have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and state securities laws. The certificates have not been and will not be qualified for sale to the public under applicable Canadian securities laws and, accordingly, any offer and sale of the certificates in Canada will be made on a basis that is exempt from the prospectus requirement of such securities laws.
Let us all thank the bureaucracy for protecting us from the debt markets!
It was another modestly good day for the Canadian preferred share market, with PerpetualPremiums up 8bp, FixedResets winning 9bp and DeemedRetractibles gaining 2bp. Volatility was average. Volume continued high.
PerpetualDiscounts now yield 4.84%, equivalent to 6.29% interest at the standard conversion factor of 1.3x. Long corporates now yield a little under 4.1%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 220bp, unchanged from April 17.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9527 % | 2,598.4 |
| FixedFloater | 3.96 % | 3.18 % | 33,582 | 18.76 | 1 | 0.0000 % | 4,150.7 |
| Floater | 2.68 % | 2.87 % | 82,194 | 20.05 | 4 | 0.9527 % | 2,805.5 |
| OpRet | 4.80 % | 1.26 % | 60,836 | 0.15 | 5 | 0.0387 % | 2,609.8 |
| SplitShare | 4.80 % | 4.18 % | 121,884 | 4.11 | 5 | 0.1180 % | 2,960.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0387 % | 2,386.4 |
| Perpetual-Premium | 5.18 % | 3.09 % | 88,301 | 0.84 | 32 | 0.0842 % | 2,380.6 |
| Perpetual-Discount | 4.84 % | 4.84 % | 175,131 | 15.71 | 4 | -0.0709 % | 2,690.0 |
| FixedReset | 4.93 % | 2.73 % | 249,090 | 3.77 | 80 | 0.0918 % | 2,507.4 |
| Deemed-Retractible | 4.88 % | 3.57 % | 135,209 | 1.37 | 44 | 0.0230 % | 2,453.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.G | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.28 Bid-YTW : 2.81 % |
| BAM.PR.K | Floater | 1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-04-24 Maturity Price : 18.12 Evaluated at bid price : 18.12 Bid-YTW : 2.91 % |
| BAM.PR.B | Floater | 1.72 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-04-24 Maturity Price : 18.38 Evaluated at bid price : 18.38 Bid-YTW : 2.87 % |
| CU.PR.C | FixedReset | 1.72 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.55 Bid-YTW : 2.56 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.D | FixedReset | 199,264 | Desjardins crossed 185,400 at 26.43. Nice ticket! YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 26.29 Bid-YTW : 2.63 % |
| POW.PR.B | Perpetual-Premium | 86,747 | Scotia crossed 76,000 at 25.63. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-05-24 Maturity Price : 25.00 Evaluated at bid price : 25.48 Bid-YTW : -15.58 % |
| IFC.PR.C | FixedReset | 74,350 | National crossed 50,000 at 26.07; Scotia crossed 15,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 26.06 Bid-YTW : 2.99 % |
| BNS.PR.P | FixedReset | 73,509 | TD crossed 32,600 at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.56 Bid-YTW : -20.90 % |
| RY.PR.W | Perpetual-Premium | 65,117 | RBC crossed 23,400 at 25.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-05-24 Maturity Price : 25.25 Evaluated at bid price : 25.36 Bid-YTW : -5.22 % |
| ENB.PR.H | FixedReset | 36,198 | National crossed 25,100 at 25.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-04-24 Maturity Price : 23.36 Evaluated at bid price : 25.71 Bid-YTW : 3.19 % |
| There were 46 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TCA.PR.X | Perpetual-Premium | Quote: 50.55 – 51.24 Spot Rate : 0.6900 Average : 0.4366 YTW SCENARIO |
| HSE.PR.A | FixedReset | Quote: 25.75 – 26.33 Spot Rate : 0.5800 Average : 0.3419 YTW SCENARIO |
| VNR.PR.A | FixedReset | Quote: 26.62 – 26.95 Spot Rate : 0.3300 Average : 0.2106 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 25.10 – 25.40 Spot Rate : 0.3000 Average : 0.1919 YTW SCENARIO |
| SLF.PR.F | FixedReset | Quote: 26.10 – 26.38 Spot Rate : 0.2800 Average : 0.1868 YTW SCENARIO |
| PWF.PR.L | Perpetual-Premium | Quote: 25.50 – 25.74 Spot Rate : 0.2400 Average : 0.1765 YTW SCENARIO |
[…] PerpetualDiscounts now yield 4.87%, equivalent to 6.33% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.05% (!) so the interest-equivalent pre-tax spread is now about 230bp, a marked rise from the 220bp reported April 24. […]