deal
Realising value from assets still tied up in operating lease
contracts just got simpler with a new structure pioneered by Engine
Lease Finance Corporation (ELF).
Go deeper with GlobalData
In a deal advised by law firm, Paul, Hastings, Janofsky and
Walker LLP (Paul Hastings), ELF and subsidiary, Aviation Lease
Finance LLC (ALF), last month disposed a portfolio of 28 aircraft
engines to GSI Engines Beta Limited Partnership. The assets were
valued at US$157m.
The engines are currently leased to 19 different airlines and
maintenance repair facilities around the world. Following the sale,
ELF will continue to administrate and oversee day-to-day dealings
with the lessees – GSI has appointed it as the so-called “lease
servicer”.
What’s significant about the deal is that ELF was able to close
the transaction much quicker than if it were to use the
conventional route of drawing up novation agreements with each
individual lessee to obtain their consent to the sale.
Borrowing ideas from high profile engine securitisation deals in
the US – notably the Willis Engine Securitisation and the GE
Commercial Aviation Services deal – Paul Hastings devised a trust
structure that involved ELF and ALF declaring trusts in favour of
GSI over the 28 engines.
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By GlobalDataThe process bypassed the need for time-consuming novation
agreements thus allowing ELF to book the sale in its current
financial year.
However, Keith Wilson, partner at Paul Hastings, said novation
agreements are still being drafted after the transaction has been
completed, even if there is no requirement to do so in order to
obtain sale treatment.
“The model that Willis developed for their portfolio was to have
separate trusts for each of the assets prior to securitisation so
that they could transfer the interest in the trust rather than
transfer the engine and the interest in the lease,” said Wilson,
who worked on the deal with senior associate, Norman Fraser.
According to the lawyers, the “Owner Trustee” structure, common
in the US, has facilitated securitisation in Europe but where it
was not used, there was a process of lease assignment or
novation.
The ELF-GSI structure avoids this novation process prior to
completing the sale.
Paul Hastings believes this transaction is the first of its kind
in Europe and hopes it would be used as a template for similar
transactions in the future.
