Guggenheim Partners, Business Aircraft Investments

Transcription

1 Guggenheim Partners, Business Aircraft Investments People. Ideas. Success. Don Walsh Director Guggenheim Partners, Business Aircraft Investments

2 Guggenheim History/Overview Since 1881, the Family Formula By early 20 th century major supporters of philanthropy, science, arts, and education. Guggenheim Partners, LLC formed in More than $160 billion of assets under management with 2,200 employees worldwide. Headquartered in New York and Chicago, more than 25 offices in nine countries. Commercial aircraft through Guggenheim Aviation Partners in 2003; up to $5.4 billion. In 2010 launched Business Aircraft Investments (BAI) platform. Two primary strategies: Asset based financing and opportunistic transactions.. 2

3 Guggenheim family contributions to the development of aviation Beginning in the 1920s, Daniel and Harry Guggenheim helped transform the infant aviation industry. Together they funded and/or helped develop: Seven schools of aeronautic engineering in the United States A model airline First aviation weather service Developed instruments needed to fly with zero visibility Charles Lindbergh s national tour following his historic trans-atlantic flight Robert Goddard s pioneering rocketry efforts and subsequent jet propulsion work Aviation will always owe a debt of gratitude to Daniel Guggenheim -Charles A. Lindbergh Western Air Express

4 Guggenheim Asset Based Financing Overview Asset based opportunity enhanced by financial crisis, depressed values, and growth in non-traditional global markets Non-recourse for payment default (asset versus credit is primary exit strategy) Limited recourse triggered for breaching asset value protection covenants Value proposition; less invasive underwriting process, non-contingent liability, stand alone transaction (no investment relationship required) A boutique approach to deal sourcing and portfolio growth Front loads the majority of the repossession process into the structure beforehand. 4

5 Guggenheim s Underwriting Paradigm Asset Level one Determine the value Tier System determines structure Aircraft Management, Jurisdiction, & Security Level two Protect the asset Functions as repossession agent in the event of a default Borrower and Credit Level three Financial wherewithal of the borrower Borrower s reputation Source: Guggenheim 5

6 Business Aircraft Market: Segmentation of Recovery There is industry-wide recognition of a segmented market recovery in business aviation. Deliveries, pre-owned pricing, and new programs by OEMs all reflect this shift toward larger cabins and longer range aircraft. Segmentation of New Business Aircraft Deliveries % % +33% Non-Target Business Guggenheim Aircraft Target Market Target Business Aircraft (No ULRs) Not Guggenheim s Ultra Long Range Target Aircraft Market Ultra Long Range Aircraft ( ULR ) Large/Mid-Size Cabin Small Cabin/Very Light Jet ( VLJ ) Sources: Pricing Services: JETNET, VREF, Guggenheim, Industry News Articles 6

7 Asset Review and Valuation Process Data Sources Output 1 Market Analysis Participate in conferences and events Research and review industry publications Interact with brokers NBAA, EBACE, MEBACE, JP Morgan, UBS, JETNET, Corporate Jet Investor, OEM Reports, Broker Reports Prepared to value specific aircraft Understanding of market dynamics 2 3 Class Analysis Model Analysis Analyze entire class of aircraft Asses functional/economic relevance of subject aircraft against competition Research specific aircraft market Contact broker for nearly every aircraft for sale Asses off-market supply Identify key value differentiators Determine typical depreciation with age Aircraft Bluebook, VREF, Ascend Online, OEM news releases Same sources as above Cold calling listing brokers Broker network Aircraft Post Understanding of competitive market Assessment of future viability of the model Price points of competitors vs specific aircraft Percentage of fleet for sale and time to sell Assessment of market interest Price points of comparable assets Expected depreciation 4 Aircraft Specific 5 Value Gather information on aircraft specification Determine ownership history Asses physical depreciation (hours, cycles, paint, interior) Grade aircraft against comparables Determine FMV Should Sell Analysis Broker network Seller/Referral source Client Same as above Thorough understanding of aircraft condition Selection of comparable sales aircraft Fair Market Value Orderly Liquidation Value ( OLV ) Advance and amortization for initial terms 6 Verify Commission third party appraisal Desktop if new and physical if pre-owned ASA Certified Appraisers with Aircraft Specialty and familiar with specific aircraft market Independent assessment of value Verified understanding of aircraft condition Steps 1-3 are ongoing, Steps 4-5 occur during negotiations, and Step 6 occurs during preparation of the Major Loan Review Package Source: Guggenheim 7

8 Structure Matters Conservative initial Loan to Value (LTV) and aggressive amortization provide ample protection over the life of the loan. Meaningful borrower equity puts the asset in the best position to secure the loan. Aircraft Finance Collateral Coverage Millions $30 $25 $20 $15 $10 $5 $0 Today Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Year of Loan Loan Balance Fair Market Value Orderly Liquidation Value (Stress) Fair Market Value (Stress) Typical loan structure for Mid Size Business Aircraft 8

9 Third-Party Aircraft Management Company Guidelines The independent aircraft management company is paramount in Guggenheim s assetbased model. A tri-party coordination agreement is a mutual understanding between the borrower, lender, and aircraft manager. Independent manager approved by Guggenheim Undergoes annual certification Provides pilots and crew always in operational control Adherence to loan conditions Reports usage Control over logbooks, records and loose equipment High standards of maintenance Ensures aircraft remains free of liens Aircraft recovery - functions as repossession agent in the event of a default List of approved managers Extensive vetting process for new companies including ownership, experience, managed fleet size, qualifications, reputation and on-site operational review. 9

10 Jurisdiction and Security Potential for several jurisdictions to be involved - all must be where terms of loan are enforceable: Applicable Jurisdictions Special Purpose Entities ( SPE ) o Guggenheim currently has a list of pre-approved SPE jurisdictions including:» Bermuda, British Virgin Islands, Isle of Man, USA Aircraft Registration o Guggenheim pre-approved list countries of registration including:» Aruba, Australia, Bermuda, Canada, Cayman Islands, Ireland, Isle of Man, Switzerland, United Kingdom, USA, United Arab Emirates, Germany, South Africa Operating and Obligor Location o Guggenheim currently has list of prohibited countries Security Each obligor shall grant a valid first (and only) priority perfected security interest in both the aircraft and all equipment All existing liens or mortgages secured by the aircraft must be terminated prior to funding Obligor grants a security assignment over any lease with the aircraft, the aircraft management agreement, and proceeds of any insurance If the obligor is established as an SPE, the equity interest in the obligor shall be pledged as security for the loan Legal opinions by local council are produced prior to funding regarding the enforceability of the terms of the loan in each applicable jurisdiction Cape Town Convention All Aircraft Registration Jurisdictions will have ratified Cape Town Convention and recognize the International Registry Source: Guggenheim 10

11 Other structural elements Depending on where the asset and management company fall within tier system plus transaction considerations, additional structural elements may include: Supplemental Amortization Liquidity Reserve Accounts Maintenance Reserves or Hourly Cost Maintenance Programs Usage limitations Additional Insurance Coverage(s) Financial Covenants Aircraft Tracking Device Source: Guggenheim 11

12 Monitoring Collateral Value Regular reporting, monitoring, verification, and market analysis. In addition, remedies built into the structure of each loan. Value Objective Reporting / Verification Remedy Physical Condition Maintenance Ongoing maintenance is occurring The financial liability of major maintenance, incurred through normal usage, is offset by either maintenance reserves or Maintenance Program enrollment Monthly Maintenance is included on report directly from management company Quarterly Program enrollment (if applicable) is verified directly with providing company Annually On-site inspection of the aircraft verifies the aircraft is being maintained properly Maintenance Reserves: If an aircraft is not enrolled in a maintenance Program, a reserve account holds funds defined in the loan documents that are invoiced monthly based on usage Usage The aircraft is accumulating flight hours at a rate within an acceptable standard for the particular model of aircraft in order to preserve value against peers Monthly Report directly from management company Annually On-Site visit verifies reported usage Excess utilization payments: If an aircraft exceeds the allotted flight hours on an annual basis. Payments, defined in the Loan Documents, pay down the principle to mitigate loss of value Market Value Market Ensure Loan to Value ratio (LTV) of loan is maintained at below X% of the maximum (initial) LTV Quarterly Internal assessment of value conducted Annually 3 rd Party Appraisal conducted on aircraft Supplemental Amortization: If an aircraft s market value depreciates enough that the LTV exceeds X% of the maximum LTV, the Borrower is invoiced additional payments over the next X months.

13 Repossession and Remarketing of Collateral Repossession After a missed payment a member of the Investment Committee determines a Notice of Default is necessary based on Borrower s past performance Notice of Default Issued Cure Period (15 days) Majority Vote by Investment Committee initiates Aircraft Recovery activities. Account enters Non-Accrual status Invoke Tri-Party Agreement: Aircraft Manager instructed to deliver the Aircraft and all logs and records to a location of Lender s choosing Decision to retain Local Counsel in jurisdiction of borrower as necessary Legal Paperwork process to change legal ownership of the aircraft Application of Proceeds from the sale of the Aircraft: 1. Any and all out of Pocket expenses, including legal, repossession and remarketing fees. 2. Any and all amounts owed to Lender including any break funding loss. 3. Principal and accrued but unpaid interest on the Loan and all Obligations. 4. Application in or towards discharge of all the Related Obligations of the Loan Facility. 5. The Balance, if any, to Borrower. Marketing time to sell the aircraft 167 Days* Loan reviewed to determine if Write-Down is necessary Days DAYS Destination of Aircraft, if repossessed, Broker network engaged to remarket aircraft determined during recovery Market Research and sell strategy determined Engagement of maintenance providers and all other entities required to maintain aircraft in prime selling condition. Aircraft Monitoring and Asset Management Department assumes control of all accounts for duration of resale Remarketing Public advertising of aircraft to satisfy Commercially Reasonable Sale Notes: * Guggenheim targets a 90 day liquidation of an asset. However, Guggenheim accounts for a longer sale time of days. Operations of closing aircraft sale to include Pre-Buy inspection by buyer.