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What Ship Finance Can Learnfrom Aircraft Finance
Marine Money – Ship Finance Forum – NYC 2018
Richard FureyNovember 14, 2018
Financing Aircraft vs Financing Vesels
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» High asset value˗ Capital intensive
» Mobile
» Regulated (operations, safety)
» Subject to law of the flag and financing parties’ chosen law
» Highly volatile market environment
Key Similarities» Greater asset uniformity with
Aircraft
» Differences in Repossession
» Treaties (eg, Cape Town)˗ Stronger protections for aircraft
creditors
Key Differences
Mortgaged-Backed Loan Example
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Charterer
SPV/ BorrowerSPV Owner
Lenders/ Facility Agent/ Security Trustee
Time CharterHire
Loan Debt Service & Fees
Ownership
Trust
Security:
• Mortgage• Assignment of earnings • Assignment of insurance
Share pledge
Loans; in essence simple: - Lender advances loan to a borrower - Borrower repays with interest- Similar for Vessel Finance and Aircraft Finance
Aircraft Portfolio Securitizations
» Financing option for an aircraft lessor or investors that seek to finance a diversified portfolio of aircraft on lease to various operators
» Creation of a bankruptcy-remote SPV
» Issues notes or borrows funds
» Proceeds used to purchase or finance a diversified pool of aircraft subject to leases
» Obligations of the issuer or borrower are collateralized by the underlying aircraft and leases
» Lease cash flows are used to service the repayment obligations
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Aircraft Portfolio Securitizations
» Credit enhancements:
• Debt tranching
• Liquidity support
• Overcollateralization
• Accelerated pay-down for failure to meet performance triggers
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Aircraft Portfolio Securitizations
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Aircraft Owning Entity
SPV/ Buyer/ IssuerOriginator
Indenture/ Security TrusteeInvestors Servicer
100%Ownership
PurchasePrice
Service Agreement
Notes (tranches)
&Repayments
Purchase Price
Security Interests in Assets/Leases(Trust/Security Deed)
Assets
Trustee acts forinvestors
AOE 2 AOE 3
Lessee Lessee Lessee
Leases / Rent Payments
Harley Marine Service Securitization
$455 million transaction - Harley Marine Financing 2018-1
Two tranches of debt:$405 million senior tranche of Class A-2 notes initially rated BBB $50 million subordinate tranche of Class B notes initially rated BB
Whole business securitization˗ sale-and-leaseback transaction˗ 122 tugboats and barges sold to a securitization trust˗ trust will pay Harley Marine Services to operate or manage them˗ Harley’s charters, contracts of affreightment, towage agreements, ship assist
and management contracts, leases relating to the vessels, interests in terminal assets and license to use certain IP contributed to the securitization trust
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Aircraft EETC Financing
Enhanced Equipment Trust Certificate (EETC) Ø Publicly (sometimes privately) issued
Ø Credit of a single airline
Ø Secured by multiple aircraft as collateral
Ø Liquidity facility
Ø Tranching and other structural enhancements to provide improved LTV ratios for the more senior tranches, of debt securities
Ø Certainty of remedies afforded by Section 1110 of the U.S. Bankruptcy Code or, in the case of non-U.S. airlines, comparable rights under Cape Town (or other local law);
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Aircraft EETC Financing
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Airline
Owner Trustee
Investors
Liquidity Provider
Rental payments
Liquidity Facility
Owner Participant
TrustAgreement
Indenture Trustee
Debt paymentsIndenture
Subordination Agent
Payments
A Eq. Notes B Eq. Notes
Pass Trough Trustee for
Class A Trust
Pass Trough Trustee for
Class B Trust
Class A payments Class B payments
Series A & B Eq. Notes
Class A PTCsand payments
Class B PTCsand payments
Security
Security
Bankruptcy Code Section 1110
Relief from Automatic Stay» Right of Lessor/Lender to Recover Aircraft 60 days after US Airline
Chapter 11 filing unless airline cures defaults
Embodied in Cape Town Convention’s “Alternative A”
Section 1110 does not practically apply to vessels
Cape Town Convention not applicable to vessels
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Vessel Securitization
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Vessel Owning Entity
SPV/ Buyer/ Issuer
Indenture/ Security TrusteeInvestors Servicer
100%Ownership
PurchasePrice
Service Agreement
Notes (tranches)
&Repayments
Security Interests in Assets/Leases(Trust/Security Deed)
Trustee acts forinvestors
VOE 2 VOE 3
Originator Originator Originator
Sale & Leaseback/ Rent Payments
And finally…
Questions?
Thank you!
Practice Education Bar Admission
13
Richard Furey
» Richard Furey
» Partner
» 212.513.3439
» New York, NY
Richard Furey is a partner in Holland & Knight's New York office. Mr. Furey focuses his practice on international and United States domestic asset and infrastructure finance including significant experience in the aviation and maritime sectors. In the maritime sector, he regularly represents vessel owners, lenders and charterers in a wide range of leasing and finance transactions.
• Structured Finance• Maritime
Transactions• Aircraft Finance • Commercial
Lending
• Syracuse University College of Law, J.D.
• Georgetown University, B.A.
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