The Irish Stock Exchange (ISE) recently announced plans to create a dedicated exchange for aviation-related debt and other instruments.
It comes as no surprise, given that aircraft leasing companies Avolon and Milestone both recently listed bonds on the ISE where approximately $1bn of debt associated with Emirates is also listed. In addition, Ryanair is in the process of obtaining a credit rating which will give it flexibility to access the capital markets for the first time.
The announcement follows the Irish government’s recent commitment to implement legislative changes to adopt a new insolvency regime in relation to the financing of aircraft and aircraft engines. The new insolvency regime, once implemented, will be equivalent to Alternative A in Protocol XI of the Cape Town Convention, an international treaty which standardises transactions involving moveable property including aircraft. Under the new legislation, an insolvent company will be given 60 days to discharge all liabilities due on leased aircraft and engines or be required to return them to the lessor or other secured party.
The proposed changes to the insolvency regime will facilitate the issuance of enhanced equipment trust certificates (EETCs) by Irish companies, which are similar in structure to the traditional aircraft securitisations executed by Irish securitisation vehicles. The enhanced insolvency regime will make Ireland’s aircraft finance and leasing sector more competitive by giving protection to investors similar to those enjoyed in the U.S. under Section 1110 of the U.S. Bankruptcy Code. Section 1110 facilitates repossession of aircraft in the event of an insolvency of an U.S. certified airline in a timely and foreseeable manner.
Non-U.S. airlines have been able to access the U.S. capital markets through the issuance of EETCs, providing a source of inexpensive capital to finance the acquisition of aircraft. If Ryanair go down the route of accessing the capital markets, they will most likely use euro-denominated EETC instruments, as its aircraft is valued in euro. To date, only Air France has used euro-denominated EETC instruments.
Listing EETC instruments on the ISE should prove popular as one of the primary drivers for listing is that the Irish debt issuance vehicle can rely on the quoted eurobond exemption which permits it to pay interest free of withholding tax on the bonds or notes issued to the investors.