Bocom Leasing's latest bond hits turbulence

The aircraft unit of Bank of Communications inches closer to ABS issuance, but investors say they are baffled by the structure of its latest deal.

Bocom Financial Leasing returned to the international bond markets on Tuesday, as the aircraft unit of Bank of Communications seeks to use securitisation as an innovative tool to fuel its business expansion.

However, its latest deal did not appear to go particularly well.

There was no change from indicative terms to final pricing and unusually, the leads did not release demand and distribution figures – a fairly sure sign both were thin on the ground.

Two investors FinanceAsia spoke to said they struggled to understand the deal structure.  

The deal also hit a market, which has mixed views about Treasuries ahead of a particularly closely watched Federal Reserve meeting this week.

Benchmark 10-year treasuries are now trading around the 2.45% level.

A dovish tone from the Fed may prompt a relief rally and many analysts believe this is likely given how far Treasuries have moved since Donald Trump became president-elect.

Equally, a more hawkish tone could prompt some level of capitulation.

Blu Zenith

Bocom Leasing used a new funding vehicle for the split five- and seven-year offering: Blu Zenith Designated Activity Company.

When it was last in the market in late October it used Azure Nova.

"This was an esoteric deal," one Singapore-based investor told FinanceAsia. "The structure was too complicated and the sponsor was Bocom Leasing itself rather than Bocom."

The A2/A-A rated group eventually sold $300 million, equally split between the five- and seven-year tranches.

Final pricing of both a December 2021 bond and December 2023 bond were fixed at par on respective coupons of 3.5% and 4.5%.

The Irish-listed senior secured debt is backed by a pool of eight aircraft loans and has dual recourse to both the parent, Bank of Communications and to the collateral.

The underlying assets have two classes: Class A1 and Class A2. The former has a weighted average life of 2.45 years and the latter 6.54 years.

The closest comparables are Bocom Leasing’s two recently issued senior unsecured bonds.

A $500 million November 2019 bond was trading on a G-Spread of 121bp on Tuesday, while a $1 billion November 2021 bond was trading on a G-spread of 142bp.

Syndicate bankers estimated a 60bp to 80bp new issue premium on a like for like basis.

"There needed to be a premium for the structure and underlying assets, which are subject to amortisation," one person said.

"Investors need to figure out what the real maturity is," the person added.

The issuer wants to provide a reference point for future issues, paving the way for a “real” asset-backed security in the offshore dollar market, syndicate bankers concluded.

Proceeds from the debt sale will be used to fund the advance of loans to the group's affiliates. Those loans will be used to make certain fee payments under finance documents and for general corporate purposes.

Before the latest deal, the group has collectively $2.5 billion of bonds this year, including its $1 billion debut trade in March.

Joint global co-ordinators for the latest deal were HSBC and Standard Chartered, while CICC Hong Kong Securities and Jefferies were joint bookrunners.

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