JOL Parties

JOLs usually have five parties involved in the transaction: the lessee, the senior lender, the equity investor, the equity arranger and the lessee advisor. The lessee sells the aircraft and leases it back under the JOL. The senior lender makes the non-recourse loan to facilitate the equity investor’s purchase of the aircraft. The equity arranger is typically a Japanese domestic company that identifies the Japanese equity investor, and the lessee advisor/lease arranger helps the lessee to obtain the most favorable lease economics.

Lessee: The lessee (most often also the seller) is the party seeking to sell the aircraft at the highest cost and lease it back at the lowest rent. There are approximately 15 lessees in the market at any one time seeking Japanese lease equity on aircraft deals.

Senior Lender: The senior debt financing in JOLs is typically provided by a bank for 70-80% of the aircraft owner’s acquisition cost. The loan term is equal to the lease term, but often the loan amortizes to a balloon. As noted above, the balloon is satisfied with the proceeds of the sale of the aircraft at lease expiry or in some instances, the aircraft may be re-leased with the resulting rental payments used to repay the balloon amount over the new term. The lender must satisfy the on-shore lender requirements in Japan. There are approximately 20 active on-shore lenders at any time. Lessees may know some lenders or use a lessee advisor or equity arranger to identify a lender.

Japanese Equity and Equity Arranger: The Japanese equity arranger is often a Japanese bank, securities firm or leasing company. The Japanese equity arranger identifies the Japanese equity investor, which is often a privately-held, smaller Japanese corporate. The Japanese equity investor is seeking the highest return and lowest risk. The Japanese equity arranger is paid by the equity investor to meet the investor’s needs. It is also seeking to maximize its own fees and manage its equity relationships. There are approximately 25 active arrangers at any time, and some of them work with Lease Advisors to get advance notice of a lessees’ interest in the market or to identify new lessees. Lessees may know some equity arrangers or use a lessee advisor to conduct a competitive bid.

Lessee Advisor/Lease Arranger: The lease arranger is typically an international boutique investment bank (mainly in the US) that works on behalf of the lessee and: (1) provides economics and indicative terms to the lessee prior to hitting the market, (2) targets and approaches equity arrangers and equity investors about the deal, (3) arranges the investor road show in Japan to introduce the lessee/deal, (4) works with tax advisors on structuring, (5) identifies a suitable on-shore lender and (6) brings the recommended parties together to negotiate and close the transaction. The lessee advisor is acting on behalf of the lessee to identify the most competitive equity arranger and sell the aircraft at the highest price; in return, the advisor charges a fee at closing for its services. Babcock & Brown was historically the most active lease arranger but exited the market in 2010; currently there are about 3 – 5 active lessee advisors/lease arrangers. Lessees can contact them to ask for a bid to help with a JOL.

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