For those with some knowledge of the financing of offshore assets over the last few years comes this amusing little story in the FT this morning:
Hedge funds are turning in increasing numbers to the business of buying planes and then leasing them to airlines, as the era of low interest rates pushes firms into more esoteric corners of finance in the hunt for higher returns.
A yield backed by an asset… Where have I heard that before?:
“People today are very focused on yield and it is driving investors to focus on aviation assets because you get yield and you have a hard asset — you have collateral,” said Marc Lasry, Avenue Capital’s co-founder.
As the article points out equity yields are dropping and a credit bubble follows:
The rising interest in buying and leasing aircraft has also triggered a surge in sales of debt tied to aircraft leases. Sales of bonds backed by aircraft leases jumped to $6.6bn in 2017 from $4.2bn in 2016, according to data from Finsight.
What is more, newer hedge fund entrants have focused on the higher yields available from leasing older, typically less fuel-efficient aircraft, but the rebound in oil prices is cutting their attraction for airlines.
This time it’s different….
I am writing a book on Nimrod/ the offshore bubble with the working title “The $130m MBA: The Nimrod Sea Assets Story”… a chapter on comparing the forthcoming airline crash would make a nice comparison I feel.