Joe Gill
The Russell 3000 Index specifically measures the performance of the largest 3,000 U.S. companies, determined primarily by objective, market-capitalization rankings and style attributes.
In raising $802m at a valuation that is a premium to book value (1.3x) ALC shows that specific business models attached to strong management teams can attract material amounts of equity capital.
ALC was valued at $2.4bn based on an IPO price of $26.50 and raised fresh equity of at least $800m (and up to $920m if a greenshoe option element of the package is fully exercised)’. (A 'greenshoe' option allows underwriters to subscribe for up to an additional 15 p.c. of the IPO at the offer price. It is the only such option allowed by the SEC, and the instrument is named after the Green Shoe Co in 1919, whose IPO at the time pioneered it).
That funding compares with the $1bn raised in equity by Avolon, another leasing company that was born during 2010. ALC is focused on narrowbody Boeing 737 and Airbus A320 jets (41 of its 46 planes are narrow bodies) but has also acquired Boeing 777s and A350s. New jets and a global customer base managed by an experienced management team appears to be a compelling mix for institutional investors. ALC is led by Steven Udvar Hazy, a "legend" in the aircraft leasing world (he started ILFC).
In Ireland Avolon is the closest peer to ALC, having: (1) been established around the same time; (2) being focused on young and liquid commercial aircraft and; (3) having an experienced management team (most of Avolon's managers came from RBS Aviation). Its ability to attract further equity capital will be enhanced by ALC's success.
Another interested observer will be RBS, who owns one of the five largest leasing companies worldwide that is also a narrowbody centric business model. Given the state of RBS, will it not consider ALC type valuations as an opportunity to extract value from a non core asset such as RBS Aviation?.