Ireland-based Avolon, through the backing of the China's HNA Group, is the favoured buyer in the running for the purchase of CIT Group’s aircraft assets following a second round of bids, sources close to the matter tell Airfinance Journal.
CIT Aerospace is one of the world’s top ten lessors, according to Airfinance Journal’s Top 50 lessor ranking, with 331 aircraft.
Although Avolon is the favoured purchaser as HNA Group has the "capacity to step up and grow by volume", the purchase is not "a done deal yet", says a banker close to the matter.
Another banker adds: "At the moment it looks like HNA Group for sure...but things could change."
UBS and Morgan Stanley are advising HNA Group on the purchase, sources tell Airfinance Journal.
Parent company CIT Group is being advised on the sale of its leasing arm by JP Morgan, sources add.
Other lessors competing on the second round of bidding include Aircastle, along with a silent partner, as well as Macquarie Airfinance, which teamed up with the leasing arm of China’s Ping An Insurance Group and Apollo Aviation, sources reveal to Airfinance Journal. Century Tokyo Leasing, together with private equity firm Blackstone, is also competing in the bidding process.
Aircastle, which is being advised by Citibank, is interested in a listed vehicle option or an all-share purchase of CIT Aerospace and this process would involve a "reverse morris trust" structure, sources say. This structure, say sources, could create a number of features that prove beneficial, including improving the net tax position for CIT, at the parent level, after the sale.
The reverse morris trust allows a company looking to spin off and subsequently sell assets to an interested party to do so while avoiding taxes on any gains from the disposal.
"Even if Aircastle's offer isn't the highest, the overall tax efficiency for CIT Group could make it..an interesting bid," a lessor source notes, adding: "However, the end of the year deadline signalled by CIT's management could be tight for this structure...our money is still on Avolon."
Not all of CIT's assets can be sold via a reverse morris trust structure and this is why Aircastle had to involve a silent partner, sources say.
Ellen Alemany, the chief executive of officer CIT Group, said on a second-quarter earnings call that the business is "still committed" to closing the transaction by year end and noted "tax implications" along with a "a variety of factors" that will go into CIT's decision making process, including: "valuation, timing, certainty of execution and funding."
CIT Group began the sale process for its leasing entity earlier this year. It first indicated its intent to sell the lessor in November 2015 through a dual-track process, so an auction for sale combined with an initial public offering, as part of a wider move to focus on becoming a banking entity.
All parties mentioned in this article were unavailable for comment at press time.
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