Sumitomo Mitsui Banking Corporation (SMBC) is currently in the process of selling a multi-billion portfolio of secured aircraft loans, according to multiple sources.
Ishka understands that the bank is not planning to exit aviation finance as a product offering, but is looking to downsize its aviation exposure following subsidiary SMBC Aviation Capital’s acquisition of leasing rival Air Lease earlier this year.
The portfolio is understood to include $2 billion worth of drawdown facilities as well as a $1 billion worth of undrawn facilities.
The bank’s portfolio is predominantly focused on direct aircraft loans to top airline credits and is understood to have a roughly an average spread of 150bp on many of its deals. The bank is known for its expertise in JOLCO financing but also offers a wide range of traditional debt capital and treasury services.
In April this year, SMBC Aviation Capital and a group of investors including Apollo and Brookfield completed the acquisition of Air Lease for a total valuation of approximately $7.4 billion, or approximately $28.2 billion including debt obligations to be assumed or refinanced net of cash (See Insight: Analysis: Lessons from the Air Lease acquisition). Air Lease was rebranded Sumisho Air Lease following the sale.
Ishka understands that the bank has restructured its staff in its New York aviation lending team but retained some in its London office, as it continues to offer aircraft loans to key clients as well as manage its existing book.
The Ishka View
SMBC bank has managed the tricky task of building a book of business in the aircraft financing space while maintaining a complimentary offering under SMBC Aviation Capital, one of the world’s largest aircraft lessors. According to sources speaking with Ishka, the bank has relatively few leasing clients but it still built a sizeable book of business (see above chart). To offer a point of comparison, Japanese rival MUFG, a large balance sheet lender in aviation finance, recorded a total loan amount in FY 2023 of $15 billion for aviation.
The rumoured spread of the portfolio is a reflection of what it takes to price, and win, financing mandates from the world’s top airline names. However, that same pricing will likely exclude a number of potential buyers, including aviation alt lenders which typically price deals at much higher levels. If the pricing rumours are accurate, the returns made by the bank from its lending arm would have paled in comparison to its leasing business. Ultimately, it appears as if the bank had a sizeable aviation exposure to top airline names but it is a question as to how profitable that loan portfolio would have been for the SMBC Group as a whole. Moreover, by selling the loan portfolio it would have allowed the group to partially reduce its aviation exposure.
