South Korea’s Public Official Benefit Association (POBA) and Yellow Benefit Mutual Aid have together lent $34 million in mezzanine debt to Air France’s $115.7 million lease of a Boeing 777-300ER aircraft.
The two Korean investors will provide the entire mezzanine tranche of the financing. POBA and Yellow Benefit Mutual Aid have committed $24.3 million and $9.7 million respectively. The equity and senior debt tranches will be financed by European banks.
For the mezzanine tranche, the two Korean funds will receive a fixed annual return at the upper end of the 5 percent range for seven years to maturity, backed by the fuselage, engines and lease payments.
The deal “spurred strong interest from institutional investors in search of long-term, steady yields,” Jung-won Kang of Dongbu Securities, the arranger of the transaction, told Korean Economic Daily.
The financing demonstrates Korean investors’ appetite for aviation funding stretching from Middle Eastern airlines into European airlines.
POBA said it was making its first move into the mezzanine debt of aircraft financing because it views the B777-300ER as the most popular model and saw Air France as having a high level of credibility.
The pension fund is one of many Korean investors to have shown interest in mezzanine debt investments in the US and Europe. Earlier this month, it allocated $120 million to three US mezzanine funds: Crescent Capital Group, Falcon Investment Advisors and GoldPoint Partners.
Air France is a wholly-owned subsidiary of the Air France-KLM Group, the largest European airline company. It carries about 80 million passengers a year, and flies to 320 cities in 114 countries. The French government has a 17.6 percent stake in Air France.