TPG will long be associated with the successful turnaround of Continental Airlines. But it may soon be known for pioneering private aviation finance, too.
Business jet company XOJET recently received its second equity investment from TPG Growth, the US buyout firm's growth and small buyout arm, as part of a $2.46 billion (€1.6 billion) financing round.
Roughly $85 million of that total is equity, intended to be an extra cushion for the profitable company's balance sheet, while the balance is debt – though not of the kind typically associated with a private equity deal.
“Simplistically, it's not corporate debt we're raising, it's aviation financing,” said Bill McGlashan, TPG Growth managing partner. “The financing is recoursed to the aircraft, not the company.”
Down payments for aircraft orders, which take years for manufacturers to fulfill, as well as the full purchase price of the aircraft, are paid for using the aircraft financing, he said.
“You have to order a lot of planes in advance and it just takes time to scale,” McGlashen said. “Our challenge has not been getting customers. Our challenge has been literally getting the aircraft to scale the business, and that's what's so important about this financing, it gives us the ability to continue to scale.”
Investors that joined TPG in the round include XOJET founder Paul Touw, alternative asset manager White Oak Global Advisors and Export Development Canada (EDC). The EDC, a government-owned entity that offers financing for Canadian exporters to expand international business, joined the consortium because XOJET has 80 aircraft on order from Canadian plane manufacturer Bombardier.
“This is the first time EDC has ever financed private aircraft purchases,” McGlashen said. “What is really innovative about this structure is that this kind of financing has never been done in private aviation before. We took an approach of trying to construct a more traditional, commercial aviation financing model where today [private aviation financing] is done sort of aircraft by aircraft. We went out even on day one with Lehman as our partner and put together a [deal for] 10-aircraft financings.”
TPG and Lehman Brothers Global Principal Strategies in September 2007 invested $363 million in XOJET. The two firms provided $143 million in debt and equity financing, while Lehman provided an additional $220 million for aircraft lease financing.
XOJET's chief financial officer and international operations president, Eilif Serck-Hanssen, noted that in this most recent financing round, capital costs were reduced compared to previous rounds due to the company's “proven business model”. It is cash flow-positive after only two years in business, and the current equity round “came at a nearly 300 percent increase in valuation versus the round we closed only eight months ago”, he said.
The financing round is a game-changer for XOJET, Serck-Hanssen added. “It really makes our balance sheet among the strongest in the industry, which is very important – particularly when we are competing head-to-head with NetJets, which is sponsored by Warren Buffett.”
The transaction's size means XOJET won't have to tap capital markets to allow growth for at least two to three years. “For us, probably the next big transaction will be an IPO, but an IPO for us will be a liquidity event as opposed to a financing event.”
Some $964 million from the financing round has been made available immediately by the investors, while an additional $1.5 billion will be provided later this year upon launch of a joint venture in the United Arab Emirates with Tasameem Real Estate. The joint venture encompasses development of a hub in Abu Dhabi to give XOJET access to customers traveling to, from and within the Middle East.
OLDCITI LANDS $12.8BN PENNSYLVANIA TOLL ROAD
Citi Infrastructure Investors and Spanish toll operator Abertis Infraestructuras have placed a winning $12.8 billion (€8.2 billion) bid to lease the Pennsylvania Turnpike that, if approved by legislators, will constitute the largest highway privatisation in US history. Citi will contribute 41 percent of the all-cash transaction that grants Abertis the right to operate and maintain the 531-mile series of roadways for the next 75 years. Abertis will pay 50 percent, and leading Abertis shareholder Criteria Caixa will pay 9 percent. Stretching from New Jersey to Ohio, the Pennsylvania Turnpike collected roughly $545 million in revenues from 188 million vehicles last year. The Citi consortium beat competing bids from infrastructure giants Goldman Sachs and Macquarie Infrastructure Group. The bid from Goldman Sachs, in a consortium with Australia's Transurban Group, Teachers' Private Capital and the Canada Pension Plan Investment Board, fell short at $12.1 billion, while the Macquarie-led bid did not advance to the final selection round because it was not within 10 percent of the highest initial bid. Citi's past notable infrastructure investments have included a 50 percent partnership with Vancouver Airport Authority, a deal agreed last month, and the November 2007 acquisition of Kelda, a UK water company. Both of those investments were made from Citi's debut $3 billion infrastructure fund, whose target may be raised to $5 billion, a source familiar with the firm told sister website PrivateEquityOnline.com.
GOLDMAN, TPG TO EXIT ALLTEL IN $28.1BN SALE
Verizon Wireless has agreed to purchase telecom company Alltel less than a year after it was taken private for $27.5 billion. Goldman Sachs Capital Partners and TPG will receive $5.9 billion in the sale, turning a $1.3 billion profit. The two firms announced a take-private of Alltel for $71.50 per share in May last year, closing the deal in November. The transaction included $4.6 billion in equity. TPG and GSCP beat two rival consortiums to acquire Alltel, including The Blackstone Group and Providence Equity Partners, and The Carlyle Group and Kohlberg Kravis Roberts. Citi, Goldman Sachs and RBS advised TPG and GSCP on the transaction. Ropes & Gray provided legal advice.
GESD-LED CONSORTIUM IN $234M WINERIES DEAL
Mid-market private equity investor GESD Capital Partners has paid $234 million (€151.6 million) for eight West Coast wineries from Constellation Brands. Co-investors include wine importer WJ Deutch & Sons and the Golden State Investment Fund, a $500 million California-focused fund backed by the California Public Employees Retirement System and managed by Hamilton Lane. Via newly formed company Ascentia Wine Estates, the investors acquired Geyser Peak Winery, Atlas Peak, Buena Vista Carneros, Gary Farrell Winery, XYZin, Columbia Winery, Covey Run and Ste. Chapelle. The vineyards represent an annual production capacity of more than one million cases. Ascentia, headed by former chief operating officer of Allied Domecq Wines Jim DeBonis, also acquired 646 acres of vineyard land in the transaction.
MATLINPATTERSON BACKS BELEAGUERED BUILDER
The distressed investment specialist has agreed a rescue financing package worth more than $510 million (€327 million) with Standard Pacific, a 42-year-old US homebuilder that reported a $216.4 million first quarter loss and is in trouble with lenders. The private equity firm already holds some $128.5 million of the company's senior and subordinated debt, which will be exchanged for warrants to acquire preferred stock. It will also purchase an additional $381 million in senior convertible preferred stock and has agreed to backstop a $152.5 million rights offering. The deal hinges on Standard Pacific's ability to renegotiate bank credit facilities; it recently received a second default waiver extension from lenders on covenants it has violated in terms of debt-to-equity ratios and net worth requirements. MatlinPatterson will appoint three people to Standard Pacific's board.
FDG MAKES 5X RETURN ON FOOTWEAR EXIT
Mid-market GP FdG Associates has made five times its original investment in Implus Footcare via a sale to New York private equity firm AEA Investors. New York-based FdG led the recapitalisation of the footwear accessories company in January 2001, taking a majority stake. The company tripled its revenue during the course of FdG's holding period and added on two companies. “We're kind of old-fashioned in terms of how the game is played today,” said managing director Doug Dossey, referencing the firm's typical four to six year holding period. “We think it takes that long to really set the table before you start to eat.”
JC FLOWERS AGREES $300M BACKSTOP FOR BROKERAGE
The buyout firm will help publicly traded MF Global to pay down a $1 billion bridge loan connected to its initial public offering and split from Man Group in July 2007. It has agreed to invest a minimum of $150 million in the world's largest futures and options brokerage. The future securities offering, which will be either public or private, will occur after the beleaguered Bermuda-based company files its annual report. The preferred shares, redeemable after five years, will be convertible at any time into common shares at an initial price of $12.50 per share. JC Flowers will also have the right to appoint up to two MF board directors
TPG, NEW MOUNTAIN FOUND MID-MARKET LENDER
A consortium including Aquiline Capital Partners, TPG Capital, Diamond Castle Holdings, Hamilton Lane and New Mountain Capital has founded an independent mid-market credit group armed with $1.75 billion (€1.1 billion) in equity capital. Tygris Commercial Finance Group will enjoy the largest initial capital raise ever in the US commercial finance sector, according to a statement. The Chicago-based lender will provide liquidity and growth capital to North American mid-market businesses and will establish offices in Connecticut and New Jersey. Although the size of each private equity firm's respective equity investment was not disclosed, Acquiline said New Mountain and TPG were the lead investors.