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TPG re-finances private jet firm

TPG-backed XOJET has secured nearly $2.5bn in debt and equity financing from investors and has agreed a separate joint venture with Tasameem Real Estate to establish a hub in Abu Dhabi.

Business jet company XOJET has again received debt and equity commitments from TPG Growth, the US buyout firm’s growth and small buyout arm, as part of a $2.46 billion (€1.6 billion) growth financing round.

“This record-breaking financing round really is a game-changer for XOJET,” XOJET’s chief financial officer and international operations president, Eilif Serck-Hanssen, told PEO. “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.”

Our challenge has been literally getting the aircraft to scale the business, and that’s what’s so important about this financing.

Bill McGlashen

The transaction’s size means XOJET won’t have to tap capital markets to allow growth for at least two to three years, he said. “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.”

XOJET enlisted Morgan Stanley three months ago to help raise $75 million in equity to strengthen its balance sheet, and planned to later look for aircraft financing to grow its fleet, Serck-Hanssen said.

But during its US and Middle Eastern road shows, “we experienced an enormous amount of demand for our paper and for the business opportunity, so we decided to [increase] the equity from $75 million to $85 million, as well as lock down about $2.4 billion in debt financing”.

Some $964 million, $85 million of which is equity for the company’s balance sheet, has been made available immediately by the investors, including TPG, 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.

The investor group will provide an additional $1.5 billion 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.

“A significant portion of the equity is coming from Tasameem,” in addition to TPG and XOJET's founder, said Serck-Hanssen.

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TPG Growth managing partner Bill McGlashen told PEO that the firm does not own the largest percentage of XOJET, but does control the company. He would not disclose specific financial details.

The $2.4 billion in debt is being provided by the EDC, White Oak and Tasameem, as well as “related partners that Tasameem brought in on the debt side”, Serck-Hanssen said.

The debt, however, is not the typical corporate leverage model associated with a private equity deal.

“Simplistically, it’s not corporate debt we’re raising, it’s aviation financing,” McGlashan, said. “The financing is recoursed to the aircraft, not the company.”

Down payments for aircraft orders, orders which take years for manufacturers’ to fulfill, and aircrafts’ full purchase price, 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.”

TPG and Lehman Brothers Global Principal Strategies in September invested $363 million in XOJET. The two firms provided $143 million in debt and equity financing, while Lehman gave an additional $220 million for aircraft lease financing.

XOJET currently has 127 jets and aircraft orders valued at more than $3.1 billion. “The company’s growing at 250 percent right now and is succeeding beyond our expectations,” said McGlashen.

TPG has a long history investing in aviation, including one of its first and most famous deals: the turnaround of Continental Airlines.

The XOJET investments have been made via TPG Growth’s STAR fund, which closed late last year on roughly $1.5 billion.