GOL Parties

GOLs usually have four parties involved in the transaction: the lessee, the lender, the KG House (German equity arranger) and the GOL Lessee Advisor. The lessee sells the aircraft to the KG SPV and leases it back under the GOL. The lender makes the non-recourse loan to facilitate the equity investor’s purchase of the asset.

Lessee: The lessee is the party seeking to sell the asset at the highest cost and lease it back at the lowest rent. There are approximately 15 lessees in the market at any one time seeking German lease equity on equipment deals.

Lending Bank: The senior debt financing in GOLs is typically provided by a bank for 55-65% of the acquisition cost. The loan term is equal to the lease term but often the loan amortizes to a balloon which is satisfied with the proceeds of the sale of the asset at lease expiry. In addition to providing senior secured debt, the lending bank may also support the transaction by providing a recourse bridge loan to the KG House to fund the asset purchase before the full German equity has been raised.

KG House or Equity Arranger: The KG House is investment advisor who initiates funds in the German market (KG Funds) to purchase equipment such as aircraft. Once approved, the fund is syndicated via prospectus to individual investors through independent investment advisors corporate/savings banks and money center banks. The KG equity investors are seeking the highest return and lowest risk. KG investors receive local tax advantages for their investment, which is traditionally over a ten year plus term. The KG equity arranger is paid by through up-front fees paid by the investors (loads), other upfront fees as well as annual management fees. The KG manager can be the KG fund originator or a third party.

GOL Lessee Advisor/Lease Arranger: The lease arranger is typically an international boutique financial advisor that works on behalf of the lessee and: (1) provides economics and indicative terms to the lessee prior to hitting the market, (2) targets and approaches German leases equity arrangers and equity investors about the deal, (3) arranges the investor road show to introduce the lessee/deal, (4) works with tax advisors on structuring, (5) identifies a suitable lender and (6) brings the recommended parties together to negotiate and close the transaction. The lessee advisor is acting on behalf of the lessee to identify the most competitive equity arranger and sell the aircraft at the highest price; in return, the advisor charges a fee at closing for its services. Babcock & Brown was historically an active GOL lease advisor but exited the market in 2010; currently there are about 3 – 5 active lessee advisors/lease arrangers. Lessees can contact them to ask for a bid to help with a GOL.

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