The commercial aviation industry is among the global industries that have undoubtedly faced the most challenges due to the global COVID-19 pandemic. A sharp and sudden drop in passenger numbers and demand for flights has resulted in an unprecedented and dramatic drop in aircraft ratings. However, as with all cycles, the bottom of the curve presents attractive opportunities for investors. With the rate of vaccine deployment on the rise across the globe and the industry taking the lead in cutting edge solutions to reopen the skies, such as vaccine passports, many, including some of the world’s largest leasing companies , have recorded suggesting that we may have seen the worst. As a result, interest in investing is now increasing with some prominent investors who have already established platforms ready to deploy liquidity. In these uncertain times, one fundraising vehicle that has gained prominence and dominated international financial headlines is the Special Purpose Acquisition Company or SPAC.

As market leaders in offshore legal services, Walkers has advised on numerous PSPC and aviation finance transactions, giving us an overview of market trends. In this article, we provide an overview of PSPCs and discuss how this structure can be used by investors in aircraft and aviation finance transactions.

What are PSPCs?

SPACs were developed as a vehicle to acquire target companies and bring them to the stock exchange through a reverse merger, with an important target being acquired by the much smaller SPAC company. Each PSPC is a new company incorporated to raise capital through an initial public offering (“IPO”) of its shares on an internationally recognized stock exchange (generally, but not exclusively, the NYSE or NASDAQ in the United States. Unis or Euronext in Amsterdam). PSPC sponsors tend to be private equity or venture capital firms, or executives with significant backgrounds in these industries, although the growth of the market has seen a wide variety of sponsors establishing PSPC vehicles. PSPCs offer investors the same terms – or very similar terms – as a traditional IPO, and therefore the “sales pitch” revolves around the background and / or profile of the SPAC sponsor and its segment. target market.

Aside from the United States, PSPCs are often incorporated in the Cayman Islands (and to a lesser extent, the British Virgin Islands or Bermuda). The Cayman Islands are a world leader in capital markets transactions, the flexible yet robust nature of their legal regime continues to be the ideal jurisdiction for the incorporation of international rating vehicles of this nature. As a result, Walkers has considerable experience in many of the largest PSPC transactions of recent years.

In 2020, 250 PSPCs were launched in the United States with an IPO value of nearly US $ 100 billion, which, when tapped, has the potential to make US $ 500 billion in acquisitions. The fervor continued into 2021 with more than 340 SPACs launched, raising more than US $ 100 billion in the first half of the year alone.

Already, a number of experienced people in the aviation industry are considering SAVS as a source of equity capital for aviation companies, alongside more traditional sources of seed capital raising.

The initial stages of an after-sales service

After registration, the board of directors of a PSPC (which will have been appointed by its sponsor) usually has up to two years to identify its target and complete the acquisition, known as a business combination or more colloquially referred to as “de-SPAC”. . From IPO to business combination, IPO investors’ subscription funds are held in a trust account and often invested in US Treasuries. To mitigate the risk that a suitable business combination will not be completed and the opportunity cost of not deploying cash elsewhere, investors are given warrants as well as shares of PSPC – stocks and warrants. of subscription together forming the “unit” which is generally listed at the IPO – with a fixed exercise price, so if the share price in the SPAC exceeds the exercise price of the warrants as a result of the Acquisition of the objective, warrant holders can realize an immediate profit by exercising their rights under their warrants and by selling the acquired shares. This offers an advantage and an incentive to subscribe. Units, comprising shares and warrants, are listed at the time of the IPO, with the warrants being able to be held – and traded – separately, typically six months after the IPO.

The usual PSPC terms give investors a vote on the proposed business combination and the corresponding right to repurchase their shares – and be reimbursed for their initial investment – if they vote no. Likewise, if no business combination is carried out during the life of the SAVS, the amount of the initial investment is returned to the shareholders. Obviously, this creates execution risk for PSPC when completing its business combination, which is typically handled by PSPC calling for additional private equity or venture capital investments through private investment in public capital, or PIPE.

The de-SPAC

In order to effect the business combination, and depending on the structure, domicile and listing expected after the merger, Target or PSPC would generally incorporate a wholly owned subsidiary of Cayman and then implement a merger between this subsidiary and the SPAC or the target company. This would be accomplished using the statutory merger provisions set out in the Cayman Companies Act, a clear and effective path that demonstrates the flexibility of the Cayman corporate legal regime. On the effective date of the amalgamation, all rights, property, affairs and responsibilities of the two amalgamating entities vest in the surviving company under Cayman law.

After-sales service in aircraft financing

The aerospace industry has already seen its first PSPCs focused on acquiring drone and satellite targets. PSPCs, in particular, dominate the tech industry and offer benefits to both sponsors and investors. For sponsors, a source of funding to move quickly on goals, and for investors, an investment with shorter commitment periods than traditional fund investments. Given the popularity of PSPCs, it will likely only be a matter of time before we see PSPC’s first acquisition in the commercial aviation space. Traditionally, acquisitions of leasing company platforms have been financed by warehouse or acquisition facilities with rapid amortization of two to five years resulting in an IPO as an option to refinance acquisition debt. In addition to being a new and innovative source of finance for major aviation investors, PSPCs are also a quick option for an exit from the investment.


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