Flexjet Inc. raises $550 million via unsecured bond

Flexjet, Inc. has raised $550 million via unsecured notes alongside a $600 million secured warehouse facility.

While Flexjet, Inc. reversed course on a planned SPAC IPO last year, yesterday it raised $550 million via unsecured notes alongside a $600 million secured warehouse facility, according to S&P Global Ratings and Moody’s Ratings.

Flexjet Inc. CFO Mike Rossi confirmed the bond rating agency reports.

(Editor’s note: An earlier version reported the raise as $500 million. It had been upsized to $550 million.)

He told Private Jet Card Comparisons via email, “The bond offering closed on December 11, and the bond was funded on December 18.”

Rossi adds, “The strength of Flexjet’s balance sheet and performance allowed us to complete an unsecured bond offering.”

He says, “It was approximately five times oversubscribed.”

Financial news site 9fin described the J.P. Morgan-led offer as “massively oversubscribed.”

In case you are wondering, a secured warehouse facility is not a building with security systems.

Investopedia defines it as “a financial arrangement that allows a lender to fund a third party’s loan originations. The facility is secured by the loans that will be funded.”

Rossi says, “It is an aircraft debt facility secured only by individual-owned aircraft of Flexjet” in the context of the private aviation company.

During Corporate Jet Investor in Miami last month, Chairman Kenn Ricci said one benefit of pulling its IPO was “[w]hen you start to go through the filings, and everything, when you go public, is about explaining to amateurs…”

Perhaps that task was now delegated to Rossi.

Flexjet bond ratings

Anyway, to continue, Moody’s assigned a B1 corporate family rating ratings to Flexjet, Inc., including its operating subsidiaries,

The nation’s second-largest fractional/charter operator received a B1-PD probability of default rating.

Moody’s assigned a B3 rating to its planned $500 million five-year senior unsecured notes issuance of OneSky Flight, LLC.

One Sky Flight is a wholly owned subsidiary of Flexjet, Inc.

The outlook for the entities is stable.

S&P Global Ratings gave a B+ issuer credit rating to Flexjet Inc.

It gave a B issue-level and a 5-grade recovery rating to the proposed senior unsecured notes.

Flexjet, Inc. 2024 revenues

According to Moody’s, Flexjet, Inc. had revenue of around $2.6 billion for the 12 months ended September 30, 2024.

Per S&P, fractional aviation was about 80% of total revenues in 2023.

Approximately 10% of total revenues are from fractional aircraft share sales, with the corresponding revenue amortized over the contract term.

A further 8% of total revenues are from fractional lease customers’ monthly payments.

The remaining fractional revenue is “somewhat evenly split between monthly management fees and hourly fees for active flying time, which have built-in inflationary escalators and pass-through components (fuel) that help Flexjet cover both fixed and variable costs.”

S&P said, “We view the fees portion (about 65% of total revenues) as recurring and providing high revenue visibility and predictability, a key credit positive.”

In its investor presentation, before deciding not to go public, the company showed revenues of $1.7 billion in 2021.

Forecasted revenues were $2.3 billion for 2022.

Its 2021 Adjusted EBITDA of $184 million and $52.9 million net income.

The group includes fractional private jet operator Flexjet, jet card inventor Sentient Jet, and on-demand charter broker FXAir, PrivateFly, which sells jet cards and ad hoc flights in Europe. Halo, the vertical lift arm, is also included. So is Nextant Aerospace. There are MROs, Constant Aviation, and Flying Colours. Finally, Sirio offers aircraft management and MRO services in Italy.

S&P wrote, “Flexjet has developed and acquired significant in-house maintenance, repair, and overhaul (MRO) capabilities over the years, which we view as a competitive advantage over its peers that rely on 3rd party MRO providers and original equipment manufacturers (OEMs), which could lead to delays and impact capacity.”

Flexjet financials

Moody’s, in its analysis, wrote:

Proceeds from the planned $500 million senior unsecured notes issuance, along with a $427 million draw on its new $600 million warehouse facility (not rated), will be used to refinance existing aircraft and real estate debt, fund a $300 million dividend to shareholders, put $100 million of cash on the balance sheet and pay fees and expenses. The debt-financed dividend is a governance consideration and a key driver of the rating.

We project Flexjet’s pro forma debt/EBITDA at November 30, 2024 to approximate 4.8x before improving to around 4.5x at the end of 2025 driven by mid- to high-single digit revenue growth with an EBITDA margin of about 15%. Revenue and earnings growth will be supported by improving demand for private aviation from a growing pool of ultra-high net worth individuals in the US.

We project demand growth will moderate after a period of strong growth following the pandemic; however, Flexjet’s high customer retention rates from a diversified customer base will help provide a continued base of demand.

Explaining its rating, Moody’s continued:

Flexjet’s B1 CFR reflects its good competitive standing within the fragmented private aviation industry, underpinned by the company’s broad brand portfolio, a well-established #2 market position among (in terms of US private aviation market flight hours), and non-unionized pilot relationships. While there are low barriers to entry in the private charter segment of this industry, there are barriers to achieving scale comparable to Flexjet’s fleet of approximately 300 aircraft and the company’s in-house maintenance abilities. The company’s long-term contracted nature of its fractional sales and leases business also provides additional credit support. The company’s rating is constrained by the cyclical nature of private aviation and its private equity ownership (private equity maintains 25% ownership of the company’s common equity). Aircraft capex requirements could pressure free cash flow in periods of softening demand and are a constraint on the rating. We note that the company has a modest level of maintenance capex.

Rossi notes Flexjet does 95% of the company’s aircraft maintenance in-house.

‘Adequate liquidity’

Moody’s added, “The stable outlook reflects the company’s adequate liquidity and our view that earnings will grow, resulting in debt/EBITDA being sustained between 4.0x and 4.5x.”

It added, “Flexjet has adequate liquidity with cash of about $111 million, pro forma for the transaction.”

There was also $423 million of availability under its two facilities as of November 30, 2024.

The private aviation flight provider has a $250 million revolving credit facility that expires in June 2028.

There is a $600 million four-year warehouse facility with a two-year availability and a two-year term period.

Moody’s notes, “The company is subject to a fixed charge coverage and asset coverage ratio under its revolving credit facility, and we expect Flexjet to be able to comfortably comply with these covenants.”

It added, “The senior unsecured notes are rated B3, two notches below the CFR.”

The down notching reflects the application of Moody’s Loss Given Default for Speculative-Grade Companies methodology.

The significant amount of secured debt in the capital structure was also a factor.

Pre-sold private jets

The S&P analysis noted that Flexjet mitigates risk by how it buys airplanes.

“We note that Flexjet does not buy aircraft on speculation and only enters purchasing contracts with OEMs when there is sufficient demand (i.e., customers that have put down deposits), which mitigates risks of significant upfront costs. We estimate that of all the aircraft that Flexjet manages across its products, only about half of the fleet is owned by the company,” S&P writes.

It also noted that 65% of its fractional aircraft are purchased as shares, with the remainder leased.

S&P added, “While we view the fractional own business to be less capital intensive, we do expect some volatility in reported free cash flow generation due to the timing of the contracts and the magnitude of the payments. Nevertheless, we project positive free cash flow generation in 2025 through consistent demand and stable profitability. We expect the company to maintain adequate liquidity, with about $150 million of cash on balance sheet, pro forma for the transaction, and additional sources from its revolver ($185 million of $250 million drawn as of Sept. 30, 2024) and the proposed warehouse facility.”

Adjusted EBITDA margins were 16.7%.

S&P projects margins to remain in the mid-teens percentage for its forecast period.

Margins are being supported by steady 10% annual organic revenue growth over the next few years.

It forecasts fractional revenue growth outpacing that of the jet card segment.

That’s due to “a more crowded market and overlapping offerings with on-demand charter.”

Steady demand for private jets

S&P was also bullish on private aviation.

“While we believe growth has normalized in the post-pandemic world, we expect steady demand as Flexjet retains a large portion of customers acquired through COVID and as consumers increasingly pivot toward premium services. Flexjet’s customer base consists of ultra-high net worth individuals and corporate customers, who we view to be less volatile and more resilient in economic downturns than the broader customer base for commercial airlines,” the rating agency wrote.

Looking at key competitors, S&P said, “Within private aviation, NetJets and Flexjet are the two main players in the fractional space. In comparison, VistaJet offers primarily subscription-based membership programs and on-demand jet card programs, which are shorter-term and have lower switching costs. While Flexjet historically has had high retention and renewal rates, we note the market is highly fragmented and competitive pressures could arise from evolving customer demand shifts toward more asset-light options.”