Private equity firm Apollo Global Management is reportedly shifting away from high-yield bonds as it structures the debt for a potential buyout of British airline EasyJet. According to Bloomberg, Apollo is exploring financing secured against aircraft and other assets, a move that could reshape how the deal is funded.
The debt package is expected to total around £3.5 billion, with a group of banks already underwriting bridge financing to provide short-term cash while the longer-term funding structure is finalised. The banks involved include Barclays, Citibank, Crédit Agricole, Standard Chartered, and Lloyds.
Why aircraft-backed financing?
High-yield bonds—sometimes called junk bonds—are a common way for private equity firms to raise money for large acquisitions. They offer higher returns to investors in exchange for greater risk. But they can be expensive, especially when interest rates are elevated, and they are sensitive to market sentiment.
Aircraft-backed financing, by contrast, uses the planes themselves as collateral. Lenders can seize and sell the aircraft if the borrower defaults, which reduces their risk. That typically allows the borrower to secure a lower interest rate than an unsecured bond would carry. Airlines have long used this kind of asset-backed lending to fund their fleets, and it is now being considered as a way to finance the acquisition of an airline.
For Apollo, using aircraft as collateral could make the debt more attractive to lenders and potentially cheaper than issuing bonds. It also provides a layer of security that may appeal to banks and institutional investors in a period of market uncertainty.
What the bridge funding means
Bridge financing is a short-term loan that provides immediate cash while a company arranges permanent financing. In this case, the banks underwriting the bridge are effectively committing to provide Apollo with the funds it needs to complete the EasyJet acquisition, even before the long-term debt structure is settled.
This is a common step in large leveraged buyouts. The bridge gives the buyer certainty that the money will be there on closing day, while the banks then work to replace that temporary loan with longer-term debt—either through bonds, asset-backed loans, or a combination.
The fact that banks are already underwriting the bridge suggests the deal is progressing, though it does not guarantee that a final agreement will be reached. EasyJet has not publicly commented on the reported approach, and any takeover would still require regulatory approval and the backing of shareholders.
What it means for investors
For everyday investors, the key takeaway is how the financing choice affects risk and returns. If Apollo opts for aircraft-backed loans, it could lower the cost of borrowing, which might improve the financial case for the buyout. That could be positive for EasyJet shareholders if a deal is agreed at a premium to the current share price.
However, the use of secured debt also means that if the airline runs into trouble, lenders have first claim on the planes. That could leave less for other creditors and shareholders in a worst-case scenario. Still, for a company like EasyJet, which owns a substantial fleet, aircraft-backed financing is a natural fit.
The broader market backdrop is also relevant. Bond yields have been elevated, with the 10-year Treasury recently hitting levels not seen in decades, as stocks have risen even as yields climb. Higher yields make high-yield bonds more expensive for issuers, which could be pushing Apollo toward asset-backed alternatives. In this environment, financial stocks have gained as yields top 5.3%, reflecting the impact on lending and borrowing costs.
For investors in the broader market, the EasyJet deal is a reminder that private equity firms are still active, even when financing conditions are tight. The choice between bonds and asset-backed loans is a sign of how dealmakers are adapting to a higher-rate world.
As the situation develops, markets will be watching whether Apollo finalises the debt package and whether EasyJet's board recommends the offer. Any formal bid would likely trigger a period of due diligence and regulatory review, which could take months.
For now, the news is a signal that a major leveraged buyout is moving forward, but the final shape of the financing—and the deal itself—remains to be seen.
