NH Investment to arrange loan for KAL in-flight deal

Private equity firm Hahn & Company, a preferred bidder for the in-flight business of Korean Air Lines, has hired NH Investment & Securities to arrange its acquisition financing, industry sources said on Wednesday (August 26).

The buyout firm and the brokerage are discussing details of the package, including the interest rate and maturity.

“They seem to be careful in setting the terms on the acquisition financing amid heightened uncertainties about the aviation industry after the Covid-19 pandemic,” said an industry source. “They are expected to fix terms on the acquisition financing based on the in-flight business’ future cashflow and profitability.”

NH Investment & Securities has reportedly taken a conservative approach to the acquisition financing deal due to the devastated position of the aviation industry, the source added. “NH Investment & Securities seem to have agreed on the fact that even if it would be difficult for the air carrier to make a turnaround in the short term, the aviation industry will recover and the profitability of the in-flight business will also improve.”

Hahn & Co, which has been especially careful to safeguard information relating to the deal, has reportedly chosen to hire its longstanding partner NH Investment & Securities to arrange acquisition financing without going through a bidding process.

“Hahn & Co tends to hold a bidding to select an arranger for recapitalization or refinancing deals, but when it comes to a new acquisition financing deal it tends to hire a particular house that has built a strong relationship with the buyout firm due to a security issue,” a second industry source said. In February, Hahn & Co hired NH Investment & Securities as an arranger to fund its purchase of SK Chemicals’ biofuel business.

Thanks to the latest deal, Hahn & Co is set to strengthen its presence in the acquisition financing market. According to the bell’s league tables, South Korean financial firms arranged total acquisition financing of 10.1 trillion won ($8.51 billion) in the first half of this year, of which 2.73 trillion won, or 27.7%, involved transactions by Hahn & Co. The buyout firm used acquisition financing for five transactions, including four refinancing deals.

The buyout firm will acquire Korean Air Lines’ in-flight business for 990.6 billion won. If Hahn & Co finances approximately half of the total transaction value through acquisition financing, it will use acquisition loans worth about 500 billion won. This would be the third-largest acquisition financing deal the buyout firm has carried out, behind the refinancing of Ssangyong Cement Industrial (1.5 trillion won) and the recapitalization of H-Line Shipping (750 billion won).

NH Investment & Securities, which was ranked fifth in the bell’s league tables in the first half of this year, is expected to build quite a strong track record thanks to Hahn & Co’s Korean Air Lines deal. (Reporting by Byung-yoon Kim)