Terra Firma acquires Pegasus Aviation

Terra Firma, the buy-out group controlled by British financier Guy Hands, has doubled the size of its aircraft leasing business with the acquisition of San Francisco-based Pegasus Aviation Finance for $3.4bn, including debt.

The buy-out group will also back $1.8bn of aircraft orders, lifting its total commitment to $5.2bn.

The purchase from Oaktree Capital Management brings together AWAS, Terra Firma’s existing aviation leasing business bought last year from Morgan Stanley for $2.5bn, with the US company to create the third-largest aircraft lessor.

The enlarged business is expected to be a float candidate in a few years’ time when Terra Firma seeks to realise its investment. Terra Firma will invest $900m of equity to fund the Pegasus deal, which will be drawn from a new buy-out fund of €5.2bn ($7bn) that will shortly complete its fundraising programme.

Terra Firma competed against a number of bidders for Pegasus, which are thought to have included Allcoâ Finance, the Australian infrastructure asset manager, as well as Australian bank Macquarie and its smaller rival Babcock and Brown.

Oaktree and Pegasus’ management, led by Richard Wiley, had also considered a public offering before deciding to sell the business.

Mr Hands has a reputation for being an innovative financier

JPMorgan acted as adviser to Terra Firma and is providing debt finance. Merrill Lynch advised Pegasus.