By Doug Cameron and Daniel Michaels
The aircraft leasing unit of American International Group Inc.
(AIG) said Monday its parent company had provided $2 billion in
U.S. government-backed funds to cover expiring commercial bank
debt.
International Lease Finance Corp. had already secured $1.7
billion from AIG in March to help it through a funding crisis that
could have rippled through the global airline industry because of
its position as one of the world's largest airplane lessors.
(This story and related background material will be available on
The Wall Street Journal Web site, WSJ.com.)
AIG, which is 80% owned by the U.S. government, drew down the $2
billion from funds already pledged by the Federal Reserve Bank of
New York. Both the new AIG loan and the March loans, totaling $3.4
billion, are backed by ILFC aircraft valued at $7.4 billion,
according to a regulatory filing.
Philip Baggaley, Senior Transportation Credit Analyst at
Standard & Poors in New York, said the transaction suggests AIG
and the New York Fed want to retain and support ILFC for the
foreseeable future.
"It indicated ILFC has long-term value and AIG believes that the
Federal Reserve is going to give them a chance to prove that, but
ILFC is cut off from capital markets," Baggaley said.
Baggaley said the move is "consistent with the apparent plan to
hold onto ILFC until better market conditions prevail and secure a
higher value." AIG shelved plans to sell ILFC during the summer.
That presented the leasing unit with the challenge of how to cover
$2 billion in debt from commercial banks expiring on Oct. 15. Many
industry officials thought ILFC would seek to roll over the debt
but questioned where it could get financing on profitable terms
after multiple downgrades of its credit rating.
ILFC until last year was able to borrow billions of dollars
inexpensively in short-term debt markets without pledging airplanes
as collateral. It is limited in how much of its fleet of more than
1,000 planes it can use as collateral for loans.
The insurer dropped the sale plan because investors' bids were
below expectations and because of complexities refinancing ILFC's
more than $30 billion in debt, according to people familiar with
the issue.
Among many options now under consideration is a plan under which
ILFC Chairman and Chief Executive Steven Udvar-Hazy is seeking to
raise several billion dollars from investors to buy part of ILFC's
fleet and establish a new leasing company.
-By Doug Cameron, Dow Jones Newswires; 312-750-4135;
doug.cameron@dowjones.com