Bloomberg News

AIG Falls as ILFC Swaps Widen to Highest of Year: New York Mover

June 24, 2013

American International Group Inc. (AIG:US) headed for a seventh straight decline on speculation the insurer will be unable to raise as much money as planned by selling its plane-leasing unit.

AIG fell 3.4 percent to $42.21 at 1:35 p.m. in New York, where the company is based. The cost to protect against losses on the debt of the International Lease Finance Corp. unit climbed to the highest level since December.

ILFC updated on June 21 the registration statement for an initial public offering, after AIG last week extended until July 31 the deadline for a sale of the business to a group of Chinese investors. As part of the extension, the insurer has the right to pursue other offers or prepare for an IPO.

“Given that ILFC couldn’t find a buyer in the four years leading up to the December 2012 agreement, it seems improbable that competitive bidders are pounding at the door to make an offer,” Kathleen Shanley, a bond analyst at Gimme Credit LLC, wrote in a research note last week.

The insurer began selling assets in 2008 to help repay a U.S. rescue. AIG Chief Executive Officer Robert Benmosche, who exited the bailout last year, is seeking to get rid of ILFC to simplify the insurer and reduce debt.

A collapse of the deal with the Chinese investor group could pressure ILFC’s credit score, Fitch Ratings said in a note today. The unit had about $24.1 billion in borrowing as of March 31, according to a regulatory filing. The unit relies on funding from bond investors to buy planes that it leases to airlines.

Five-year credit-default swaps tied to the plane lessor’s debt climbed 28.6 basis points to a mid-price of 400.9 basis points as of 1:27 p.m. in New York, according to prices compiled by Bloomberg. That means it would cost the equivalent of $400,900 annually to protect $10 million of obligations for five years. Swaps typically rise as investor confidence deteriorates.

Bondholder Interests

“Absent the closing of the current transaction, there is the potential that AIG may take steps to otherwise facilitate the sale of all or part of the unit, which may not necessarily be in the best interests of ILFC’s bondholders,” Fitch said in the note. “The size, age and diversity of ILFC’s fleet has limited the number of potential options available to AIG.”

Jon Diat, an AIG spokesman, declined to comment.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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Companies Mentioned

  • AIG
    (American International Group Inc)
    • $55.17 USD
    • 0.15
    • 0.27%
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