American International Group Inc. (AIG:US)’s sale of International Lease Finance Corp. to AerCap Holdings NV (AER:US) will improve perceptions of the insurer’s creditworthiness, the company’s chief financial officer said.
“The sale of ILFC to AerCap no doubt will be credit-ratings positive,” AIG CFO David Herzog said today at an investor conference held by UBS AG in New York, where the insurer is based. Getting rid of about $26 billion of liabilities in the deal is “an important step for our company.”
AIG completed the deal to exit ILFC last week, after years of unsuccessful efforts to find a buyer, getting $3 billion in cash and about $4.6 billion in AerCap stock. The insurer has divested more than $70 billion of assets since it was rescued by taxpayers in 2008. Herzog and Chief Executive Officer Robert Benmosche have been buying back shares and seeking to bolster AIG’s credit rating since repaying the U.S. in 2012.
The cost to protect against a default by AIG fell this month to the lowest since 2007. Credit-default swaps tied to the insurer have dropped about 37 basis points the past year to 55.4 basis points through yesterday, according to data provider CMA. That means it would cost $55,400 annually to protect $10 million of AIG obligations from losses for five years. The cost is down from about $250,000 two years ago, CMA prices show.
AIG had the top Aaa credit rating (AIG:US) at Moody’s Investors Service as recently as 2005. The insurer has had a Baa1 grade, the eighth highest of 10 investment-grade levels, since 2011.
“The ILFC sale marks continued progress in AIG’s divestiture-unwinding of non-core businesses,” Bruce Ballentine of Moody’s wrote in a note to investors yesterday. “ILFC’s higher financial leverage and steady reliance on wholesale funding weighed on AIG’s overall credit profile.”
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