AIG's ILFC Arranges For $2B Loan - Analyst Blog

On Monday,American International Group Inc.'s (AIG) wholly owned subsidiary, International Lease Finance Corporation (ILFC) announced its agreement to raise $2.0 billion through an unsecured three-year revolving credit line.

ILFC is an international market leader that deals in leasing and remarketing of advanced technology commercial jet aircraft to airlines around the world. ILFC owns a portfolio consisting of approximately 950 jet aircraft.

Accordingly, about 11 banks came forward to provide assistance to ILFC's operating needs. Primarily, the divisions of Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) were appointed as lead arrangers and book runners for the loan. This deal further signifies the revived confidence of the market in AIG and its subsidiaries.

ILFC aims to utilize the funds for serving the general business needs. However, it could also be used for purchasing new aircrafts by enhancing its financial flexibility in addressing new orders.

Previously, in October 2005, ILFC borrowed a $2.0 billion bank loan in the form of revolving line of credit, whereby the bank guaranteed a maximum amount that could be loaned out to ILFC against a commitment fee.

Accordingly, by September 2008, ILFC had drawn the maximum amount of loan from the line of credit though it remained unutilized until then. However, during this time, AIG was in deep ruts due to the subprime mortgage credit crisis that had hit the markets badly. This was also the time when AIG took up the government's $182.3 billion loan in order to rebuild its crippled capital structure.

Meanwhile ILFC, which was devoid of any liquidity, finally improved its liquidity position by more than $12.5 billion since March 2010 with the markets getting into a recovery mode. The company increased its liquidity by extension of its credit facilities, vending off aircrafts and issuance of new debt through bonds and other debt securities. Through these measures ILFC could ultimately pay off its $2 billion loan in October 2010 and enhance its financial leverage.

However, in April 2010, ILFC extended the time-length of its $2.155 billion loan repayment to October 2012. The extended part of the credit will be charged at an interest rate of 2.15% over the Libor rate. According to the regulatory filings, ILFC had an existing $2.5 billion of revolving credit line, as of September 30, 2010.

Meanwhile, recovering from the thrashes of the global economic meltdown in 2008, the restructuring AIG now aims to focus only on its core insurance operations. Hence, the disposition could be ILFC's eventual destiny although there is inadequate clarity regarding the timing and mode of sale.

 
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