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International Lease Finance Corp. gets a $2-billion lifeline

The Century City-based aircraft leasing company gets another infusion of federal money from its parent, AIG, to pay off debt.

October 20, 2009|W.J. Hennigan

Since its near-collapse, American International Group Inc. has been selling all kinds of assets -- but it apparently doesn't want to part with its Century City-based aircraft leasing company.

On Monday, the troubled insurance giant disclosed that it lent the unit, International Lease Finance Corp., $2 billion to pay off debt that was due last week.

It marked the second time that AIG pumped federal bailout money into ILFC, signaling that AIG and the federal government want to keep the unit -- at least in the short term.

The latest move is likely to frustrate ILFC's chief executive, Steven Udvar-Hazy, who in recent months has been trying to line up financial partners to buy back part or all of ILFC, a company he once owned, analysts said. Udvar-Hazy became a billionaire and one of the richest men in Los Angeles after he sold ILFC to AIG in 1990. He was allowed to keep running the company after the sale.

But after one of the biggest government bailouts ever, the U.S. government took controlling interest in AIG last year, hamstringing Udvar-Hazy's ability to manage the company.

"He wants to move on and have more control of things," said Adam Pilarski, senior vice president of aviation research firm Avitas Inc. in Virginia. "With the government involved in running AIG, that's not really possible. They don't want to sell ILFC quickly."

AIG and the government don't want to sell ILFC particularly in this economic environment, Pilarski said. "There's no upside to selling the company right now," he said. "In three years, ILFC might sell for twice what it would right now. So why get rid of it?"

ILFC is one of the world's largest aircraft leasing companies and had been one of AIG's more profitable units.

AIG has recovered somewhat, with its shares rising 31% this year.

According to a filing with the Securities and Exchange Commission, ILFC needed the money to satisfy a five-year, $2-billion credit agreement with Citigroup Inc. and other financial institutions, which came due Thursday.

The company had received $1.7 billion from AIG in March. That money was also used to repay debt and other obligations.

ILFC has struggled to borrow money over the last year because of the dried-up capital markets. That led AIG to tap a credit facility established by the Federal Reserve Bank of New York, set up when AIG was bailed out in September 2008.

AIG received about $182.5 billion in bailout money and has been selling off assets to repay the government.

The federal bank's willingness to cover ILFC's debt may indicate that the government doesn't want to part with the leasing firm in a depressed market, analysts said.

Until the fall of AIG last year, ILFC had easy access to billions of dollars in short-term debt markets.

That all changed with AIG's downfall.

In an SEC filing this year, ILFC said that access to financing had been hampered by its parent company's troubles and that without new loans "there could exist doubt concerning our ability to continue as a going concern."

With access to credit markets blocked off, the government was willing to provide the funding, said Philip Baggaley, senior transportation credit analyst at Standard & Poors in New York.

"The Federal Reserve believes ILFC has long-term value, so it is providing them with funding in the short-term," he said. "Understandably, it doesn't want to sell the company at a fire-sale price."

However, the $2 billion in funding is not unsecured. ILFC is putting up $7 billion worth of airplanes as collateral.

Jon B. Kutler, president of private aerospace investment firm Admiralty Partners in Century City, said the move shows that the government is ready to "ride the market out."

"It lessens the pressure on something having to happen in the immediate future," he said. "I don't think it hurts anybody's chances at buying ILFC. But it shows they're not going to get it for cheap."


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