AIG’s ILFC Unit Repays US Loan

International Lease Finance Corp. (“ILFC”), an aircraft-leasing wing of American International Group Inc. (AIG - Analyst Report), has repaid the US government loan of $3.9 billion, following the debt offering of $4.4 billion of secured and unsecured notes.

ILFC now has a principal loan balance of over $15 billion with the Federal Reserve Bank of New York, which it expects to repay without any support of its parent company AIG.

ILFC raised $4.4 billion of new debt on August 11, of which ILFC sold $3.9 billion of secured debt in the private 144a market and the remaining $500 million by way of 9% 7-year unsecured notes.

Besides the debt sale of $4.4 billion in secured and unsecured debt, AIG’s ILFC unit has sold 53 planes for $2 billion in April and amended its bank credit agreements, thereby making impressive progress in addressing its 2010 and 2011 debt maturities. ILFC has also grown significantly by tapping capital markets to raise funds.

Though AIG had earlier planned to sell off its ILFC arm, but currently it seeks to retain the business until markets recover and a better price is available.

AIG, which had nearly collapsed, was bailed out in September 2008 by a $182.3 billion taxpayer-funded rescue package. AIG’s board has been putting in vigorous efforts to fully repay the government debt.

AIG has already made significant progress toward its plan and sold its American Life Insurance Co. to MetLife Inc. (MET - Analyst Report) for $15.5 billion in March 2010.

In order to repay the bail-out funds, AIG had also initially planned to dispose its Asian life-insurance unit, American International Assurance (AIA) to UK’s Prudential plc (PUK - Snapshot Report) for $35.5 billion. But the deal ended as AIG shareholders did not agree to accept a lower price of $30.4 billion offered by Prudential.

Hence, AIG planned to go ahead with an initial public offering of its AIA unit, by seeking a listing of AIA on the Hong Kong Stock Exchange by the fourth quarter of 2010, subject to regulatory approvals and market conditions.

We believe that AIG is putting in vigorous efforts to strengthen its business, manage costs, recover its investments and repay the bailout money. The planned divestitures will help AIG repay and free it from pay restrictions.

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