Saturday, June 6, 2009

final purchase price is unlikely to top $5bn, well below ILFC’s book value of $7.6bn

TO BE NOTED: From the FT:

Frontrunners bid for AIG aircraft leasing unit

By Justin Baer in New York

Published: June 6 2009 00:26 | Last updated: June 6 2009 00:26

A consortium led by Onex and Greenbriar Equity Group has emerged as the frontrunners to acquire AIG’s aircraft-leasing business, International Lease Finance Corp.

While AIG, which is selling ILFC and other assets to repay $100bn in debt and equity to the US government, has not ended negotiations with the business’s other suitors, the insurer named the Onex-Greenbriar group the preferred bidder after the two sides made “significant progress” toward an agreement, a person familiar with the matter said.

The deal would help assure ILFC, a profitable company in spite of its parent’s collapse, remain a vital cog within the aviation industry. Led by Steven Udvar-Hazy, the company is a top customer to both Boeing and Airbus, and in turn an important source of aircraft to the world’s airlines.

People familiar with the negotiations say the final purchase price is unlikely to top $5bn, well below ILFC’s book value of $7.6bn.

ILFC’s scale, which made it such a formidable player in aviation finance, has also complicated its separation from AIG. The division’s bidders have voiced concern on the business’s ability to refinance its debts following the sale, and have pushed for more generous financings from the New York Federal Reserve, which along with the US Treasury owns 80 per cent of AIG. Absent an outright sale, AIG is prepared to break off pieces of ILFC’s fleet of aircraft for smaller deals with seperate buyers, the people said.

The Fed has discussed with AIG its willingness to provide about $5bn in loans to help assure the ILFC sale would proceed, the Financial Times reported in April.

AIG and Greenbriar officials declined to comment, while Onex executives could not be reached.

Thomas H. Lee Partners and Carlyle Group lead a second bidding group, while Terra Firma leads the third consortium.

People familiar with the matter have said the Fed is unlikely to meet the calls for additional loans. AIG has argued that other funding sources, including a bank credit facility and loans from manufacturers, would help assure ILFC has enough capital to meet its refinancing needs, which total $9bn-$13bn in the next few years, the people said.

The capital markets have grown more open in recent weeks to the aviation industry, renewing hopes that ILFC would be able to turn to debt investors for additional funding.

Additional reporting by Henny Sender, Francesco Guerrera and Julie MacIntosh in New York"

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