Tuesday, December 2, 2008

AIG's Distressed Asset Sale of ILFC

The Financial Times reported on the likely sale of AIG's aircraft leasing division, International Lease Finance Corp (ILFC). The Federal Reserve Bank controls 80% of AIG through its $150 billion life support.

ILFC had $9 billion in bank debt and commercial paper mature in 2008. Did the Fed make good on these obligations, or do they pass on to any buyers? Given the locked up credit markets, $9 billion can be hard to come by.

FT believes there to be a small list of potential buyers, the large private equity firms like TPG, KKR and the Carlyle Group. GE was mentioned as they already own portions of aircraft leasing companies.

The economic crisis means any sale would occur in a distressed environment. Assets are likely to be sold at a discount, deeper if the government won't offer sweeteners. One source noted "that the government is extraordinarily exposed through its investment in AIG and is attempting to raise whatever money it can." The piece stated:

The second source said he believed ILFC would be highly leveraged because its assets are strong collateral and can be levered extensively. He said a more likely scenario could include asking the government for some lingering support whereby allowing the buyer to maintain ILFC’s single A rating.

If the government has hopes of securing full value for ILFC, it will have to provide some ongoing support, the same source said. Conversely, if the government does not provide aid to buyers, the company is expected to be sold at a lower price.

Government support, discounted price, equals the opportunity to make 30% annual returns. Could there be more taxpayer funded corporafornication for the Carlyle Group?