ILFC Swaps Jump Most in Five Months as AIG Says Deposit Past Due

The cost to protect against a default on bonds issued by American International Group Inc. (AIG)’s plane-leasing arm rose the most in more than five months after the insurer said it hasn’t received a deposit needed in a deal to sell the unit to a group of Chinese investors.

Five-year credit swaps tied to International Lease Finance Corp. rose by as much as 21.9 basis points to a mid-price of 284.8 basis points, the biggest jump since Dec. 17, according to prices compiled by Bloomberg. The contracts traded at 278.7 basis points at 9:33 a.m. in New York, which means it would cost the equivalent of $278,700 annually to protect $10 million of obligations for five years.

A group led by New China Trust Co. Chairman Weng Xianding agreed in December to buy 80 percent of Los Angeles-based ILFC for about $4.23 billion, with an option to take a larger stake. The deal called for the buyers to pay a 10 percent deposit, tied to a review by regulators, and gives New York-based AIG the right to cancel the accord if the payment is not made.

“The deposit amount was not received by the escrow agent when due,” AIG said today in a regulatory filing.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The price of the contracts typically rises as investor confidence deteriorates and falls as it improves.

To contact the reporter on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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