AIG Plane Unit Swaps Narrow on Moody’s Upgrade

The cost to protect International Lease Finance Corp. debt fell after Moody’s Investors Service upgraded the airplane lender, citing improved liquidity.

Five-year credit-default swaps on the unit of bailed-out insurer American International Group Inc. declined 6.3 basis points to a mid-price of 467.7 basis points at 9:07 a.m. in New York, according to prices compiled by Bloomberg. Credit-default swaps typically fall as investor confidence improves and rise as it deteriorates.

ILFC’s credit rating was raised to Ba3 from B1 after the Los Angeles-based company reduced leverage and improved its access to cash by extending the maturity of its debt, the ratings company said in a June 15 note. New York-based AIG is seeking to sell a stake in ILFC through a public offering as the insurer raises cash to repay a government rescue.

“The upgrade of ILFC’s rating is based on the progress the company has made in recent quarters to enhance its liquidity and capital position,” Moody’s analysts including Mark Wasden wrote in the report. “ILFC’s rating continues to be supported by its position as an industry leader in aircraft finance.”

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

A benchmark of U.S. corporate credit risk rose as Spanish bond yields climbed above 7 percent for the first time since the creation of the Euro and dimmed optimism that a pro-bailout victory in Greece will stave off a crisis in the euro area. The Markit CDX North America Investment Grade Index, a benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, increased 3.9 basis points to a mid-price of 121.6 basis points at 9:18 a.m., Bloomberg prices show.

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