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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.’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.

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