AIG Leasing Unit Pays Higher Yield Than S&P Rating on New Debt
American International Group Inc. (AIG)’s plane-leasing unit offered a higher yield than similarly rated companies on its first bonds since May as it seeks to pay back debt and finance aircraft purchases.
International Lease Finance Corp., rated B1 by Moody’s Investors Service and BBB- by Standard & Poor’s, sold $650 million of 8.625 percent, 10-year notes, according to data compiled by Bloomberg. That compares with the average 4.51 percent yield for debt on the lowest investment-grade tier of BBB and 8.99 percent on bonds with B grades, according to Bank of America Merrill Lynch index data.
The cost to protect the world’s largest independent aircraft lessor’s debt from default rose to the highest since December 2009 in October after the bailed-out AIG said a month earlier that it planned to sell more than 20 percent of Los Angeles-based ILFC and divest most of the unit over time. That has since declined as ILFC said it signed leases for all of its 2012 new aircraft deliveries and shows a “strong position in high-growth emerging markets,” according to Gimme Credit LLC.
The unit’s planned initial public offering may be delayed because of “difficult” market conditions, Gimme Credit analyst Kathleen Shanley wrote in a note Nov. 30. “Wild swings in equity prices are not exactly conducive to the pricing of an IPO, particularly for a firm in the finance sector which will need ongoing access to financial markets,” she wrote.
The coupon on today’s bonds matches the highest rate for investment-grade debt this year with that maturity, data compiled by Bloomberg show. AMR Corp., operator of American Airlines, sold 10-year debt in September at that coupon, and Forethought Financial Group Inc. issued bonds with that maturity at the same rate in April, the data show.
The ILFC offering was increased from $500 million, said a person with knowledge of the transaction, who declined to be identified, citing lack of authorization to speak publicly.
Credit-default swaps on ILFC have declined to 697.8 basis points today from as high as 931.9 basis points on Oct. 4, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Default 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.
ILFC’s May bond offering included $1.25 billion of 6.25 percent debt due in May 2019 that priced to yield 308 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.
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