AIG Says China Group’s Deposit Not Received in Deal to Sell Plane-Leasing Unit

May 31, 2013 by Zachary Tracer

American International Group Inc. said it hasn’t received a deposit that was called for under the deal to sell its plane-leasing unit to a Chinese investor group, presenting another challenge to divesting the business.

“The deposit amount was not received by the escrow agent when due,” AIG said today in a regulatory filing about the International Lease Finance Corp. unit.

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 isn’t made.

“This is one of those issues where there are no guarantees,” said Meyer Shields, an analyst at Keefe Bruyette & Woods. “A lot of the optimism in AIG right now is still on the capital return story and this is a big chunk of the capital that’s still out there.”

AIG dropped 2 percent to $45.28 at 9:32 a.m. in New York trading. Jim Ankner, a spokesman for AIG, declined to comment. Steven Lipin at Brunswick Group, who represents the buyer group, didn’t immediately return a message seeking comment.

The insurer said May 13 it reached an agreement with the Chinese investors to extend until June 14 a deadline to complete the transaction.

Credit Swaps

Five-year credit-default swaps tied to ILFC rose 16.5 basis points to a mid-price of 279.4 basis points at 9:02 a.m., the biggest jump since Dec. 17, Bloomberg prices show. That means it would cost the equivalent of $279,400 annually to protect $10 million of obligations for five years. The contracts typically rise as investor confidence deteriorates.

ILFC has a fleet of about 1,000 owned and managed planes. The unit has been among the hardest for AIG to divest as the insurer sold assets to repay the 2008 bailout and simplify the company. AIG said in 2011 that it would conduct a public offering to cut its ILFC stake and reiterated that plan in 2012, then changed direction. Getting rid of the unit would be a “key milestone,” AIG Chief Executive Officer Robert Benmosche said on a May 3 conference call, citing the unit’s debt and its distance from the company’s main businesses of providing property-casualty coverage and life insurance.

Delayed Divestiture

The 2011 sale of Taipei-based Nan San Life Insurance Co. to Ruen Chen Investment Holding Co. followed the collapse of a deal to sell the unit to Primus Financial Holdings Ltd. AIG chose to get rid of AIA Group Ltd. through public offerings after Prudential Plc backed out of a deal to buy the Hong Kong-based insurer.

AIG acquired ILFC in 1990 for $1.16 billion, data compiled by Bloomberg show. Under AIG’s ownership, the plane-leasing unit originally benefited from the ability to borrow money at low rates, an advantage that evaporated when the insurer was hobbled by losses tied to subprime mortgages.

With assistance from Victoria Stilwell in New York. Editors: Dan Kraut, Steve Dickson