American International Group Inc (NYSE:AIG) said today in a brief 8-K that it has received the 10% deposit from the Chinese consortium that agreed to purchase ILFC (AIG’s aircraft leasing business). Jay Gelb, CFA of Barclays PLC views this as a positive step towards completing the transaction by the June 14 deadline and gives him increased confidence that the consortium of buyers remains committed to the deal. That said, it remains unclear whether other hurdles such as required regulatory approval remain outstanding.
If American International Group Inc (NYSE:AIG) does not sell ILFC for net proceeds of $3.7bn in cash, it could mean Barclays share repurchase outlook for AIG is too high. They currently assume American International Group Inc (NYSE:AIG) could repurchase $11bn of stock by YE15. As a point of reference, each $1bn of share repurchases = ~$0.05/shr annually.
AIG Plans To Sell 90% Of ILFC
Background on pending sale of ILFC: American International Group Inc (NYSE:AIG) plans to sell 90% of ILFC to an investor group led by New China Trust Co. Ltd. This deal is valued at $5.3bn (67% of ILFC’s book value at the time the deal was announced). American International Group Inc (NYSE:AIG) would initially receive $4.23bn for an 80% stake with an option for the investor group to acquire an additional 9.9% stake. AIG’s net proceeds from the sale are expected to be $3.7bn. This amount is determined as: $4.23bn of gross proceeds from the sale of 80% of ILFC plus an additional $523mn if the buyers purchase the remaining 10%, less $1.1 billion cash deposit returned to ILFC. On May 10th, the time to close the transaction was extended by one month (to June 14, 2013). After that date, either the buyer or seller can terminate the transaction if it has not closed. As of May 10th, AIG said it expected the sale of ILFC to be completed in 2Q 2013.
Sale Of ILFC Is A Strategic Positive For AIG
The sale of ILFC is expected to close in 2Q 2013 and American International Group Inc (NYSE:AIG) would retain a 10% minority interest in ILFC (roughly $40mn of annual earnings). The sale of ILFC is a strategic positive for AIG, because the aircraft leasing business is non-core and highly leveraged. In 4Q12, American International Group Inc (NYSE:AIG) recognized a $4.4bn ($2.97/shr) charge, of which $1.8bn is non-cash, related to the sale and reclassified ILFC as discontinued operations.