A wholly owned subsidiary of American International Group (AIG), the International Lease Finance Corporation (:ILFC) recently declared that it would issue and sell $550 million of floating rate senior notes with maturity scheduled in 2016. The notes carry an interest rate of 1.95%.
The issuance will be in accordance with a registration statement filed with the Securities and Exchange Commission in Jul 23, 2012. ILFC is expected to close the transaction on May 24, 2013, subject to customary closing conditions.
As of Mar 31, 2013, the debt-to-capital ratio of American International Group was 0.31x which represented an improvement of 2 percentage points over 0.33x at 2012 end. However, the current issuance of $550 million will have no material impact on the debt-to-capital ratio.
The company also scores strongly with the credit rating agencies. As of Apr 2013, Moody’s Corp and Fitch Ratings assigned credit ratings of “Baa1” and “BBB”, both carrying a stable outlook while Standard & Poor provided a credit rating of “A–“ with a negative outlook. The higher ratings came on the back of strong financial position of the company.
Interest expense of American International Group increased 2.1% year over year to $577 million in the first quarter of 2013. We expect the new issuance to increase its interest expense further.
However, the balance sheet of the company as of Mar 31, 2013 seemed strong enough owing to the maturity, repayment and purchase of debt worth $2.9 billion. Towards this end, in Mar, 2013, American International Group redeemed 7.7% Series A–5 junior subordinated debentures worth $1.1 billion with maturity scheduled in 2047.
Earlier this month, another insurer, Prudential Financial Inc. (PRU) declared that on Jun 15, 2013, it will redeem all of its outstanding 9% junior subordinated notes worth $920 million, which are scheduled to mature in 2068.
American International Group currently carries a Zacks Rank #2 (Buy). Among other industry majors, Eastern Insurance Holdings Limited (EIHI) and Assured Guaranty Limited (AGO) carry a favorable Zacks Rank #1 (Strong Buy) and are worth noting.
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