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AIG Arm to Refinance Loan

Zacks Equity Research

International Lease Finance Corporation (“ILFC”), the aircraft leasing wing of American International Group (AIG), recently announced its plan of raising a senior secured term loan worth $550 million. The new term loan will replace the company’s existing term loan worth the same and will also bear the same maturity period.

ILFC intends to secure the new loan with a first priority perfected lien on the equity of some of its subsidiaries. We believe that the refinancing is aimed at lowering borrowing costs, which in turn will enhance capital flexibility.

According to Bloomberg, Bank of America Corporation (BAC), Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS) will organize the loan, which will likely have a soft-call protection of 101 cents for the initial year. This means that the company will have to repay the loan at a 1% premium in case it decides to refinance it within a year of its issue.

Earlier this month, ILFC also announced the pricing of two tranches of senior unsecured notes worth $1.5 billion in aggregate. One part of the senior notes worth $750 million is slated to mature on April 1, 2015 and carries a coupon rate of 4.875%. The remaining $750 million worth notes will mature on April 1, 2019, and carry a coupon rate of 5.875%.

The Aircraft Leasing segment of AIG recorded an operating income of $119 million in the fourth quarter of 2011 against a loss of $606 million in the year-ago quarter. The surge in the segment’s earnings contributed substantially to the improvement in the holding company’s operating income to $1.56 billion in the fourth quarter of 2011 from a loss of $2.21 billion in the year-ago quarter.

Currently, the Zacks Consensus Estimate for AIG’s first quarter earnings stands at 65 cents per share, reflecting a downside of 50% from the year-ago quarter. With respect to estimate revision, of the nine firms, one revised its estimate upward in the past 30 days, while no downward revision was witnessed. For 2012, earnings are estimated to be $2.49 per share, surging about 144% over 2011.

AIG carries a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We also have a long-term ‘Neutral’ stance on the stock.

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