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Mon, Mar 02, 2009

Gov't Says It Will Shore Up Sale Of ILFC

Announcement Comes As AIG Receives Yet Another Round Of TARP Funds

The latest multi-billion dollar bailout of insurance giant AIG puts new impetus on the company's plan to sell off its International Lease Finance Corp. operation... and it appears the US government is willing to help speed that process.

On Monday, AIG reported a record $61.7 fourth-quarter loss. The US government promptly responded by issuing $30 billion in new Troubled Asset Relief Program funds to bolster the hemorrhaging company... the fourth time in six months the federal government has done so, reports CNN Money, on the argument the insurance company is 'too big to fail.'

In addition to the latest round of TARP money, AIG will also benefit from reduced interest amounts on the $40 billion AIG received last November -- which came two months after AIG received $85 billion in combined TARP monies, loaned at 11 percent interest. In exchange for those friendlier terms, the government will take control of stock equal to that value, with dividends reduced to nearly zero.

AIG says the bailout was necessary, due in part to the company's lack of success in selling off key subsidiaries... including ILFC, once the darling of AIG's profit-loss sheet. For years, the aircraft lessor has been the largest customer for both Boeing and Airbus, and turned a healthy profit on lease payments from airlines against its fleet of over 1,000 aircraft.

With the economic downturn, however, has come a slump in airliner sales, and a reduced need for ILFC's services. That makes the company much less attractive to potential suitors. Today, ILFC shoulders $31.2 billion in lease-related debt, reports Dow Jones... an amount that has made interested buyers in ILFC understandably nervous, particularly since the company as a whole is worth only about $7.5 billion.

Fortunately for AIG, it appears once again the government will step in where just one year ago it would not have dared to tread. AIG Chief Restructuring Officer Paula Reynolds told investors on a conference call Monday the US government pledged to offer "some form of backstop finance" to bidders for ILFC.

AIG hopes that safety net will convince a buyer to come forward for ILFC soon. On Monday, AIG warned the Securities and Exchanges Commission it doesn't expect ILFC to be self-funding in 2009, and that it may need outside capital to survive... investment money that's hard to come by in today's markets.

FMI: www.aig.com, www.ilfc.com

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