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.