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28 March 2024

Three private equity groups likely to bid for AIG unit

AIG has agreed to help the buyer of its aircraft leasing unit with financing as part of a revised US aid package. (AP)

Published
By Reuters

American International Group's aircraft leasing unit is likely to get bids from at least three private equity groups in the auction's second round set for early April, sources said.

The three groups seen bidding for International Lease Finance Corp (ILFC) include Thomas H Lee Partners, Carlyle Group, and Greenbriar Equity Group and Onex Corp, the sources said.

AIG, which agreed to help the buyer with financing as part of a revised US aid package, has given more details to potential bidders about the plan, which would involve support of several billion dollars over multiple years, one source said.

ILFC, which had a book value of $7.5 billion (Dh27.54bn) as of September 30, may draw bids of around $5bn now, the source said.

While AIG's offer of helping with financing addressed one major bottleneck, private equity investors have to grapple with the problem of securing good enough returns on the purchase.

A strategic sale of the unit a few years later could be difficult, so the buyer would have to prepare for the company to eventually be floated in an initial public offering to exit the investment, the second source said.

Moreover, it may be hard to buy the entire business, so one question being asked is whether it might be possible to buy part of the company, the source said.

The sources did not want to be named because the auction is private. AIG, Carlyle, Greenbriar and THL declined to comment.

Onex was not available for comment.

For potential buyers, finding the financing to buy and run one of the world's largest aircraft leasing companies has proven to be a formidable task because of the global credit crisis.

ILFC has around $33bn in debt, some of which starts to mature in October.

It also had $16.9bn worth of new aircraft from Boeing Co and Airbus on order as of September 30.

Some of ILFC's past advantages, like having the backing of highly rated AIG to issue unsecured debt and access to commercial paper, have been diminished by tight borrowing conditions and AIG's problems.

The US government has committed as much as $180bn to bailout AIG.

Earlier this month, AIG Chief Restructuring Officer Paula Reynolds said the insurer had agreed to make some form of backstop financing available through the US Federal Reserve to facilitate the ILFC sale and carry the new owners with some secured financing over at least an interim period.

Carlyle is one of the world's largest private equity firms, with $85.5bn under management at the end of 2008. THL has raised about $22bn of equity capital since it was established in 1974. Onex manages about $11bn, and Greenbriar manages about $1.5bn and focuses on investments in transportation.

The list of funds looking at ILFC has narrowed in the past few months.

Private equity firms Kohlberg Kravis Roberts and TPG Capital as well as Singapore's Temasek Holdings Ltd have bowed out of the process, sources familiar with the matter have said.

Others initially interested in the business also included sovereign wealth funds Istithmar World of Dubai, Kuwait Investment Authority and China Investment Corp, the sources have said.

It is unclear if those parties are still interested.