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AIG To Sell Aircraft Leasing Unit ILFC To AerCap In $5.4 Bln Deal

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Insurer American International Group, Inc. (AIG) agreed Monday to sell its aircraft leasing unit International Lease Finance Corp. or ILFC, to Dutch aircraft lessor AerCap Holdings NV (AER) in a cash and stock deal valued at about $5.4 billion. The consideration includes $3.0 billion of cash and 97.56 million newly issued AerCap common shares.

The move comes after AIG was unable to close the proposed sale of its majority stake in ILFC to a consortium of Chinese investors. AIG agreed exactly a year ago to sell a 90 percent stake in ILFC to an investor group led by Weng Xianding, the Chairman of New China Trust Co. Ltd. for about $4.75 billion in two tranches.

Then in June 2013, AIG filed updated initial public offering documents after an extension of a deadline for the group of Chinese investors to get regulatory approvals to acquire the unit till July 31.

According to revised terms with the Chinese investors, AIG was free to seek other buyers and proceed with preparations for a potential IPO for ILFC.

The current deal will create a leading aircraft leasing company that will have total assets of $41 billion, fleet of over 1,300 aircraft and highly attractive order book of 385 aircraft. The combined company will retain the name AerCap, with ILFC becoming a wholly-owned subsidiary of AerCap.

"The combination of AerCap's young fleet of in-demand aircraft and proven portfolio management capabilities with ILFC's attractive order book and broad marketing reach will continue to lead the industry. However, as we have said all along, the aircraft leasing business is not core to our insurance operations," AIG President and CEO Robert Benmosche said in a statement.

The deal, primarily subject to approval of AerCap's shareholders and regulatory approvals, is expected to close in the second quarter of 2014. It also marks the last major divestiture of AIG's non-core assets.

Waha Capital, AerCap's largest shareholder with a current stake of 26 percent, has agreed to vote in favor of the deal.

AerCap expects to fund the cash portion of the consideration through a combination of new debt financing and cash of the combined company. Meanwhile, AIG expects to rake in net cash proceeds of about $2.4 billion at closing of the deal for general corporate purposes, after the settlement of intercompany loans.

As part of the deal, AIG will provide AerCap with a committed five-year $1.0 billion unsecured revolving credit facility, with AIG becoming entitled to nominate two directors for election to the Board of Directors of AerCap.

Upon closing of the deal, AIG will own about 46 percent of the combined company, while the existing AerCap shareholders will own the remaining about 54 percent. The AIG shares will be subject to a lock-up period which will expire in stages over a 9 to 15 month period.

AIG put ILFC on the block since late 2008 as part of its strategy to divest non-core assets to focus on its core insurance businesses and help it repay the huge $182.3 billion bailout it received during the financial crisis in September 2008.

After trying unsuccessfully to sell ILFC for four years, AIG was looking to spin out the unit through an IPO, but it got delayed as market conditions were found to be unfavorable. That is when the deal with the Chinese consortium was struck in December 2012. However, AIG has now formally terminated its deal with the Chinese consortium.

Los-Angeles-based ILFC is the last major unit slated for sale by AIG after selling more than $70 billion in non-core assets. ILFC was unable to attract a buyer as it has recorded big write-downs in recent years on the value of the older planes in its fleet.

ILFC ranks just behind General Electric Co.'s (GE) GE Capital Aviation Services as the world's second largest lessor with an owned and managed fleet of about 1,000 planes. GECAS has a fleet of 1,700 planes. ILFC generated revenues of $4.5 billion in 2012 and has about 200 airline partners in more than 80 countries.

AIG closed Friday's regular trading session at $49.73, up $0.29 on a volume of 8.26 million shares, and AER closed at $24.93, up $0.94 on a volume of 3.57 million shares.

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