rumours suggest AIG may spin off its aircraft leasing division, International Lease Finance Corp. Lehman says this could make sense, but argues that the spin-off would have to be partial because a stand-alone ILFC’s bond ratings would be cut:
A partial spinoff of ILFC from AIG could make sense for both parties because ILFC’s mgmt could have its contributions reflected in ILFC shares and AIG could partially monetise this asset. However, it appears AIG might not unlock significant value immediately in a transaction.
A deal could be structured that maintains ILFC’s current debt ratings (likely higher than on a standalone basis) and allows AIG to continue to benefit from ILFC’s significant tax benefits driven by accelerated depreciation of the aircraft.
A sale or IPO of the entire ILFC unit is unlikely in our view because ILFC on a standalone business would probably be awarded a lower rating from the rating agencies. Publicly traded comparables suggest a valuation for ILFC between $5.3bn and $8.7bn. ILFC could ultimately trade at a premium to public comps based on its scale advantages.
Lehman maintains its 2-Equal Weight rating and $45 price target.
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