LBO Firms Form Groups for AIG’s Aircraft Leasing Biz

NEW YORK (Reuters) – At least two consortia are emerging to bid for American International Group Inc’s (AIG.N) aircraft leasing business, while two large potential suitors have lost interest, sources familiar with the matter said.

Carlyle Group is a member of one group interested in International Lease Finance Corp; another group is led by private equity firms Greenbriar Equity Group LLC and Onex Corp (OCX.TO), two of the sources said.

Kohlberg Kravis Roberts & Co and Singapore’s Temasek Holdings Pte Ltd are no longer interested, other sources said.

Other parties remain interested, one of the sources said, adding that many bidders were talking to each other about working together to buy ILFC.

Last month sources said TPG Capital LP  had bowed out after initially expressing interest.

ILFC, valued by analysts at up to $8 billion, needs a buyer with access to cheap capital and a large balance sheet as it borrows money to buy planes before leasing them out.

Initial bidders for the unit included sovereign wealth funds Istithmar World of Dubai and Kuwait Investment Authority, sources previously told Reuters.

It was unclear if those parties were still interested.

China Investment Corp, a $200 billion sovereign wealth fund, was in talks with two Chinese banks to jointly bid for ILFC but has not made a final decision yet, sources have told Reuters.

Unlike regular auctions with hard deadlines for bids, the sale process for ILFC is fluid, as potential bidders face the challenge of raising funds to buy and run a large business amid a lack of credit and liquidity due to the financial crisis.

ILFC’s $33 billion debt load could also pose a formidable challenge for potential bidders.

The unit, run by Steven Udvar-Hazy and one of the biggest customers of Boeing Co (BA.N) and Airbus (EAD.PA), used to rely on AIG’s blue-chip credit rating for access to cheap capital to buy aircraft.

Carlyle is one of the world’s largest private equity firms, with more than $91.5 billion under management. Onex manages about $11 billion, while Greenbriar manages about $1.5 billion and focuses on investments in transportation.

AIG, Carlyle and KKR declined to comment. Greenbriar, Onex and Temasek could not be reached immediately.

AIG, once the world’s largest insurer, is selling ILFC as part of its effort to pay back the U.S. government after a $150 billion rescue last year.

AIG has said it plans to sell everything except its U.S. property and casualty business, foreign general insurance, and an ownership interest in some foreign life operations.

The cost to insure $10 million of ILFC debt for five years rose on Friday to $1.57 million up front, plus annual payments of $500,000, according to Markit Intraday. The up-front cost was $1.42 million on Thursday.

The cost to insure $10 million of AIG debt for five years rose to $685,000 annually from $610,000, Markit Intraday data shows.

AIG shares were off 9 cents, or 15.3 percent, at 50 cents in afternoon trading on the New York Stock Exchange.

(Reporting by Paritosh Bansal, Jui Chakravorty and Megan Davies in New York, George Chen in Hong Kong; Additional reporting by Karen Brettell in New York; editing by John Wallace)