NEW YORK (Reuters) – Private equity firm Terra Firma Capital Partners Ltd [TERA.UL] is one of three groups to bid for American International Group Inc’s (AIG.N) aircraft leasing business, which drew offers under $5 billion, a source familiar with the matter said on Monday.
International Lease Finance Corp (ILFC) also drew second round bids from groups led by private equity firms Thomas H. Lee Partners and Carlyle Group [CYL.UL], and Onex Corp (OCX.TO) and Greenbriar Equity Group, the source said.
Negotiations over the terms and the price are expected to stretch over the next few weeks, the source said.
AIG, Carlyle and THL declined to comment. Terra Firma, Onex and Greenbriar could not be reached immediately for comment. The source did not want to be identified as talks are private.
At less than $5 billion, the bids fall short of ILFC’s book value of $7.6 billion at the end of last year, but AIG, which is trying to repay the U.S. government after a massive bailout, is looking to sell the business in a tough market for credit as well as the airline industry.
For bidders, 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 $33 billion in debt, some of which starts to mature in October. As of Dec. 31, it also had 168 aircraft on order from Boeing Co (BA.N) and Airbus (EAD.PA) for delivery through 2019 for an estimated $16.7 billion.
Some of ILFC’s past advantages, such as having the backing of once-highly rated AIG to issue unsecured debt and access to commercial paper market, are lost amid tight borrowing conditions and AIG’s problems.
Last month, AIG Chief Restructuring Officer Paula Reynolds said the insurer had agreed to make some form of backstop financing available through the U.S. Federal Reserve to facilitate the ILFC sale and carry the new owners with some secured financing over at least an interim period.
The exact nature of any Federal Reserve assistance was still unclear and being discussed, the source said.
Terra Firma already owns AWAS, which became the third largest aircraft leasing company when it also bought Pegasus Aviation Finance in 2007, according to AWAS website. AWAS owns more than 220 aircraft. Since 1994, Terra Firma has invested about 11 billion euros, mainly in Europe.
Carlyle is one of the world’s largest private equity firms, with $85.5 billion under management at the end of 2008. THL has raised about $22 billion of equity capital since it was established in 1974. Onex manages about $11 billion and Greenbriar manages about $1.5 billion 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 & Co [KKR.UL] and TPG Capital LP [TPG.UL] as well as Singapore’s Temasek Holdings Pte Ltd [TEM.UL] have bowed out of the process, sources familiar with the matter have said.
Others initially interested in the business included sovereign wealth funds Istithmar World of Dubai, Kuwait Investment Authority and China Investment Corp, the sources have said. It was not known if those parties are still interested.
AIG shares closed 4 percent lower on Monday at $1.40.
By Paritosh Bansal
(Editing by Andre Grenon, Phil Berlowitz)