Monday, November 24, 2008

What will it take to get to the other side?

For the equities markets, the news has been steadily bad without a single positive trend.  Except gasoline and commodity prices providing a quasi stimulus.

Here is something positive.  AIG is selling its Aircraft Leasing business, ILFC for $10 billion.  Deal to close sometime after the end of the year.  
Troubled insurer, the American International Group Inc., has reached an agreement for sale of its plane-leasing arm International Lease Finance Corp. to a group of investors and the unit's management. The sale is likely to be concluded by early next year, according to its chief executive officer, Steven Udvar-Hazy.

"We're in the process of selling ILFC to a group of investors including management that will take back the company from AIG," he said. Udvar-Hazy is not only the chief executive, but also the founder of the leasing arm. He was speaking at an aviation conference in Cancun, Mexico.

"Early next year, we will consummate the closing," he said in a subsequent interview.

The ILFC is one of the biggest buyers of commercial jets from both Boeing Co. and Airbus SAS.

So, the government is getting $10 billion back. Even though ILFC is one of their better asset, this should be a huge boost to the Government/AIG bailout agreements. It indicates that AIG's businesses both have value and can stand on their own. The "buzz" is that AIG is a black hole and that it is part of one of the worst corporate give aways in history. Or something like that.

Industry experts responded positively to the news pointing out that ILFC's strong position was being dragged down by the negativity surrounding AIG.

ILFC is expected to report revenue this year of about $5 billion, with net income for the first nine months of the current fiscal at $913 million. This will be up 39 per cent from the same period last year.

ILFC is clearly quit profitable. $10 billion is a good deal for buyers, but in this environment, capital is scarce. They are also trying to sell their life insurers and their direct personal auto insurance business. These assets could net another big chunk of cash when financing is possible.

The mere fact that the government will get its first real chunk of cash back should ease some of the black hole concerns. The $10 can also be recycled to other treasury programs. This is huge, psychological boost.

What I am really waiting for is the first material write up. It has to happen and some of the CDO tranches have shorter durations. This will be another shock headline.

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