Fitch Affirms International Lease Finance Corp's Ratings on Potential Sale

NEW YORK--()--Fitch Ratings has affirmed International Lease Finance Corporation's (ILFC) Issuer Default Rating (IDR) at 'BB'. The Rating Outlook remains Stable. A full listing of ILFC's ratings follows at the end of this release.

Today's rating action follows the announcement that American International Group (AIG) has entered into an agreement to sell the majority of its ownership stake in ILFC to a consortium of Chinese firms. Once successfully completed, this transaction would conclude a lengthy sale process and resolve long-standing uncertainty about ILFC's long-term ownership.

Fitch would expect ILFC's management team, fundamental strategy and market presence to remain largely unchanged for the foreseeable future. Over time, Fitch will assess the role ILFC's new owners will play in setting the strategic direction of the company.

Fitch has viewed ILFC's ratings on a standalone basis, without any uplift for AIG's ownership, since they were downgraded to the current level in February 2010. Inability to complete the proposed sale for regulatory or other reasons may have a negative impact on ILFC's ratings as a result of increased strategic uncertainty.

The transaction would value ILFC at $5.28 billion, which is a material discount to the current book equity value of $7.87 billion. Fitch expects that the purchase accounting adjustments required under general acceptable accounting principles (GAAP) may significantly alter ILFC's balance sheet. However, the economic fundamentals of the business (including operating cash flows, liquidity, debt obligations and aircraft fleet) are expected to remain unchanged.

ILFC's ratings and Stable Outlook continue to be supported by the company's stable operating cash flow profile, funding diversity and sizeable market position. The main constraints on the ratings include lack of consistent profitability, uncertainty regarding aircraft residual values and a less attractive fleet profile than higher-rated peers.

The resolution of the uncertainty regarding ILFC's ultimate ownership is viewed as generally positive. However, the potential longer-term influence of the ownership group on ILFC's leverage, growth strategy, lease rates, customer base, geographic concentration and/or mix of aircraft manufacturers are all considerations which could impact Fitch's rating or rating outlook for ILFC in the future. Furthermore, the credit profiles and capital needs of ILFC's new ownership group will need to be considered in the context of their impact on the financial resources and flexibility of ILFC.

RATING DRIVERS AND SENSITIVITIES

Many details of the proposed transaction have yet to be finalized and Fitch will continue to assess the potential changes to ILFC's corporate governance and long-term strategy. A meaningful change in ILFC's growth plans may influence Fitch's long-term view of the ratings. Furthermore, any adverse impact on ILFC's current funding facilities or future availability of credit may have a negative impact on its ratings.

ILFC's ratings are constrained by the company's lack of profitability over the past two fiscal years, which has been caused by significant impairment charges on older aircraft, as well as the weighted average age of its fleet, which is older than other Fitch-rated peers. In addition to the factors outlined above, negative momentum for the ratings and/or Rating Outlook could result from inability to access capital markets to fund debt maturities or purchase commitments, deterioration in operating cash flow or a permanent increase in balance sheet leverage.

While positive rating momentum is not likely in the near term, over a longer-term time horizon, positive drivers would include consistent profitability, demonstrated funding flexibility, commitment to reduced leverage levels and a robust corporate governance structure.

ILFC is a market leader in the leasing and remarketing of commercial jet aircraft to airlines around the world. As of Sept. 30, 2012, ILFC owned an aircraft portfolio with a net book value of approximately $35 billion, consisting of 918 jet aircraft.

Fitch has affirmed the following ratings:

International Lease Finance Corp.

--Long-term Issuer Default Rating at 'BB'; Outlook Stable;

--Senior secured notes at 'BBB-';

--Senior unsecured debt at 'BB';

--Preferred stock at 'B'.

Delos Aircraft Inc.

--Senior secured debt at 'BB'.

Flying Fortress Inc.

--Senior secured debt at 'BB'.

ILFC E-Capital Trust I

--Preferred stock at 'B'.

ILFC E-Capital Trust II

--Preferred stock at 'B'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'Finance and Leasing Companies Criteria' (Dec. 12, 2011);

--'Fitch Affirms Large Equipment Lessor Ratings Following Peer Review; Outlook Stable' (Sept. 12, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659834

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Contacts

Fitch Ratings
Primary Analyst
Ilya Ivashkov, CFA
Director
+1-212-908-0769
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Mohak Rao, CFA
Director
+1-212-908-0559
or
Committee Chairperson
Nathan Flanders
Managing Director
+1-212-908-0827
or
Media Relations
Brian Bertsch
+1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Ilya Ivashkov, CFA
Director
+1-212-908-0769
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Mohak Rao, CFA
Director
+1-212-908-0559
or
Committee Chairperson
Nathan Flanders
Managing Director
+1-212-908-0827
or
Media Relations
Brian Bertsch
+1-212-908-0549
brian.bertsch@fitchratings.com