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AIG Moves Closer To Independence

With the repayment of $4 billion in taxpayer funds, AIG has moved closer to financial independence.



) -- With the repayment of $4 billion in taxpayer funds,

American International Group

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has moved closer to financial independence and prepared a viable subsidiary for an eventual spin-off.

AIG said on Monday that its International Lease Finance Corporation (ILFC) subsidiary had restructured its debt by issuing $4.4 billion in private notes. ILFC used the proceeds to repay outstanding debt to the

Federal Reserve

, which it had secured through AIG's funding facility.

In doing so, the Los Angeles-based aircraft leasing business was also able to recoup $10 billion in collateral that the Fed had been holding against possible repayment issues. The new debt is structured into four smaller parcels - both secured and unsecured - that are due in later years, giving the business more flexibility as it moves forward.

It's widely known that AIG plans to divest ILFC. When AIG announced its restructuring plans after the federal bailout in the fall of 2008, ILFC was cited by analysts and industry players as a "crown jewel" among the businesses it could sell. However, the insurance giant had issues in finding interested suitors because of ILFC's debt obligations. Murmurs about former ILFC CEO Steven Udvar-Házy buying the business went silent when the longtime leader departed to start up a competing business, Air Lease Corp.

Over the past several months, the business has become a turnaround story once again - installing a new CEO, building up new and future orders and boosting liquidity by $12.5 billion.

"This capital raise, combined with the capital raises earlier this year, demonstrates that ILFC is getting stronger with each passing day," AIG CEO

Robert Benmosche said in a statement, adding that "ILFC has made substantial and impressive progress in dealing with its liquidity needs."

The deal represents AIG's single biggest repayment of bailout funds so far, as it awaits progress on larger transactions. AIG plans to sell a life-insurance subsidiary to


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later this year, and is hashing out plans to offer an Asian life-insurance subsidiary to the market in an IPO. Those two deals stand to cut AIG's federal tab further, by roughly $50 billion.

As for ILFC's prospects, new CEO Henri Courpron said the firm has $13 billion in orders, adding that the market's appetite for ILFC debt is "a direct reflection of our company's viability and future prospects."

ILFC remains one of the biggest, if not the biggest, airline-leasing businesses in the world. Among its top competitors are subsidiaries owned by

General Electric

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CIT Group

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and an assortment of private players.

The area was once a sweet spot for financial firms' profitability, but has lagged as the global economic slowdown has hindered demand.

-- Written by Lauren Tara LaCapra in New York


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