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AIG - American International Group

PlanMaestro

By PlanMaestro
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Mephistopheles Newbie

Mephistopheles

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Can Eric or anyone explain why the warrants have been underperforming the stock for some time? The cost of leverage now is only 6.2%. Of course, with the new dividend, that # is higher, but it's still pretty cheap, especially compared to the BAC class A warrants which are at 9.2%.

 

The cost of leverage in BAC warrants will keep falling as well, as the stock rises. 

 

These are the risks of buying 6 or 8 years of leverage prepaid when you expect a large rise in the stock.  You know about the effects of skewness on option pricing.  So... if you expect the stock to shoot up then you need to protect yourself by shortening the duration of your option contracts.

 

I understand what you're saying. But isn't 6% a fairly low cost to begin with, whether we are thinking absolutely or relatively? And if I were to do what you suggest by shortening the duration, then I would pick up ATM 2015 leaps, which are more expensive than the warrants. The $50 strike ones are 11.3%, $47 ones are 9.2%, and the $45 ones are 8%. So which one of these would you recommend if I were to buy options? I know that for BAC your strategy was to invest in the ATM ones. In this case it would be the $47 or the $50's. How do you decide which one is the better deal? Also, how low would the COL have to go for the warrants for you to want to invest in them? Or rather, at what point, in terms of the spread between costs of options and warrants, would the warrant strategy be more profitable?

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fareastwarriors Newbie

fareastwarriors

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Does anyone know if we get to keep the deposit if the deal does not go through? 

 

 

American International Group Inc. (AIG), the insurer that struck a deal to sell a plane lessor for $4.2 billion, said it plans to “protect our rights” to the 10 percent deposit it received if the would-be buyers fail to complete the transaction.

 

“It is not a break-up fee,” AIG Chief Financial Officer David Herzog said today in a conference call discussing second-quarter results at the New York-based company. “We’ll pursue our rights under the terms of the contract.”

 

http://www.bloomberg.com/news/2013-08-02/aig-to-protect-ilfc-deposit-right-if-deal-fails-cfo-says.html

 

anyone have the transcript to the call? maybe there are more details in it.

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Alekbaylee Newbie

Alekbaylee

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AIG to give ILFC suitors until September to find the cash

AIG (AIG) will reportedly give a Chinese consortium until next month to come up with the money needed to acquire 90% of the insurer's aircraft-leasing unit, International Lease Finance Corp (ILFC). The deal is worth $4.75B. The last deadline for closing the transaction expired on July 31 and AIG is now free to seek other buyers or take ILFC to IPO, the prospects for which have improved since AIG canceled a listing last year because of poor market conditions. The firm has even revived preparations for a possible investor roadshow.

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Uccmal Newbie

Uccmal

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T

http://www.reuters.com/article/2013/08/21/us-aig-ilfc-idUSBRE97K0E120130821?feedType=RSS&feedName=innovationNews&rpc=43

 

so they pull out. I guess we now face a fight for the deposit - and to sell the unit elsewhere - or ipo it...

 

This whole thing is a fiasco.  RB should just IPO the damn thing and get it out of the headlines.  The money at this point is not relevant to AIG in any larger sense. 

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ourkid8 Newbie

ourkid8

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What do you mean by, "The money at this point is not relevant to AIG in any larger sense."?  It is critical that AIG remove ILFC off it's books so we can improve our credit rating and start returning a meaningful amount of capital to shareholders! 

 

Tks,

S

 

T

http://www.reuters.com/article/2013/08/21/us-aig-ilfc-idUSBRE97K0E120130821?feedType=RSS&feedName=innovationNews&rpc=43

 

so they pull out. I guess we now face a fight for the deposit - and to sell the unit elsewhere - or ipo it...

 

This whole thing is a fiasco.  RB should just IPO the damn thing and get it out of the headlines.  The money at this point is not relevant to AIG in any larger sense.

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Liberty Newbie

Liberty

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This whole thing is a fiasco.  RB should just IPO the damn thing and get it out of the headlines.

 

Maybe it's just me, but I don't see those headlines as being bad for AIG, just for the Chinese who can't get their act together. It's always looked to me like AIG has done its part and has been ready for a long time to hand the division over as soon as the cheque clears.

 

I just hope that they can get an IPO done quickly and smoothly and that there won't be some fed surprise that spooks the markets or whatever, causing further problems.

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krazeenyc Newbie

krazeenyc

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This whole thing is a fiasco.  RB should just IPO the damn thing and get it out of the headlines.

 

Maybe it's just me, but I don't see those headlines as being bad for AIG, just for the Chinese who can't get their act together. It's always looked to me like AIG has done its part and has been ready for a long time to hand the division over as soon as the cheque clears.

 

I just hope that they can get an IPO done quickly and smoothly and that there won't be some fed surprise that spooks the markets or whatever, causing further problems.

 

the headlines are just not that important anymore. Look at the stock action today. Look this is old news that is being clarified.  Now we know what the issue is re: financing. But it looks like by removing New China Trust, it paves the way for regulatory approval. Meh. Short term movements - meh -- unless you plan on selling very soon.  If you read the article it seems they are still $1 billion like they were in June. Hopefully, they can raise the final $1 billion.

 

Also it sounds like they submitted the deposit AFTER New China Trust already pulled out -- which is good.

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Uccmal Newbie

Uccmal

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What do you mean by, "The money at this point is not relevant to AIG in any larger sense."?  It is critical that AIG remove ILFC off it's books so we can improve our credit rating and start returning a meaningful amount of capital to shareholders! 

 

Tks,

S

 

T

http://www.reuters.com/article/2013/08/21/us-aig-ilfc-idUSBRE97K0E120130821?feedType=RSS&feedName=innovationNews&rpc=43

 

so they pull out. I guess we now face a fight for the deposit - and to sell the unit elsewhere - or ipo it...

 

 

 

This whole thing is a fiasco.  RB should just IPO the damn thing and get it out of the headlines.  The money at this point is not relevant to AIG in any larger sense.

 

I hadn't thought about the credit side, which is certainly important.  The actual cash from an ILFC sale was meaningful a year or two ago.  Now its just gravy.

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racemize Newbie

racemize

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I hadn't thought about the credit side, which is certainly important.  The actual cash from an ILFC sale was meaningful a year or two ago.  Now its just gravy.

 

Yeah, I think the whole thing is important just to get a ton of the debt off the book.

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ourkid8 Newbie

ourkid8

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Exactly.  With a tripple A Credit rating, having ILFC makes sense but we are very far from that point considering what we just went through.

 

Tks,

S

 

I hadn't thought about the credit side, which is certainly important.  The actual cash from an ILFC sale was meaningful a year or two ago.  Now its just gravy.

 

Yeah, I think the whole thing is important just to get a ton of the debt off the book.

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Cardboard Newbie

Cardboard

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"Maybe it's just me, but I don't see those headlines as being bad for AIG, just for the Chinese who can't get their act together. It's always looked to me like AIG has done its part and has been ready for a long time to hand the division over as soon as the cheque clears."

 

Is it just me or it is a general theme for the Chinese to shake hands and then try to extract better terms, walk away from a deal or other?

 

This one is a big visible deal but, I have seen that a few times already on smaller ones. Then you have all the frauds from RTO's and likely major frauds that will emerge at bigger companies once the Chinese economy is subject to severe strain.

 

Is it a cultural thing on how they do deals? I am kind of surprised because it is not the impression I had dealing directly with Chinese people at work and elsewhere.

 

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fareastwarriors Newbie

fareastwarriors

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I really think it's the government pulling the strings here. Most of the time, the Chinese companies buying assets/whole companies abroad are funded by government backed banks or financial entities supported by the government. If the policy is expand in that particular sector/industry (or for general growth of economy), the deal will usually go through and go quickly.

 

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plato1976 Newbie

plato1976

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As a Chinese, I have been a big pessimist on its current system for a while;

from my first-hand exp there, I just feel the system will surprise most of us , including china bears when the thing really collapses to the ground

 

I feel Chinese ppl as individuals are not that bad, esp in a western society with a law system.

I don't like some parts deeply rooted in our thousand years' culture, but who can say other civilization doesn't have their problems ?

 

"Maybe it's just me, but I don't see those headlines as being bad for AIG, just for the Chinese who can't get their act together. It's always looked to me like AIG has done its part and has been ready for a long time to hand the division over as soon as the cheque clears."

 

Is it just me or it is a general theme for the Chinese to shake hands and then try to extract better terms, walk away from a deal or other?

 

This one is a big visible deal but, I have seen that a few times already on smaller ones. Then you have all the frauds from RTO's and likely major frauds that will emerge at bigger companies once the Chinese economy is subject to severe strain.

 

Is it a cultural thing on how they do deals? I am kind of surprised because it is not the impression I had dealing directly with Chinese people at work and elsewhere.

 

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fareastwarriors Newbie

fareastwarriors

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Nothing new but maybe adds a little background to why the deal is dragged out...

 

 

 

 

http://online.wsj.com/article/SB10001424127887323980604579026670815637570.html?mod=WSJ_hp_LEFTWhatsNewsCollection

 

Buyout of AIG Unit Is On the Rocks

 

 

Unusually for a China deal, the consortium had moved to sign the deal before it got support from Beijing, said a person familiar with companies in the consortium.

 

New China Trust and the aviation fund had two main reasons for exiting, the people said: Beijing's concerns about the deal, and a differing viewpoint on where to take ILFC in terms of strategy in coming years.

 

Along with New China Trust, the aviation fund initially had seen the deal as a way to build up China's aviation sector, which has seen rising demand for air traffic as more affluent Chinese travel abroad.

 

Then there were the regulators. New China Trust had been entrusted with getting approval because of Mr. Weng's government network. Without regulatory approval, financing was difficult. People familiar with the situation said that the core of the original consortium, namely P3, New China Trust and the aviation fund, began tapping Chinese banks for funding early this year.

 

They had approached Export-Import Bank of China and the Hong Kong branch of China Development Bank Corp., 1062.HK +1.47%the country's state-owned bank. But CDB had then canceled financial support to buy a 15.57% stake in China's second-largest property and casualty insurer, Ping An Insurance (Group) Co., for US$9.39 billion, and amid that cancellation came a reluctance to finance too many ambitious deals.

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fareastwarriors Newbie

fareastwarriors

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AIG to Get $905 Million From Brookfield in Rate-Swap Dispute

 

http://www.bloomberg.com/news/2013-08-23/aig-to-get-905-million-from-brookfield-in-rate-swap-dispute-1-.html

 

 

Brookfield Asset Management Inc. (BAM/A), Canada’s largest alternative-asset manager, agreed to pay $905 million to American International Group Inc. (AIG) to resolve a dispute tied to interest-rate swaps.

 

Litigation in federal court in New York will be dismissed with the termination of the swaps, Toronto-based Brookfield said today in a statement. Brookfield had booked a liability of about $1.4 billion on the contracts as of June 30, according to the statement.

 

Brookfield sued New York-based AIG in 2009, saying that the insurer’s collapse the prior year had triggered default provisions in two 25-year interest-rate swaps from 1990. AIG, which was bailed out by U.S. taxpayers in 2008 and repaid the assistance last year, had said Brookfield was seeking to avoid its obligations.

 

 

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