American International Group, Inc. AIG announced the pricing of AerCap Holdings N.V.’s AER 86.9 million shares through an underwritten public offering of 71.2 million shares and a private sale of 15.7 million shares to AerCap. The transaction is scheduled to close by Jun 9, 2015.
The pricing of these shares will render AIG cash proceeds of about $3.7 billion. This includes proceeds of $3.4 billion from the underwritten offering as well as cash proceeds worth $250 million from the private sale of shares to AerCap. Additionally, AIG will receive 6.50% fixed-to-floating rate junior subordinated notes worth $500 million due to mature in 2025 upon closure of the private sale. The notes will be issued by AerCap Global Aviation Trust and guaranteed by AerCap Holdings N.V. and some of its subsidiaries. After the sale, the New York-based insurer’s stake in AerCap will reduce to 5% from 46%.
Also, AIG has granted the underwriters a 30-day option to purchase another 10.7 million shares of AerCap. This would result in additional proceeds of $0.5 billion for the company. Once this option has been exercised by the underwriters, AIG would no longer own any share in AerCap.
The strategic move is aimed to build capital, shed non-core assets and return capital to shareholders. AIG remains focused on boosting its financial flexibility as reflected in the deconsolidation of more than $24 billion of its debt with regard to the sale of International Lease Finance Corporation (ILFC).
The increase in capital will provide liquidity and stability to AIG’s balance sheet, although dilution of shares may weigh on earnings per share.
With respect to earnings performance, the multiline insurer has been delivering positive surprises in three out of the last four quarters, with an average beat of 6.82%.
The strength of solid financials along with AIG’s initiatives to strengthen its balance sheet is expected to prompt analysts to raise the estimates. This, in turn, should put an upward pressure on the performance of the stock in the near term.
Currently, AIG carries a Zacks Rank #3 (Hold). Better-ranked stocks from the same sector include Assured Guaranty Ltd. AGO and Old Republic International Corporation ORI. Both the stocks sport a Zacks Rank #1 (Strong Buy).
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