AIG 2005 Annual Report Download - page 112

Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
various European Export Credit Agencies. The interest rate of this debt and the interest expense thereon are the cash flow
varies from 5.75 percent to 5.90 percent on these amortizing from operations, proceeds from the sale of flight equipment and
ten-year borrowings depending on the delivery date of the the rollover and refinancing of the prior debt. AIG does not
aircraft. At December 31, 2005, ILFC had $1.2 billion guarantee the debt obligations of ILFC. See also the discussions
outstanding under this facility. The debt is collateralized by a under ‘‘Operating Review’’ and ‘‘Liquidity’’ herein.
pledge of the shares of a subsidiary of ILFC, which holds title AGF fulfills its short term cash requirements through the
to the aircraft financed under the facility. issuance of commercial paper. The issuance of commercial
In May 2004, ILFC entered into a similarly structured ECA paper is subject to the approval of AGF’s Board of Directors.
for up to a maximum of $2.64 billion for Airbus aircraft to be The commercial paper issued by AGF is not guaranteed by
delivered through May 31, 2005. The facility has since been AIG. AGF is a party to unsecured syndicated revolving credit
extended to include aircraft to be delivered through May 31, facilities which, as of December 31, 2005 aggregated to
2006. The facility becomes available as the various European $4.25 billion, consisting of $2.125 billion in a 364-day
Export Credit Agencies provide their guarantees for aircraft revolving credit facility that expires in July 2006 and
based on a six-month forward-looking calendar, and the $2.125 billion in a five-year revolving credit facility that
interest rate is determined through a bid process. At Decem- expires in July 2010. The 364-day facility allows for the
ber 31, 2005, ILFC had $1.4 billion outstanding under this conversion by AGF of any outstanding loan at expiration into
facility. Borrowings with respect to these facilities are included a one-year term loan. The facilities can be used for general
in Notes and Bonds Payable in the preceding table of corporate purposes and also to provide backup for AGF’s
borrowings. commercial paper programs. AGF expects to replace or extend
In August 2004, ILFC received a commitment for an Ex-Im these credit facilities on or prior to their expiration. There are
Bank comprehensive guarantee in the amount of $1.68 billion currently no borrowings under these AGF facilities, nor were
to support the financing of up to 30 new Boeing aircraft. The any borrowings outstanding as of December 31, 2005.
initial delivery period from September 1, 2004 through During 2005, AGF issued $5.44 billion of fixed rate and
August 31, 2005 has been extended by ILFC to August 31, variable rate medium term notes ranging in maturities from
2006. ILFC did not have any borrowings outstanding under two to ten years. As of December 31, 2005, notes aggregating
this facility at December 31, 2005. From time to time, ILFC $17.74 billion were outstanding with maturity dates ranging
enters into various bank financings. As of December 31, 2005 from 2006 to 2015 at interest rates ranging from 1.65 percent
the total funded amount was $1.4 billion. The financings to 7.50 percent. To the extent deemed appropriate, AGF may
mature through 2010. One tranche of one of the loans totaling enter into swap transactions to manage its effective borrowing
$410 million was funded in Japanese yen and swapped to with respect to these notes.
U.S. dollars. AGF’s other funding sources include private placement
In December of 2005, ILFC entered into two tranches of debt, retail note issuances and bank financings. In addition,
junior subordinated debt totaling $1.0 billion. Both mature on AGF has become an established issuer of long-term debt in the
December 21, 2065, but each tranche has a different call international capital markets.
option. The $600 million tranche has a call date of Decem- In addition to debt refinancing activities, proceeds from the
ber 21, 2010 and the $400 million tranche has a call date of collection of finance receivables will be used to pay the
December 21, 2015. The note with the 2010 call date has a principal and interest with respect to AGF’s debt. AIG does
fixed interest rate of 5.90 percent for the first five years. The not guarantee any of the debt obligations of AGF. See also the
note with the 2015 call date has a fixed interest rate of discussion under ‘‘Operating Review — Financial Services Op-
6.25 percent for the first ten years. Both tranches have interest erations’’ and ‘‘Liquidity’’ herein.
rate adjustments if the call option is not exercised. The new AIG Credit Card Company (Taiwan) and AIG Finance
interest rate is a floating quarterly reset rate based on the (Taiwan) Limited, both consumer finance subsidiaries in
initial credit spread plus the highest of (i) 3 month LIBOR, Taiwan, have issued commercial paper for the funding of their
(ii) 10-year constant maturity treasury and (iii) 30-year own operations. AIG does not guarantee the commercial paper
constant maturity treasury. issued by these subsidiaries. See also the discussion under
The proceeds of ILFC’s debt financing are primarily used to ‘‘Derivatives’’ herein and Note 9 of Notes to Consolidated
purchase flight equipment, including progress payments during Financial Statements.
the construction phase. The primary sources for the repayment
60 AIG m Form 10-K