AerCap's increased debt-to-equity ratio of 5.5, following the purchase of ILFC, is a byproduct of the attractive purchase price achieved in the $5 billion transaction.
"Our debt-to-equity ratio is a function of the low purchase price we paid, which is $6 billion below the appraised value," said Aengus Kelly, chief executive officer of AerCap on an investor call today. "This is the most opportunistic deal we have seen - one that we probably won't see again," he says.
The combined lessor anticipates a debt-to-equity ratio of 4 times within two years, and 3 times within four to five years.
According to Kelly, the combined lessor's planned reduction in leverage and future profits are underpinned by the fact that 85% of lease revenues are contracted for in the next three years.
The combined company expects a run-rate return on equity of 15%.
AerCap reported a debt-to-equity ratio of 2.6 in November during an investor presentation and said, at the time, that the ratio could increase to 3.5 to 4 times if "extremely attractive opportunities" arise.
As part of the purchase, $4 billion worth of ILFC's deferred tax liabilities will be eliminated. This will enable AerCap to "step up" the tax basis of ILFC's flight equipment and other assets to their fair market value, says Kelly.
ILFC's assets will transfer to "existing and established" AerCap locations that are lower tax jurisdictions, he adds.
AerCap will purchase 100% of ILFC and, in exchange, American International Group will receive $3 billion in cash and 97.56 million in the Amersterdam-based lessor's shares.
The cash portion of the consideration will be funded through a combination of new debt financing and cash of the combined company.
A committed acquisition facility of $2.75 billion will be provided by UBS and Citibank to backstop the funding of the transaction.
Kelly anticipates with a fleet of 1,700 aircraft, the combined lessor will be a "similar" size to GECAS.
The lessor will have $41 million in assets with $35 billion of that amount consisting of aircraft.
The combined lessor will have a debt balance totalling $31 billion and $5 to $6 billion in equity. Annual revenue of the combined entity is expected to be $5 billion with a run-rate profit of $1 billion.
AerCap will convene a meeting of its shareholders within 60 days to vote on approval of the purchase. Waha Capital, AerCaps largest shareholder with a current stake of 26%, has agreed to vote in favor of the transaction.