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TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS 2
This filing is made pursuant to Rule 424(b)(5)
under the Securities Act of 1933
in connection with Registration Statement No. 333-161192
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Maximum Aggregate Offering Price
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Amount of Registration Fee
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Senior Notes due 2015
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$750,000,000
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$85,950
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Senior Notes due 2019
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$750,000,000
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$85,950
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Total
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$1,500,000,000
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$171,900(1)
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-
(1)
-
Calculated
in accordance with Rules 457(r) and 456(b) of the Securities Act of 1933.
Table of Contents
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED AUGUST 7, 2009)
$1,500,000,000
$750,000,000 4.875% Senior Notes due 2015
$750,000,000 5.875% Senior Notes due 2019
The Company:
-
-
We are the world's largest independent aircraft lessor measured by number of owned aircraft. Our portfolio consists of over
1,000 owned or managed aircraft, as well as commitments to purchase 257 new high-demand, fuel-efficient aircraft and rights to purchase an additional 50 of such aircraft.
The Offering:
-
-
Use of Proceeds: We intend to use the net proceeds from this offering to repay all of the amounts outstanding under our
$750 million term loan due March 17, 2015, which is secured by 43 aircraft and all related equipment and leases and, with the remainder, for general corporate purposes, including the
repayment of other existing indebtedness and the purchase of aircraft.
The Senior Notes:
-
-
Maturity: The 4.875% Senior Notes due 2015 will mature on April 1, 2015. The 5.875% Senior Notes due 2019 will
mature on April 1, 2019.
-
-
Interest Payments: The notes will pay interest in cash in arrears on April 1 and October 1 of each year,
beginning on October 1, 2012.
-
-
Ranking: The notes will rank equally in right of payment with all of our existing and future unsubordinated unsecured
indebtedness, and senior in right of payment to our existing and future indebtedness that by its terms is expressly subordinated to the notes. The notes will be effectively subordinated to any of our
existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. The notes will be structurally subordinated to all of the existing and future indebtedness
and other liabilities (including trade payables) of our subsidiaries. The notes will not be guaranteed by our parent, American International Group, Inc., any of our subsidiaries or any third
party. See "
Description of NotesRanking
."
-
-
Redemption: The notes are not subject to redemption prior to their stated maturity, and there is no sinking fund for the
notes.
This investment involves substantial risks. See "
Risk Factors
" beginning on
page S-7 of this prospectus supplement.
We do not intend to list the notes on any securities exchange. There is currently no public market for the notes.
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Offering Price(1)
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Underwriting Discounts
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Proceeds to Us
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Per 4.875% Senior Note due 2015
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99.650
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%
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0.750
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%
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98.900
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%
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Per 5.875% Senior Note due 2019
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99.288
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%
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1.000
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%
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98.288
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%
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Total
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$
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1,492,035,000
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$
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13,125,000
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$
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1,478,910,000
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-
(1)
-
Plus
accrued interest, if any, from March 19, 2012, if settlement occurs after that date.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
underwriters expect to deliver the notes to investors on or about March 19, 2012 only in book-entry form through the facilities of The Depository Trust Company,
and its direct and indirect participants, including Euroclear Bank, S.A./N.V. and Clearstream Banking, société anonyme.
Joint Book-Running Managers
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Credit Suisse
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J.P. Morgan
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Barclays Capital
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Macquarie Capital
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Co-Managers
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BofA Merrill
Lynch
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Citigroup
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Deutsche Bank
Securities
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Goldman,
Sachs & Co.
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Morgan Stanley
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RBC Capital
Markets
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UBS Investment
Bank
|
The date of this prospectus supplement is March 14, 2012
Table of Contents
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Table of Contents
ABOUT THIS PROSPECTUS SUPPLEMENT
We provide information to you about this offering in two separate documents. The accompanying prospectus provides general information
about us and the securities we may offer from time to time, some of which may not apply to this offering. This prospectus supplement provides additional information about us and describes the specific
details regarding this offering and the notes offered hereby. Additional information is incorporated by reference in this prospectus supplement. If information in this prospectus supplement is
inconsistent with the accompanying prospectus, you should rely on this prospectus supplement.
You
should rely only on the information contained or incorporated by reference in this prospectus supplement, in the accompanying prospectus or in any free writing prospectus that we may
provide to you. We have not, and the underwriters have not, authorized anyone to provide you with different information. You should not assume that the information contained in this prospectus
supplement, the accompanying prospectus or any document incorporated by reference is accurate as of any date other than the date mentioned on the cover page of these documents. Our business, financial
condition, results of operations and prospects may have changed since those dates. Neither the delivery of this prospectus supplement and the accompanying prospectus nor any sale made hereunder shall
under any circumstance imply that the information in this prospectus supplement is correct as of any date
subsequent to the date on the cover of this prospectus supplement or that the information contained in the accompanying prospectus is correct as of any date subsequent to the date on the cover of the
accompanying prospectus.
We
are not, and the underwriters are not, making offers to sell the securities in any jurisdiction in which an offer or solicitation is not authorized or in which the person making such
offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make an offer or solicitation.
FORWARD-LOOKING STATEMENTS
This prospectus supplement contains or incorporates statements that constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this prospectus supplement and include statements regarding, among other matters, the state of the
airline industry, our access to the capital markets, our ability to restructure leases and repossess aircraft, the structure of our leases, regulatory matters pertaining to compliance with
governmental regulations and other factors affecting our financial condition or results of operations. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should" and variations of these words and similar expressions, are used in many cases to identify these forward-looking statements. Any such forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to vary materially from our future results,
performance or achievements, or those of our industry, expressed or implied in such forward-looking statements. Such factors include, among others, general industry, economic and business conditions,
which will, among other things, affect demand for aircraft, availability and creditworthiness of current and prospective lessees, lease rates, availability and cost of financing and operating
expenses, governmental actions, and initiatives and environmental and safety requirements, as well as the factors discussed under "
Risk Factors
" in this
prospectus supplement. We do not intend, and undertake no obligation, to update any forward-looking information to reflect actual results or future events or circumstances.
S-i
Table of Contents
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We "incorporate by reference" certain information we file with the Securities and Exchange Commission (the "SEC"), into this prospectus
supplement. This means that we can disclose important information to you by referring you to those documents. The information in the documents incorporated herein by reference is considered to be part
of this prospectus supplement, and information in documents that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed
below and filed pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"):
-
-
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (filed on
March 8, 2012); and
-
-
Our Current Report on Form 8-K dated February 23, 2012 (filed on February 23, 2012),
other than Item 7.01 and the exhibit related thereto.
All
documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus supplement and prior to the issue date of
the notes shall be deemed incorporated by reference. Notwithstanding the foregoing, no documents or information that are deemed to have been furnished and not filed in accordance with the SEC's rules
are or will be incorporated herein by reference, unless otherwise specifically indicated in such document. Any statement contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this prospectus supplement to the extent that a statement contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus supplement. Our filings are available, free of charge, on our website, www.ilfc.com, or by written request to us at the following address or by
calling us at (310) 788-1999: International Lease Finance Corporation, 10250 Constellation Blvd., Suite 3400, Los Angeles, California 90067. The information on our website is
not part of, or incorporated by reference into, this prospectus supplement.
S-ii
Table of Contents
SUMMARY
This summary is not complete and may not contain all of the information that may be important to you. You
should read the entire prospectus supplement and the documents incorporated by reference herein carefully, including the financial data and related notes before making an investment decision. Unless
stated otherwise, the discussion in this prospectus supplement of our business includes the business of International Lease Finance Corporation and its direct and indirect subsidiaries. Unless
otherwise indicated or the context otherwise requires, "the Company," "we," "us," and "our" refer to International Lease Finance Corporation and its direct and indirect subsidiaries on a consolidated
basis, and the term "ILFC" refers only to International Lease Finance Corporation.
Our Company
We are the world's largest independent aircraft lessor measured by number of owned aircraft. Our portfolio consists of over 1,000 owned
or managed aircraft as well as commitments to purchase 257 new high-demand, fuel-efficient aircraft, including 25 through sale-leaseback transactions, and rights to
purchase an additional 50 such aircraft. We have also agreed to purchase three used aircraft from third parties. We have over 190 customers in more than 80 countries. We are an independent aircraft
lessor because we are not affiliated with any airframe or engine manufacturer. This independence provides us with purchasing flexibility to acquire aircraft or engine models regardless of the
manufacturer. We believe size and global scale provide distinct competitive advantages that, among other things, help us obtain favorable delivery dates and terms from manufacturers and access capital
from a variety of sources with competitive pricing and terms. In addition, our strong customer and manufacturer relationships permit us to quickly identify opportunities to re-market
aircraft as leases mature and to influence new aircraft designs. For the years ended December 31, 2011 and 2010, we had total revenues of $4.5 billion and $4.8 billion,
respectively.
We
maintain a diverse and strategic mix of aircraft designed to meet our customers' needs and maximize our opportunities to generate revenue and grow our profitability. As of
December 31, 2011, we owned 930 aircraft in our leased fleet, had seven additional aircraft in our fleet classified as finance and sales-type leases and provided fleet management
services for 87 aircraft. We have agreed to sell ten aircraft at the end of their lease and we have identified three other aircraft for part-outs from our fleet. By aircraft count, our
diversified aircraft fleet is comprised of 72% narrowbody (single-aisle) aircraft and 28% widebody (twin-aisle) aircraft, with 53% representing Airbus models and 47% representing Boeing
models. The weighted average age of our fleet, weighted by the net book value of our aircraft, was 7.7 years at December 31, 2011. We have a higher percentage of widebody aircraft
compared to most other lessors, which provides us with a competitive advantage due to generally longer lease terms, higher lease rates, higher probability of lease extensions and we believe better
credit quality of lessees, as compared to narrowbody aircraft. Fewer lessors compete in this portion of the market due to the higher cost of widebody aircraft, which can create increased concentration
risks for smaller lessors. Our competitive advantage will be enhanced as we take delivery of next generation widebody aircraft. In addition, the aircraft we have on order or have rights to purchase
are among the most modern, fuel-efficient models. We have the largest order position for the Boeing 787 and the largest order position among aircraft leasing companies for the Airbus
A320neo family and Airbus A350s, according to reports currently available on the Airbus and Boeing websites. We believe our size and scale allow us to compete more effectively for multi-aircraft
transactions, including large sale-leaseback transactions. During 2011 we entered into sale-leaseback transactions for 27 new aircraft, two of which were delivered to us during
2011.
We
lease aircraft to airlines operating in every major geographic region, including emerging and high-growth markets in Asia, Latin America, the Middle East and Eastern
Europe. Among our largest lessees are AeroMexico, Air France, China Southern Airlines, Emirates Airline and Virgin Atlantic Airways. We predominantly enter into net operating leases that require the
lessee to
pay all operating expenses, normal maintenance and overhaul expenses, insurance premiums and taxes. Our leases have
S-1
Table of Contents
terms
of up to 15 years and the weighted average lease term remaining on our current leases, weighted by the net book value of our aircraft, was 4.0 years as of December 31, 2011.
Our leases are generally payable in U.S. dollars with lease rates fixed for the term of the lease, providing us with a stable and predictable source of revenues. We believe our broad customer base and
market presence enable us to identify opportunities to re-market aircraft before leases mature, contributing to an average aircraft on-lease percentage of approximately 99.7%
over the last five years.
In
addition to our primary business of owning and leasing aircraft, we also provide fleet management services to investors and owners of aircraft portfolios for a management fee. At
times, we sell aircraft from our leased aircraft fleet to other leasing companies, financial services companies and airlines. We have also provided asset value guarantees and a limited number of loan
guarantees to buyers of aircraft or to financial institutions for a fee. Our recent acquisition of AeroTurbine, Inc. ("AeroTurbine"), a provider of certified aircraft engines, aircraft and
engine parts and supply chain solutions, provides us with in-house part-out and engine leasing capabilities, allows us to manage aircraft and engines across their complete
lifecycle and enables us to offer an integrated value proposition to our customers.
We
began operations in 1973 as a pioneer in the aircraft leasing industry and have nearly 40 years of operating history. We believe our industry leading scale, global customer
network and diversified aircraft portfolio have enabled us to prudently and profitably manage the risks of owning and leasing aircraft. We have demonstrated strong and sustainable financial
performance through most airline industry cycles in the past 30 years. Our prominent leadership position within the aircraft leasing industry has resulted in a premier brand name which provides
us access to a variety of funding sources and helps us attract and retain customers and employees. We operate our business principally from offices in Los Angeles, Miami, Amsterdam, Dublin, Seattle
and Singapore and intend to open an office in Beijing during 2012. Our offices are strategically located to provide us with proximity to our current customers, potential customers and airframe and
engine manufacturers.
We
are incorporated in the State of California and our principal offices are located at 10250 Constellation Blvd., Suite 3400, Los Angeles, California 90067. Our telephone number,
facsimile number and website address are (310) 788-1999, (310) 788-1990, and www.ilfc.com, respectively. The information on our website is not part of, or
incorporated by reference into, this prospectus supplement.
Our Relationship with AIG
We are an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"). AIG is a leading international
insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional and individual customers through an extensive worldwide property-casualty network and
are leading providers of life insurance and retirement services in the United States of America ("U.S."). The common stock of AIG is listed on the New York Stock Exchange and the Tokyo Stock Exchange.
In September 2008, liquidity issues resulted in AIG seeking and receiving governmental support through a credit facility from the Federal Reserve Bank of New York (the "FRBNY Credit Facility") and
Troubled Asset Relief Program ("TARP") funding from the United States Department of the Treasury (the "Department of the Treasury"). On January 14, 2011, AIG was recapitalized and the FRBNY
Credit Facility was repaid and terminated through a series of transactions that resulted in the Department of the Treasury becoming AIG's majority shareholder with ownership of approximately 92% of
AIG's outstanding common stock. Subsequent sales have reduced such ownership to approximately 70% of AIG's outstanding common stock at March 13, 2012. AIG understands that, subject to market
conditions, the Department of the Treasury intends to dispose of its remaining ownership interest in AIG over time.
Pursuant
to a March 7, 2012 amendment to the Master Transaction Agreement and other related agreements, shares of our common stock will be released from the liens created under
such agreements and, upon the satisfaction of certain conditions, will no longer constitute collateral securing the repayment of the liquidation preference of the preferred interests in the AIG
special purpose vehicle established to hold AIG's ownership of ordinary shares of AIA Group Limited.
S-2
Table of Contents
The Offering
The following is a brief summary of some of the terms of the notes. For a more complete description of the terms of the notes, see
"
Description of Notes
" in this prospectus supplement.
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Issuer
|
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International Lease Finance Corporation.
|
Notes Offered
|
|
$750,000,000 aggregate principal amount of 4.875% senior notes due 2015 (the "2015 notes").
|
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$750,000,000 aggregate principal amount of 5.875% senior notes due 2019 (the "2019 notes" and, together with the
2015 notes, the "notes").
|
Interest Payment
|
|
April 1 and October 1 of each year after the date of issuance of the notes, beginning on October 1,
2012.
|
Maturity
|
|
The 2015 notes will mature on April 1, 2015.
|
|
|
The 2019 notes will mature on April 1, 2019.
|
Ranking
|
|
The notes will rank equally in right of payment with all existing and future unsubordinated unsecured
indebtedness of ILFC, and will be senior in right of payment to existing and future indebtedness of ILFC that by its terms is expressly subordinated to the notes. The notes will be effectively subordinated to any secured indebtedness of ILFC to the
extent of the value of the assets securing such indebtedness. The notes will be structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries. The notes will not be guaranteed by our parent, any of our
subsidiaries or any third party. As of December 31, 2011, our subsidiaries had total liabilities of approximately $5.2 billion, which includes $4.7 billion in secured debt and excludes intercompany liabilities. As of December 31,
2011, we had approximately $24.4 billion aggregate principal amount of long-term debt outstanding, of which approximately $9.8 billion in aggregate principal amount comprised secured indebtedness. See "
Description of
NotesRanking
" and "
Capitalization
."
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Redemption
|
|
The notes are not subject to redemption prior to their stated maturity.
|
Sinking Fund
|
|
There is no sinking fund for the notes.
|
Covenants
|
|
The indenture contains covenants that, among other things, will limit the ability of ILFC and its restricted
subsidiaries to:
|
|
|
incur liens
on assets, subject to certain exceptions, including the ability of ILFC to incur liens to secure indebtedness for borrowed money in an amount not to exceed 12.5% of ILFC's consolidated net tangible assets;
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declare or
pay dividends or acquire or retire shares of capital stock of ILFC during the pendency of certain events of default;
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S-3
Table of Contents
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designate,
except in compliance with certain terms, restricted subsidiaries as non-restricted subsidiaries or designate non-restricted subsidiaries as restricted subsidiaries; and
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in certain
circumstances, make investments in or transfer assets to, non-restricted subsidiaries.
|
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|
The indenture also contains covenants that, among other things, will limit the ability of ILFC to consolidate,
merge, sell or otherwise dispose of all or substantially all of its assets.
|
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These covenants are subject to important exceptions and qualifications as described under "
Description of NotesCertain Covenants
."
|
Absence of Public Market for the Notes
|
|
Each series of the notes will be a new issue of securities for which there is currently no market. Although the
underwriters have advised us that they intend to make a market in each series of the notes, they are not obligated to do so, and any market making with respect to the notes may be discontinued without notice. We do not intend to list either series of
the notes on any securities exchange. Accordingly, a liquid market for either series of the notes may not develop or be maintained.
|
Use of Proceeds
|
|
We intend to use the proceeds from this offering to repay all of the amounts outstanding under our
$750 million term loan due March 17, 2015, which is secured by 43 aircraft and all related equipment and leases and, with the remainder, for general corporate purposes, including the repayment of other existing indebtedness and the purchase
of aircraft. See "
Use of Proceeds
."
|
Risk Factors
|
|
See "
Risk Factors
" and the other information included or
incorporated by reference in this prospectus supplement and the accompanying prospectus for a discussion of the factors you should carefully consider before deciding to invest in the notes.
|
S-4
Table of Contents
Summary Historical Financial and Other Data
The following table sets forth our summary historical consolidated financial information derived from our: (i) audited financial
statements for the years ended December 31, 2011, 2010 and 2009, and as of December 31, 2011 and 2010, which are incorporated by reference into this prospectus supplement and
(ii) audited financial statements as of December 31, 2009, which are not incorporated by reference into this prospectus supplement, and other data. The historical financial information
presented may not be indicative of our future performance.
The
following information is only a summary and should be read in conjunction with "Part II. Item 7.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
" and our financial statements and the corresponding notes in our Annual Report on Form 10-K
for the year ended December 31, 2011, which is incorporated by reference into this prospectus supplement. See "
Where You Can Find Available
Information
" and "
Incorporation of Certain Information By Reference
."
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|
Year Ended December 31,
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|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
(audited)
|
|
|
|
(dollars in thousands)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Rental of flight equipment
|
|
$
|
4,454,405
|
|
$
|
4,726,502
|
|
$
|
4,928,253
|
|
Flight equipment marketing and gain on aircraft sales
|
|
|
14,348
|
|
|
10,637
|
|
|
12,966
|
|
Interest and other
|
|
|
57,910
|
|
|
61,741
|
|
|
55,973
|
|
|
|
|
|
|
|
|
|
|
|
|
4,526,663
|
|
|
4,798,880
|
|
|
4,997,192
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
1,569,468
|
|
|
1,567,369
|
|
|
1,365,490
|
|
Effect from derivatives, net of change in hedged items due to changes in foreign exchange rates
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|
|
9,808
|
|
|
47,787
|
|
|
(21,450
|
)
|
Depreciation of flight equipment
|
|
|
1,864,735
|
|
|
1,963,175
|
|
|
1,968,981
|
|
Aircraft impairment charges on flight equipment held for use
|
|
|
1,567,180
|
|
|
1,110,427
|
|
|
50,884
|
|
Aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed of
|
|
|
170,328
|
|
|
552,762
|
|
|
35,448
|
|
Loss on extinguishment of debt
|
|
|
61,093
|
|
|
|
|
|
|
|
Flight equipment rent
|
|
|
18,000
|
|
|
18,000
|
|
|
18,000
|
|
Selling, general and administrative
|
|
|
238,106
|
|
|
212,780
|
|
|
196,675
|
|
Other expenses
|
|
|
61,924
|
|
|
91,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,560,642
|
|
|
5,563,516
|
|
|
3,614,028
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(1,033,979
|
)
|
|
(764,636
|
)
|
|
1,383,164
|
|
Provision (benefit) for income taxes
|
|
|
(310,078
|
)
|
|
(268,968
|
)
|
|
495,989
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(723,901
|
)
|
$
|
(495,668
|
)
|
$
|
887,175
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, excluding restricted cash
|
|
$
|
1,975,009
|
|
$
|
3,067,697
|
|
$
|
336,911
|
|
Flight equipment under operating leases, less accumulated depreciation
|
|
|
35,502,288
|
|
|
38,515,379
|
|
|
44,091,783
|
|
Total assets
|
|
|
39,161,244
|
|
|
43,308,060
|
|
|
46,129,024
|
|
Total debt, including current portion, net of deferred debt discount
|
|
|
24,384,272
|
|
|
27,554,100
|
|
|
29,711,739
|
|
Shareholders' equity
|
|
|
7,531,869
|
|
|
8,225,007
|
|
|
8,655,089
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1)
|
|
$
|
4,144,291
|
|
$
|
4,568,101
|
|
$
|
4,782,517
|
|
Total debt to Adjusted EBITDA(1)
|
|
|
5.9x
|
|
|
6.0x
|
|
|
6.2x
|
|
Total debt to shareholders' equity
|
|
|
3.2x
|
|
|
3.4x
|
|
|
3.4x
|
|
Adjusted EBITDA to interest expense(1)
|
|
|
2.6x
|
|
|
2.9x
|
|
|
3.5x
|
|
Acquisition of flight equipment under operating leases
|
|
$
|
377,037
|
|
$
|
240,320
|
|
$
|
2,577,410
|
|
Ratio of earnings to fixed charges(2)
|
|
|
(3
|
)
|
|
(3
|
)
|
|
2.00x
|
|
Ratio of earnings to fixed charges and preferred stock dividends(2)
|
|
|
(3
|
)
|
|
(3
|
)
|
|
2.00x
|
|
S-5
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
(audited)
|
|
|
|
(dollars in thousands)
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
Aircraft lease portfolio at period end:
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
930
|
|
|
933
|
|
|
993
|
|
Subject to finance and sales-type leases
|
|
|
7
|
|
|
4
|
|
|
11
|
|
Aircraft sold or remarketed during the period
|
|
|
14
|
|
|
59
|
|
|
9
|
|
-
(1)
-
Adjusted
EBITDA is defined as net income (loss) plus (i) interest expense, (ii) provision (benefit) for income taxes,
(iii) depreciation of flight equipment, (iv) aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed of and aircraft impairment charges on
flight equipment held for use, (v) lease expenses related to aircraft sales and (vi) effect from derivatives, net of change in hedged items due to changes in foreign exchange rates.
Adjusted EBITDA is not defined under accounting principles generally accepted in the U.S. ("GAAP") and may not be comparable to similarly titled measures reported by other companies. We have presented
Adjusted EBITDA as a measure of our liquidity relating to our operations because it removes the financial impact of certain non-cash items, such as depreciation of flight equipment, and
our outstanding indebtedness. We are providing these supplemental, non-GAAP financial measures to investors to enable them to perform additional financial analysis. Management believes
that these are important measures in the evaluation of our ability to meet interest payments under our indebtedness and is a measure of the amount of cash available to us. Investors should consider
Adjusted EBITDA in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Our Adjusted EBITDA presentation may be different than
Adjusted EBITDA presented by other companies. Adjusted EBITDA has limitations as a measure of liquidity in that it does not include the interest expense on our debts, our provision for income taxes,
the effect of our expenditures for capital assets, our impairments on flight equipment, our lease expenses related to aircraft sales and the effect from our derivatives.
The
following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, net income (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Net (loss) income
|
|
$
|
(723,901
|
)
|
$
|
(495,668
|
)
|
$
|
887,175
|
|
Interest expense
|
|
|
1,569,468
|
|
|
1,567,369
|
|
|
1,365,490
|
|
(Benefit) provision for income taxes
|
|
|
(310,078
|
)
|
|
(268,968
|
)
|
|
495,989
|
|
Depreciation of flight equipment
|
|
|
1,864,735
|
|
|
1,963,175
|
|
|
1,968,981
|
|
Aircraft impairment charges on flight equipment held for use
|
|
|
1,567,180
|
|
|
1,110,427
|
|
|
50,884
|
|
Aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed
|
|
|
170,328
|
|
|
552,762
|
|
|
35,448
|
|
Lease expenses related to aircraft sales
|
|
|
(3,249
|
)
|
|
91,217
|
|
|
|
|
Effect from derivatives, net of change in hedged items due to changes in foreign exchange rates
|
|
|
9,808
|
|
|
47,787
|
|
|
(21,450
|
)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
4,144,291
|
|
$
|
4,568,101
|
|
$
|
4,782,517
|
|
|
|
|
|
|
|
|
|
-
(2)
-
Earnings
consist of net income before income taxes and fixed charges, adjusted to exclude capitalized interest. Fixed charges consist of interest, whether
expensed or capitalized, and interest factor of rents. Preferred stock dividends include the amount of pre-tax earnings required to pay the dividends on outstanding preferred stock.
-
(3)
-
In
the twelve months ended December 31, 2011 and 2010, earnings were insufficient to cover fixed charges by $1,042.1 million and
$771.2 million, respectively, due to non-cash aircraft impairment and lease related charges aggregating $1.7 billion and $1.8 billion, respectively.
S-6
Table of Contents
RISK FACTORS
Before you decide to invest in the notes, you should be aware that an investment in the notes involves various risks and uncertainties, including those described
below, that could have a material adverse effect on our business, financial position, results of operations, cash flows or prospects. We urge you to consider carefully the risk factors described
below, together with all of the other information included in, and incorporated by reference into, this prospectus supplement before you decide to invest in the notes. The risks and uncertainties
described below and incorporated by reference into this prospectus supplement are not the only ones related to our business, the notes or the offering. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also materially and adversely affect our business, financial position, results of operations, cash flows or prospects. The trading price of the
notes could decline due to the materialization of any of these risks and uncertainties and you may lose all or part of your investment.
Risks Relating to Our Indebtedness and the Notes
Our substantial level of indebtedness could adversely affect our ability to generate sufficient cash to fulfill our obligations under the notes, fund future needs of our
business and react to changes affecting our business and industry.
The aircraft leasing business is capital intensive and we have a substantial amount of indebtedness, which requires significant
interest and principal payments. As of December 31, 2011, we had approximately $24.4 billion in principal amount of indebtedness outstanding. On February 23, 2012, we issued
$900 million aggregate principal amount of secured loans and repaid the remaining $456.9 million outstanding under our revolving credit facility that was scheduled to mature in October
2012. As of December 31, 2011, principal and interest payments on our outstanding indebtedness due in 2012 and 2013 totaled approximately $4.5 billion and $5.3 billion,
respectively (assuming the December 31, 2011 interest rates on our outstanding floating rate indebtedness remain unchanged). Because some of our debt bears variable rates of interest, our
interest expense could fluctuate in the future. See "
Description of NotesRanking," "Capitalization
" and
"
Description of Other Indebtedness
." Our substantial level of indebtedness could have important consequences to holders of the notes, including the
following:
-
-
requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby
reducing funds available for other purposes, including acquiring new aircraft and exploring business opportunities;
-
-
increasing our vulnerability to adverse economic and industry conditions;
-
-
limiting our flexibility in planning for, or reacting to, changes in our business and industry;
and
-
-
limiting our ability to borrow additional funds or refinance our existing indebtedness.
In
addition, despite our current indebtedness levels and the offering of these notes, we may incur additional debt in the future. If we issue additional debt, our debt service
obligations will increase. The more leveraged we become, the more we will be exposed to the risks described above.
We may not be able to generate sufficient cash to service all of our indebtedness, including the notes.
Our ability to make scheduled payments of principal and interest on the notes and to satisfy our obligations in respect of our other
indebtedness will depend on, among other things, our future financial and operating performance and our ability to borrow. Prevailing economic and credit market conditions (including interest rates),
and financial, business and other factors, many of which are beyond our control, will affect our future operating performance. We may be unable to generate
S-7
Table of Contents
sufficient
cash flows from operations, or obtain future borrowings in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs.
We
have a significant amount of indebtedness maturing in 2012 and 2013, with approximately $3.0 billion (as of December 31, 2011) maturing in 2012, and approximately
$4.0 billion (as of December 31, 2011) maturing in 2013. See "Part II. Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of OperationsLiquidityDebt FinancingsExisting Commitments
" in our Annual Report on Form 10-K for the year
ended December 31, 2011, which is incorporated by reference into this prospectus supplement. We may need to obtain new financing and/or refinance all or a portion of our indebtedness on or
before maturity. If we are unable to obtain such financing or refinance our indebtedness on a timely basis, we might be forced to seek alternate forms of financing, dispose of certain assets or
minimize capital expenditures and other investments. None of these alternatives may be available to us, if at all, on satisfactory terms, on terms that would not be disadvantageous to holders of the
notes, or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements, including the notes.
The notes will be effectively subordinated to our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Upon issuance, the notes will not be secured by any of our assets. As a result, our existing and future secured indebtedness will rank
effectively senior to the notes to the extent of the value of the assets securing such indebtedness. As of December 31, 2011, we had approximately $24.4 billion aggregate principal
amount of long-term debt outstanding, of which approximately $9.8 billion in aggregate principal amount of secured indebtedness was outstanding.
If
we default under any of our existing or future secured indebtedness, the holders of such indebtedness could declare all of the funds borrowed thereunder, together with accrued and
unpaid interest, immediately due and payable. If we are unable to repay such indebtedness, the holders of such indebtedness could foreclose on the pledged assets to the exclusion of the holders of the
notes, even if an event of default exists under the indenture governing the notes at such time. In any such event, because the notes will not be secured by any of our assets, it is possible that there
would be no assets remaining from which your claims could be satisfied or, if any assets remained, they might be insufficient to satisfy your claims in full. In addition, in the event of any
distribution or payment of our assets in any foreclosure, liquidation, reorganization or other bankruptcy proceeding, our secured creditors will have a superior claim to their collateral.
The
notes contain a covenant that provides, subject to certain exceptions, that we must secure the notes equally and ratably with certain other secured indebtedness that we or our
restricted subsidiaries issue, assume or guarantee in the event that we issue, assume or guarantee secured indebtedness that exceeds 12.5% of the consolidated net tangible assets, as defined in the
indenture, of ILFC as shown on the audited consolidated financial statements of ILFC as of the end of the fiscal year preceding the date of determination. If this covenant is triggered, we would be
obligated to secure the notes equally and ratably with such other secured indebtedness. As equally and ratably secured parties, holders of the notes would no longer be effectively subordinated to the
other equally and ratably secured holders. However, the value of the collateral securing our obligations to the holders of the notes and our obligations to the other secured holders could be
insufficient to repay the holders of the notes and the other secured holders in full. To the extent of any insufficiency in the value of such collateral, holders of the notes would have unsecured
claims ranking equally and ratably with unsecured creditors. Our bank credit facilities and indentures also limit our ability to incur secured indebtedness. The most restrictive covenant in our bank
credit facilities permits us and our subsidiaries to incur secured indebtedness totaling up to 30% of our consolidated net tangible assets, as defined in the credit agreement, minus
$2.0 billion, which limit currently totals approximately $10.0 billion. As of March 5, 2012, we were able to incur an additional $2.5 billion of secured indebtedness under
this covenant. Any
S-8
Table of Contents
new
issuance of debt by us or our subsidiaries will be subject to the consent of the Department of the Treasury if, after giving effect to the incurrence of the debt and use of proceeds therefrom, we
increase our net indebtedness by more than $1 billion compared to the same date in the previous year. We cannot predict whether the Department of the Treasury would consent to us incurring debt
in excess of this amount. Our debt indentures also restrict us and our subsidiaries from incurring secured indebtedness in excess of 12.5% of our consolidated net tangible assets, as defined in the
indentures. However, we may obtain secured financing without regard to the 12.5% consolidated net tangible asset limit under our indentures by doing so through subsidiaries that qualify as
non-restricted under our debt indentures. We cannot predict whether we would be able to obtain any required consents so as to incur additional secured debt. See
"
Risks Relating to Our BusinessWe will require a significant amount of cash to make planned capital expenditures and we may not have adequate capital
resources to meet our debt and other obligations as they become due
," and "
Description of NotesCertain CovenantsRestrictions
on Liens
."
Despite our current indebtedness levels, the notes and the indenture governing the notes do not restrict our ability to incur additional unsecured debt, to incur additional
secured indebtedness provided we meet certain conditions, or to take other actions that could negatively impact holders of the notes.
The notes and the indenture governing the notes do not restrict our ability to incur additional unsecured indebtedness. In addition,
the notes and the indenture governing the notes allow us to incur secured indebtedness in an amount not to exceed 12.5% of our consolidated net tangible assets, as defined in the indenture. We may
also incur secured indebtedness without regard to the 12.5% consolidated net tangible asset limit (but subject to certain other limitations) by doing so through subsidiaries that qualify as
non-restricted subsidiaries.
If
we issue other debt in the future, our debt service obligations will increase. The more leveraged we become, the more we, and in turn holders of our notes, will be exposed to certain
risks described above under "
Our substantial level of indebtedness could adversely affect our ability to generate sufficient cash to fulfill our obligations under
the notes, our ability to fund future needs of our business and our ability to react to changes affecting our business and industry
."
In
addition, the notes and the indenture governing the notes do not require us to achieve or maintain any minimum financial results or ratios with respect to our results of operations or
financial position, or restrict us from repurchasing any indebtedness, including subordinated indebtedness, or, subject to certain exceptions, limit our ability to make investments in or transfer
assets, including aircraft, to non-restricted subsidiaries.
Our
ability to incur additional indebtedness and take a number of other actions that are not limited by the terms of the notes or the indenture governing the notes could have the effect
of diminishing our ability to make payments on the notes when due.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the notes.
Any default under the agreements governing our other indebtedness that is not waived by the required holders of such indebtedness, and
the remedies sought by the holders of such indebtedness, could leave us unable to pay principal or interest on the notes and could substantially decrease the market value of the notes. If we are
unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal or interest on such indebtedness, or if we otherwise fail to comply
with the applicable covenants, including financial and operating covenants, in the agreements governing our other indebtedness, we could be in default under the terms of the agreements governing such
indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be immediately due and payable, together
S-9
Table of Contents
with
accrued and unpaid interest, which in turn could trigger cross defaults under other agreements governing our indebtedness. We may not have, and may not be able to obtain, sufficient funds to pay
any accelerated amounts, and we could be forced into bankruptcy or liquidation.
The agreements governing certain of our other indebtedness contain restrictions and limitations that could significantly affect our ability to operate our business and
compete effectively.
The agreements governing certain of our other indebtedness contain covenants that restrict, among other things, our ability
to:
-
-
incur debt;
-
-
encumber our assets;
-
-
dispose of certain assets;
-
-
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
-
-
make equity or debt investments in other parties;
-
-
enter into transactions with affiliates;
-
-
designate our subsidiaries as unrestricted subsidiaries; and
-
-
pay dividends and distributions.
The
agreements governing certain of our other indebtedness also contain financial covenants, such as requirements that we comply with one or more of
loan-to-value, minimum net worth and interest coverage ratios. In addition, we are restricted from taking certain actions without consent from the Department of the Treasury,
as described below in "
Risks Relating to Our BusinessOur relationship with AIG may affect our ability to operate and finance our business as we deem appropriate
and changes with respect to AIG could negatively impact us.
"
Complying
with such covenants may at times necessitate that we forgo other opportunities such as using available cash to purchase new aircraft or promptly disposing of less profitable
aircraft. Moreover, our failure to comply with any of these covenants would likely constitute a default under such facilities and could give rise to an acceleration of some, if not all, of our then
outstanding indebtedness, which would have a material adverse effect on our business and our ability to continue as a going concern.
The notes will not be subject to redemption or repurchase upon a change of control.
The notes will not be subject to redemption or repurchase upon a change of control. If we undergo a change of control, our new
controlling shareholders may cause our business to be operated in a different manner and may take our business in new and different directions.
Claims of holders of the notes will be structurally subordinated to claims of creditors of our subsidiaries.
The notes will be structurally subordinated to existing and future indebtedness and other liabilities (including trade payables) of our
subsidiaries, none of which are guaranteeing the notes, and the claims of creditors of our subsidiaries will have priority as to the assets of these subsidiaries. Our subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the notes, or to make any funds available therefor, whether by dividends, loans,
distributions or other payments. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, these subsidiaries will pay the holders of their debts, holders of preferred
equity interests and their trade creditors before they will be able to distribute any of their assets to us.
As
of December 31, 2011, ILFC, on a stand-alone basis, had approximately $26.6 billion in total assets, excluding intercompany receivables, and approximately
$26.4 billion of liabilities outstanding.
S-10
Table of Contents
In
addition, the indenture governing the notes will not contain any limitation on the amount of liabilities that our subsidiaries may incur; nor will it limit restrictions on any
subsidiary's ability to pay dividends or make other distributions to ILFC.
Your ability to transfer the notes may be limited by the absence of an active trading market, and an active trading market may not develop for either series of the notes.
Each series of the notes will be a new issue of securities for which there is no established public market. We do not intend to list
either series of the notes on a national securities exchange or to arrange for quotation on any automated dealer quotation system. The underwriters have advised us that they intend to make a market in
each series of the notes as permitted by applicable laws and regulations; however, the underwriters are not obligated to make a market in the notes and may discontinue their market-making activities
at any time without notice. Therefore, we cannot assure you as to the development or liquidity of any trading market for either series of the notes. The liquidity of any market for a series of the
notes will depend on a number of factors, including:
-
-
the number of holders of such series of the notes;
-
-
our operating performance and financial condition;
-
-
the prospects for companies in our industry generally;
-
-
the market for similar securities and the state of credit markets generally;
-
-
the interest of securities dealers in making a market in such series of the notes;
and
-
-
prevailing interest rates.
The market value of the notes may be subject to substantial volatility.
Historically, the market for high-yield debt has been subject to disruptions that have caused substantial volatility in the
prices of securities similar to the notes. The market, if any, for either series of the notes may not be free from similar disruptions and any such disruptions could adversely affect the prices at
which you may sell your notes. As has been evident in connection with the recent turmoil in global financial markets, the entire high-yield debt market can experience sudden and sharp
price swings, which can be exacerbated by factors such as (i) large or sustained sales by major investors in high-yield debt, (ii) a default by a high-profile
issuer or (iii) simply a change in investors' psychology regarding high-yield debt.
A
real or perceived economic downturn or higher interest rates could cause a decline in the market value of the notes. Moreover, if one of the major rating agencies lowers its credit
rating on us or either series of the notes, the market value of such series of the notes will likely decline.
Therefore,
you may be unable to sell your notes at a particular time or, in the event you are able to sell your notes, the price that you receive when you sell may not be favorable.
The credit ratings assigned to each series of the notes may not reflect all risks of an investment in the notes.
The credit ratings assigned to each series of the notes will reflect the rating agencies' assessments of our ability to make payments
on the notes when due. Consequently, real or anticipated changes in these credit ratings will generally affect the market value of the notes. These credit ratings, however, may not reflect the
potential impact of risks related to structure, market or other factors related to the value of the notes.
S-11
Table of Contents
Holders of the notes may not be able to determine when a conveyance, transfer or lease of ILFC's properties and assets "substantially as an entirety" has occurred for
purposes of the application of the merger covenant in the indenture.
The merger covenant in the indenture includes a phrase relating to a conveyance, transfer or lease of ILFC's properties and assets
"substantially as an entirety." There is no precise established definition of the phrase "substantially as an entirety" under applicable law. Accordingly, the ability of a holder to determine when a
conveyance, transfer or lease of ILFC's properties and assets "substantially as an entirety" has occurred for purposes of the application of the merger covenant in the indenture may be uncertain.
Risks Relating to Our Business
Our business is subject to numerous significant risks and uncertainties as described below. Many of these risks are interrelated and
occur under similar business and economic conditions, and the occurrence of certain of them may in turn cause the emergence, or exacerbate the effect, of others. Such a combination could materially
increase the severity of the impact on us. The numerous risks and uncertainties to which our business is subject are described below and in the sections titled "Part II. Item 7A.
Quantitative and Qualitative
Disclosures About Market Risk
" in our Annual Report on Form 10-K for the year ended December 31,
2011, which is incorporated by reference into this prospectus supplement.
We will need additional capital to finance our operations, including purchasing aircraft, servicing our existing indebtedness, including refinancing our indebtedness as it
matures, and meeting our other contractual leasing commitments. We may not be able to obtain additional capital on favorable terms, or at all.
We will require additional capital to purchase new and used flight equipment, make progress payments during aircraft construction and
repay our maturing debt obligations. As of December 31, 2011, we had approximately $3.0 billion and $4.0 billion of indebtedness maturing in 2012 and 2013, respectively. In
addition, we currently have commitments to purchase 257 new aircraft and three used aircraft for delivery through 2019 with aggregate estimated total remaining payments of approximately
$19.0 billion. We also have purchase rights for an additional 50 Airbus A320neo family aircraft, provided we exercise those rights.
If
we are unable to purchase aircraft as the commitments come due, we will be subject to several risks, including:
-
-
forfeiting deposits and progress payments to manufacturers and having to pay certain significant costs related to these
commitments such as actual damages and legal, accounting and financial advisory expenses;
-
-
defaulting on our lease commitments, which could result in monetary damages and damage to our reputation and relationships
with lessees and manufacturers;
-
-
failing to realize the benefits of purchasing and leasing such aircraft;
and
-
-
risking reputational harm to our business, which would make it more difficult to purchase aircraft in the future on
agreeable terms, if at all.
Our
ability to satisfy our obligations with respect to our future aircraft purchases and indebtedness will depend on, among other things, our future financial and operating performance
and our ability to raise additional capital through our funding sources or through aircraft sales. Prevailing economic and market conditions, and financial, business and other factors, many of which
are beyond our control, will affect our future operating performance and our ability to access the capital markets or seek potential aircraft sales. For example, changes to the Aircraft Sector
Understanding in February 2011 may make
S-12
Table of Contents
financing
for aircraft from Export Credit Agencies ("ECAs") more expensive. In addition, our ability to access debt markets and other financing sources depends, in part, on our credit ratings by the
three major nationally recognized statistical rating organizations. For instance, from September 2008 through February 2010, we experienced multiple downgrades in our credit ratings by these rating
organizations. These credit rating downgrades, combined with externally generated volatility, limited our ability to access the debt markets in 2009 and early 2010 and resulted in unattractive funding
costs.
In
addition to the impact of economic and market conditions on our ability to raise additional capital, we are subject to restrictions under our existing debt agreements and under the
Master Transaction
Agreement. Our bank credit facilities and indentures limit our ability to incur secured indebtedness. The most restrictive covenant in the bank credit facilities permits us and our subsidiaries to
incur secured indebtedness totaling up to 30% of our consolidated net tangible assets, as defined in the credit agreement, minus $2.0 billion, which limit currently totals approximately
$10.0 billion. This limitation is subject to certain exceptions, including the ability to incur secured indebtedness for the financing of the purchase of aircraft. As of March 5, 2012,
we were able to incur an additional $2.5 billion of secured indebtedness under this covenant. Our debt indentures also restrict us and our subsidiaries from incurring secured indebtedness in
excess of 12.5% of consolidated net tangible assets, as defined in the indentures. However, we may obtain secured financing without regard to the 12.5% consolidated net tangible asset limit under our
debt indentures by doing so through subsidiaries that qualify as non-restricted under the indentures.
Additionally,
because we are a Designated Entity under the Master Transaction Agreement, we need consent from the Department of the Treasury (i) to increase our net indebtedness
by more than $1 billion compared to the same date in the previous year or (ii) to agree, in any twelve-month period, to sell or dispose of assets for total consideration greater than or
equal to $2.5 billion. We cannot predict whether the Department of the Treasury would grant consent in these circumstances.
As
a result of these limitations, we may be unable to generate sufficient cash flows from operations, or obtain additional capital in an amount sufficient to enable us to pay our
indebtedness, make aircraft purchases or fund our other liquidity needs. If we are able to obtain additional capital, it may not be on terms favorable to us. Further, in evaluating potential aircraft
sales, we must balance the need for funds with the long-term value of holding aircraft and long-term prospects for us. If we are unable to generate or borrow sufficient cash,
we may be unable to meet our debt obligations and/or aircraft purchase commitments as they become due, which could limit our ability to obtain new, modern aircraft and compete in the aircraft leasing
market.
An increase in our cost of borrowing could have a material and adverse impact on our net income, results of operations and cash flows.
Our cost of borrowing is impacted by fluctuations in interest rates. Our lease rates are generally fixed over the life of the lease.
Changes, both increases and decreases, in our cost of borrowing due to changes in interest rates directly impact our net income. The interest rates that we obtain on our debt financings are a result
of several components, including credit spreads, swap spreads, duration and new issue premiums. These are all in addition to the underlying Treasury rates or London Interbank Offered Rates ("LIBOR"),
as applicable. We manage interest rate volatility and uncertainty by maintaining a balance between fixed and floating rate debt, through derivative instruments and through varying debt maturities.
Our
average effective cost of borrowing increased from 5.03% to 5.90% from December 31, 2010, to December 31, 2011, reflecting higher interest rates on our new debt
relative to the debt we were replacing. A 1% increase in our average effective cost of borrowing at December 31, 2011, would have
increased our interest expense by approximately $244 million annually, which would put downward pressure on our operating margins and could materially and adversely impact our cash generated
from
S-13
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operations.
Our average effective cost of borrowing reflects our composite interest rate, including any effect of interest rate swaps or other derivatives and including the effect of debt discounts.
The recent global sovereign debt crisis, particularly among European countries, has impacted the financial health of some of our lessees and could continue to have a broader
impact on the airline industry in general, as well as result in higher borrowing costs and more limited availability of credit for us and our customers.
Countries in Europe, including Greece, Italy, Portugal, Ireland and Spain, have had their debt downgraded by the major rating agencies
and are trying to avoid defaulting on their debt obligations, including by seeking emergency loans. For the years ended December 31, 2011, 2010 and 2009, we generated approximately 45% of our
total revenues from rental of flight equipment from European lessees. In addition, the United States credit rating was downgraded for the first time in history by one of the three nationally
recognized rating agencies. If the credit ratings of these or other countries continue to decline, the cost of borrowing may increase across all markets and the availability of credit may become more
limited. Many banks globally, particularly those in Europe, have principal exposure to sovereign debt. The downgrades of sovereign debt have put pressure on the banks' regulatory capital levels
resulting in more limited lending. Accordingly, our composite interest rate could increase, which would have an adverse impact on our profitability and cash flow, or we may be unable to incur debt on
favorable terms, or at all, in order to fund our future growth and refinance our maturing debt obligations. Further, the recent global sovereign debt crisis could result in lower consumer confidence,
which could result in a recession and the loss of revenue for our lessees. This could impact their ability to make payments on their leases and could result in airlines ceasing operations, which could
impact our business through early returns of aircraft, maintenance expenses, loss of revenue and potential aircraft impairment charges, which could have a material adverse affect on our financial
results and growth prospects.
Increases in fuel costs could materially adversely affect our lessees and, by extension, the demand for our aircraft.
Fuel costs represent a major expense to airlines, and fuel prices fluctuate widely depending primarily on international market
conditions, geopolitical and environmental events, regulatory changes and currency exchange rates. The ongoing unrest in North Africa and the Middle
East has generated uncertainty regarding the predictability of the world's future oil supply, which has led to significant near-term increases in fuel costs. If this unrest continues, fuel
costs may continue to rise. Other events can also significantly affect fuel availability and prices, including natural disasters, decisions by the Organization of the Petroleum Exporting Countries
regarding its members' oil output and the increase in global demand for fuel from countries such as China.
Higher
cost of fuel will likely have a material adverse impact on airline profitability. Due to the competitive nature of the airline industry, airlines may not be able to pass on
increases in fuel prices to their passengers by increasing fares. If airlines do increase fares, demand for air travel may be adversely affected. In addition, airlines may not be able to manage fuel
cost risk by appropriately hedging their exposure to fuel price fluctuations. If fuel prices increase further, our lessees are likely to incur higher costs or experience reduced revenues.
Consequently, these conditions may:
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affect our lessees' ability to make rental and other lease payments;
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result in lease restructurings and aircraft repossessions;
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increase our costs of maintaining and marketing aircraft;
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impair our ability to re-lease aircraft and other aviation assets or re-lease or otherwise sell
our assets on a timely basis at favorable rates;
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reduce the sale proceeds received for aircraft or other aviation assets upon any disposition;
or
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lower lease rates and potentially trigger impairments.
Such
effects could have a material adverse effect on our business, financial condition, and results of operations.
In addition to increased fuel costs and the global sovereign debt crisis, other risks adversely impacting the airline industry in general could adversely impact our business
because they increase the likelihood of lessee non-performance and an inability to lease our aircraft.
Our business depends on the financial strength of our airline customers and their ability to meet their payment obligations to us and
if their ability materially decreases, it may negatively affect our business, financial condition, results of operations and cash flows.
The
risks affecting our airline customers are generally out of our control and impact our customers to varying degrees. As a result, we are indirectly impacted by all the risks facing
airlines today. Their ability to compete effectively in the marketplace and manage these risks has a direct impact on us. In addition to increased fuel prices and availability discussed above, these
risks include:
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demand for air
travel;
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heavy reliance on automated
systems;
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competition between
carriers;
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geopolitical
events;
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labor costs and
stoppages;
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equity and borrowing
capacity;
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maintenance
costs;
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environmental
concerns;
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employee labor
contracts;
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government
regulation;
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air traffic
control infrastructure constraints;
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interest
rates;
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airport access;
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airline
capacity;
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insurance costs and
coverage;
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natural disasters;
and
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security, terrorism and war,
including increased passenger screening as a result thereof;
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worldwide health concerns,
such as outbreaks of H1N1, SARS and avian influenza.
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To
the extent that our customers are affected by these or other risks, we may experience:
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lower demand for the aircraft in our fleet and an inability to immediately place new and used aircraft when they become
available, resulting in lower market lease rates and lease margins, and payments for storage and maintenance;
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a higher incidence of lessee defaults and repossessions affecting net income due to maintenance, consulting and legal
costs associated with the repossessions, as well as lost revenue for the time the aircraft are off lease and possibly lower lease rates from the new lessees;
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a higher incidence of lease restructurings for our troubled customers which reduces overall lease revenue;
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a loss if an aircraft is damaged or destroyed by an event specifically excluded from the insurance policy such as dirty
bombs, bio-hazardous materials and electromagnetic pulsing; and
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additional aircraft impairments charges.
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We have recently recognized an increase in the number of airlines that have ceased operations or filed for reorganization, and if this trend continues, it could have a
significant impact on our operations.
As a result of challenging global economic conditions, combined with significant volatility in oil prices, some airlines have been
forced to cease operations or to reorganize. Nine of our customers, operating a total of 44 of our owned aircraft, ceased operations since the beginning of 2011, and two other customers have filed for
bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Six of the customers that ceased operations were airlines operating in Europe: LLC "Avianova," Amsterdam
Airlines, B.V., Astraeus Limited, Tor Air, Spanair, S.A. and Malev Ltd. Spanair and Malev operated 15 and 17 of our owned aircraft, respectively. In certain cases, we have a large
number of aircraft with a single airline, which increases our exposure in the event the airline ceases operations or reorganizes. A severe recession in Europe, the inability to resolve the sovereign
debt crisis and political uncertainty in the Middle East could result in additional failures of airlines and could materially affect our financial results. If this trend continues, it could have a
material adverse effect on our financial results and growth prospects.
We may be indirectly subject to many of the economic and political risks associated with emerging markets, which could adversely affect our financial results and growth
prospects.
We derived approximately 53% of our revenues for the year ended December 31, 2011, from airlines in frontier and emerging market
countries (as defined by Dow Jones & Company). Frontier and emerging market countries have less developed economies and infrastructure and are often more vulnerable to economic and geopolitical
challenges and may experience significant fluctuations in gross domestic product, interest rates and currency exchange rates, as well as civil disturbances, government instability, nationalization and
expropriation of private assets and the imposition of taxes or other charges by government authorities. The occurrence of any of these events in markets served by our lessees and the resulting
economic instability that may arise, particularly if combined with high fuel prices, could adversely affect the value of our aircraft subject to lease in such countries or the ability of our lessees
that operate in these markets to meet their lease obligations. In addition, legal systems in emerging market countries may be less developed, which could make it more difficult for us to enforce our
legal rights in such countries.
Further,
demand for aircraft is dependent on passenger and cargo traffic, which in turn is dependent on general business and economic conditions. As a result, weak or negative economic
growth in emerging markets may have an indirect effect on the value of the assets that we acquire if airlines and other potential lessees are adversely affected. If the recent global economic downturn
continues or worsens, our assets may decline in value, which could have an adverse effect on our results of operations or our financial condition. For these and other reasons, our financial results
and growth prospects may be negatively impacted by adverse economic and political developments in emerging market countries.
Our business model depends on the continual leasing and re-leasing of the aircraft in our fleet, and we may not be able to enter into leases on favorable terms,
if at all.
Our business model depends on the continual leasing and re-leasing of the aircraft in our fleet in order to generate
sufficient revenues to finance our growth and operations, pay our debt service obligations and generate positive cash flows from operations. Because our leases are predominantly operating leases, only
a portion of the aircraft's value is covered by revenues generated from the initial lease and we may not be able to realize the aircraft's residual value after expiration of the initial lease. We bear
the risk of re-leasing or selling the aircraft in our fleet when our operating leases expire or when aircraft are returned to us prior to expiration of any lease. Our ability to lease,
re-lease or sell our aircraft will depend on conditions in the airline industry and general market and competitive conditions at the time the operating leases are entered into and expire,
including those risks discussed
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under
"
In addition to increased fuel costs and the global sovereign debt crisis, other risks adversely impacting the airline industry in general could adversely impact our
business because they increase the likelihood of lessee non-performance and an inability to lease our aircraft.
" In addition to factors linked to the aviation
industry in general, other factors that may affect the market value and lease rates of our aircraft include (i) maintenance and operating history of the airframe and engines; (ii) the
number of operators using the particular type of aircraft; and (iii) aircraft age.
Aircraft in our fleet that become obsolete will be more difficult to re-lease or sell, which could result in declining lease rates, impairment charges or losses
related to aircraft asset value guarantees.
Aircraft are long-lived assets requiring long lead times to develop and manufacture. Aircraft of a particular model and
type tend to become obsolete and less in demand over time, as more advanced and efficient aircraft are manufactured. The lifecycle of aircraft can be shortened by world events, government regulation
or customer preferences. For example, increases in fuel prices have resulted in an increased demand for newer fuel-efficient aircraft, such as the Airbus A320neo family and the Boeing 737
MAX narrowbody aircraft, which may potentially shorten the useful life of older aircraft, including older A320 family and 737 family aircraft presently in operation. Approximately 26% of our fleet is
at least twelve years old. As aircraft in our fleet approach obsolescence, demand for those particular models and types will decrease which could result in declining lease rates and could have a
material adverse effect on our financial condition and results of operations. In addition, if we dispose of an aircraft for a price that is less than the depreciated book value of the aircraft on our
balance sheet, we will recognize impairments or fair value adjustments.
Deterioration
of aircraft values may also result in impairment charges or losses related to aircraft asset value guarantees. We recorded impairment charges and fair value adjustments on
aircraft of approximately $1.7 billion for each of the years ended December 31, 2011 and 2010. The impairment charges in 2011 resulted from unfavorable airline industry trends affecting
the residual values of certain aircraft types and management's expectations that certain aircraft will more likely than not be parted-out or otherwise disposed of sooner than
25 years. The reduction in the expected holding period was made in connection with the addition of in-house part-out capabilities as a result of the acquisition of
AeroTurbine. The impairment charges in 2010 were primarily due to the announcement of new technology in the marketplace and the sale of aircraft in that year. Generally accepted accounting principles
require that we use undiscounted future cash flows in determining whether impairment charges are appropriate; accordingly, the fair value of our assets (using a discounted cash flow analysis) could be
significantly less than their book value.
A
recovery of the recent downturn of the airline industry may not be imminent and lower future lease rates and increased costs associated with repossessing and redeploying aircraft may
have a negative impact on our operating results in the future, including causing future potential aircraft impairment charges.
The residual values of our aircraft are subject to a number of risks and uncertainties, including obsolescence risk, which could result in future impairment charges.
The residual values of our aircraft are subject to a number of risks and uncertainties. Technological developments, macro-economic
conditions, availability and cost of funding for aviation, and the overall health of the airline industry impact the residual values of our aircraft. If challenging economic conditions persist for
extended periods, the residual values of our aircraft could be negatively impacted, which could result in future impairment charges.
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Our relationship with AIG may affect our ability to operate and finance our business as we deem appropriate and changes with respect to AIG could negatively impact us.
We are an indirect wholly owned subsidiary of AIG. Although neither AIG nor any of its subsidiaries is a co-obligor or
guarantor of our debt securities, circumstances affecting AIG may have an impact on us and we are not sure how further changes in circumstances related to AIG may impact us. Although we are not a
party to the Master Transaction Agreement, we are a Designated Entity under the agreement. As long as we are a Designated Entity, we and our subsidiaries are restricted from taking certain significant
actions without obtaining prior written consent from the Department of the Treasury under the Master Transaction Agreement, including:
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amending or waiving any provisions of our or our subsidiaries' articles of incorporation, bylaws, or similar
organizational documents in a manner that would adversely affect, in any material respect, the rights of our or our subsidiaries' equity interests;
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authorizing or issuing any equity interests, unless to AIG or a wholly owned subsidiary of AIG;
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declaring dividends on any equity interests, excluding any of our preferred stock outstanding as of December 8,
2010, other than on a pro rata basis;
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redeeming or repurchasing equity interests that are owned by third parties, excluding any of our preferred stock
outstanding as of December 8, 2010;
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merging with a third party, or selling, directly or indirectly, all or substantially all of our or our subsidiaries'
consolidated assets;
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agreeing in any twelve month period to sell or dispose of assets for total consideration greater than or equal to
$2.5 billion;
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acquiring assets, other than pursuant to existing purchase commitments at such date, with aggregate scheduled payments
under the purchase contracts for such assets greater than or equal to $2.5 billion in any twelve month period;
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engaging in any public offering or other sale or transfer of equity interests;
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voluntarily liquidating, filing for bankruptcy, or taking any other legal action evidencing insolvency; and
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increasing our net indebtedness by more than $1 billion compared to the same date in the previous year.
Additionally,
under the Master Transaction Agreement, if the Department of the Treasury still holds preferred interests in certain AIG special purpose vehicles on May 1, 2013, the
Department of the Treasury may direct AIG to sell certain assets, including us.
Our aircraft may not at all times be adequately insured either as a result of lessees failing to maintain sufficient insurance during the course of a lease or insurers not
being willing to cover certain risks.
While an aircraft is on lease, we do not directly control its operation. Nevertheless, because we hold title, directly or indirectly,
to such aircraft, we could be sued or held strictly liable for losses resulting from the operation of such aircraft, or may be held liable for those losses on other legal theories, in certain
jurisdictions around the world or claims may be made against us as the owner of an aircraft requiring us to expend resources in our defense. We require our lessees to obtain specified levels of
insurance and indemnify us for, and insure against, liabilities arising out of their use and operation of our aircraft. Some lessees may fail to maintain adequate insurance coverage during a lease
term, which, although in contravention of the lease terms, would necessitate our taking some corrective
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action
such as terminating the lease or securing insurance for the aircraft, either of which could adversely affect our financial results.
In
addition, there are certain risks or liabilities that our lessees may face, for which insurers may be unwilling to provide coverage or the cost to obtain such coverage may be
prohibitively expensive. For example, following the terrorist attacks of September 11, 2001, non-government aviation insurers significantly reduced the amount of insurance coverage
available for claims resulting from acts of terrorism, war, dirty bombs, bio-hazardous materials, electromagnetic pulsing or similar events. Accordingly, we anticipate that our lessees'
insurance or other coverage may not be sufficient to cover all claims that could or will be asserted against us arising from the operation of our aircraft by our lessees. Inadequate insurance coverage
or default by lessees in fulfilling their indemnification or insurance obligations will reduce the proceeds that we receive if we are sued and are required to make payments to claimants, which could
have a material adverse effect on our business, financial condition, and results of operations.
The failure of our lessees to perform required maintenance on our aircraft could result in a diminution in the value of the aircraft, some of which could constitute
collateral under our secured debt facilities, and could impair our ability to resell or repossess the aircraft.
Under each of our leases, the lessee is primarily responsible for maintaining the aircraft and complying with all governmental
requirements applicable to the lessee and to the aircraft, including operational maintenance, registration requirements and airworthiness directives. A lessee's failure to perform required maintenance
during the term of a lease could result in a diminution in the appraised or liquidation value of an aircraft, an inability to re-lease the aircraft at favorable rates, or at all, or a
potential grounding of the aircraft and could require us to incur maintenance and modification costs upon the expiration or earlier termination of the lease to restore the aircraft to an acceptable
condition prior to sale or re-leasing or for further flight. Even if we perform maintenance or modification of the aircraft, the value of the aircraft may still deteriorate.
If our lessees fail to discharge aircraft liens, we may be obligated to pay the aircraft liens and until they are discharged, the liens could impair our ability to
repossess, re-lease or sell the aircraft.
Our lessees are likely to incur aircraft liens that secure the payment of airport fees and taxes, customs duties and air navigation
charges and aircraft may also be subject to mechanics' liens. Although we anticipate that the financial obligations relating to these liens will be the responsibility of our lessees, if they fail to
fulfill such obligations, the liens may attach to our aircraft and ultimately become our responsibility. In some jurisdictions, aircraft liens may give the holder thereof the right to detain or, in
limited cases, sell or cause the forfeiture of the aircraft. Until they are discharged, these liens could impair our ability to repossess, re-lease, or sell our aircraft.
There are a limited number of airframe and engine manufacturers and the failure of any manufacturer to meet its delivery obligations to us could adversely affect our
financial results and growth prospects.
The supply of aircraft we purchase and lease is dominated by two airframe manufacturers, Boeing and Airbus, and a limited number of
engine manufacturers. As a result, we are dependent on these manufacturers' success in remaining financially stable, producing aircraft and related components that meet the airlines' demands, in both
type and quantity, and fulfilling their contractual obligations to us. Should the manufacturers fail to respond appropriately to changes in the market environment or fail to fulfill their contractual
obligations, we may experience:
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-
missed or late delivery of aircraft ordered by us and an inability to meet our contractual obligations to our customers,
resulting in lost or delayed revenues, lower growth rates and strained customer relationships;
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an inability to acquire aircraft and related components on terms which will allow us to lease those aircraft to customers
at a profit, resulting in lower growth rates or a contraction in our fleet;
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a marketplace with too many aircraft available, creating downward pressure on demand for the aircraft in our fleet and
reduced market lease rates; and
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poor customer support from the manufacturers of aircraft and components resulting in reduced demand for a particular
manufacturer's product, creating downward pressure on demand for those aircraft in our fleet and reduced market lease rates for those aircraft.
There
have been recent well-publicized delays by Boeing and Airbus in meeting stated deadlines in bringing new aircraft to market. Our purchase agreements with the
manufacturers and the leases we have signed with our customers for future lease commitments are all subject to cancellation clauses related to delays in delivery dates. Any manufacturer delays for
aircraft that we have committed to lease could strain our relations with our lessees and termination of such leases by the lessees could have a material adverse effect on our financial results.
Future acquisitions may require significant resources and result in unanticipated adverse consequences that could have a material adverse effect on our business, results of
operations and financial condition.
We may seek to grow by making acquisitions, like our recent acquisition of AeroTurbine. Future acquisitions may require us to make
significant cash investments or incur substantial debt, which could reduce our liquidity and access to financial markets. In addition, acquisitions may require significant management attention and
divert management from our other operations. These capital, equity and managerial commitments may impair the operation of our business. In addition, if the due diligence of the operations of any
acquired business performed by us or by third parties on our behalf is inadequate or flawed, or if we later discover unforeseen financial or business liabilities, an acquired business may not perform
as expected. Acquisitions could also have a negative impact on our results of operations if we subsequently determine that goodwill or other acquired assets are impaired, resulting in an impairment
charge in a future period. Additionally, if we fail to successfully integrate an acquired business or we are unable to realize the intended benefits from an acquisition, our existing business, revenue
and operating results could be adversely affected.
The continued success of our business will depend, in part, on our ability to acquire strategically attractive aircraft and enter into profitable leases upon the acquisition
of such aircraft. If we are unable to successfully execute on our acquisition strategy, our financial results and growth prospects could be materially and adversely affected.
The success of our business depends, in part, on our ability to acquire strategically attractive aircraft and enter into profitable
leases upon the acquisition of such aircraft. We currently have commitments to purchase 257 new fuel-efficient aircraft, including 25 through sale-leaseback transactions with
airlines. We have also agreed to purchase three used aircraft from third parties. We are considering pursuing additional aircraft purchases from airlines and leasing them back to the airlines, but we
may not be able to acquire such additional aircraft. We also may not be able to enter into profitable leases upon the acquisition of the new aircraft we purchase directly from the manufacturers. An
acquisition of one or more aircraft may not be profitable to us and may not generate sufficient cash flow to justify those acquisitions. If we experience significant delays in the implementation of
our business strategies, including delays in the acquisition and leasing of aircraft, our fleet management strategy and long-term results of operations could be adversely affected.
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In
addition, our acquisition strategy exposes us to risks that could have a material adverse effect on our business, financial condition, results of operations and cash flow, including
risks that we may:
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-
impair our liquidity by using a significant portion of our available cash or borrowing capacity to finance the acquisition
of aircraft; or
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significantly increase our interest expense and financial leverage to the extent we incur additional debt to finance the
acquisition of aircraft.
If we acquire a high concentration of a particular type of aircraft, our business and financial results could be adversely affected by changes in market demand or problems
specific to that aircraft type.
If we acquire a high concentration of a particular type of aircraft, our business and financial results could be adversely affected if
the demand for that type of aircraft declines, if it is redesigned or replaced by its manufacturer or if that type of aircraft experiences design or technical problems. For instance, we have
contracted to purchase 100 A320neo family narrowbody aircraft and have the right to purchase an additional 50 A320neo family aircraft. If this aircraft type or any other aircraft type of which we
acquire a high concentration encounters technical or other problems, the value and lease rates of such aircraft will likely decline and we may be unable to lease such aircraft on favorable terms, if
at all. A significant technical problem with a specific type of aircraft could result in the grounding of the aircraft. Any decrease in the value and lease rates of our aircraft may have a material
adverse effect on our business and financial results.
Competition from other aircraft lessors or purchasers could adversely affect our financial results and growth prospects.
The aircraft leasing industry is highly competitive. We may also encounter competition from other entities in the acquisition of
aircraft such as airlines, financial institutions, aircraft brokers, public and private partnerships, investors and funds with more capital to invest in aircraft and other aircraft leasing companies
that we do not currently consider our major competitors.
Competition
for a leasing transaction is based principally upon lease rates, delivery dates, lease terms, reputation, management expertise, aircraft condition, specifications and
configuration and the availability of the types of aircraft necessary to meet the needs of the customer. Some of our competitors may have greater operating and financial resources and access to lower
capital costs than we have. In addition, some competing aircraft lessors may have a lower overall cost of capital and may provide inducements to potential lessees that we cannot match. Competition in
the purchase and sale of used aircraft is based principally on the availability of used aircraft, price, the terms of the lease to which an aircraft is subject and the creditworthiness of the lessee,
if any. We may not always be able to compete successfully with our competitors and other entities, which could materially adversely affect our financial results and growth prospects.
The loss of key personnel could adversely affect our reputation and relationships with lessees, manufacturers, buyers and financiers of aircraft, which are a critical
element to the success of our business.
We believe our senior management's reputation and relationships with lessees, manufacturers, buyers and financiers of aircraft are an
important element to the success of our business. Strong competition exists for qualified personnel with demonstrated ability both within and outside our industry. We had significant turnover in our
senior management team during 2010 and 2011, resulting in a new chief executive officer, president, chief financial officer, and general counsel. Only our chief executive officer, Mr. Courpron,
is currently covered by an employment agreement. Furthermore, as an indirect wholly owned subsidiary of AIG, we have been subject to statutory compensation limits, which we refer to generally as the
"TARP Standards," that restrict the structure and amounts of compensation that we may pay to any of our executive officers who are or become subject to the TARP
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Standards.
We will continue to be subject to the TARP Standards so long as AIG beneficially owns more than 50% of our outstanding stock or until it repays 100% of the aggregate financial assistance it
received under TARP. The restrictions and limitations on compensation imposed on us under the TARP Standards may adversely affect our ability to attract new talent and retain and motivate our existing
impacted employees. The inability to retain our key employees or attract and retain new talent could adversely impact our business and results of operation.
Conflicts of interest may arise between us and customers who utilize our fleet management services, which may adversely affect our business interests.
Conflicts of interest may arise between us and third-party aircraft owners, financiers and operating lessors who hire us to perform
fleet management services such as leasing, re-leasing, lease management and sales services. These conflicts may arise because services we provide for these customers are also services we
provide for our own fleet, including the placement of aircraft with lessees. Our servicing contracts require that we act in good faith and not unreasonably discriminate against serviced aircraft in
favor of our own aircraft. Nevertheless, competing with our fleet management customers may result in strained relationships with these customers, which may adversely affect our business interests.
The future recognition of deferred tax liabilities accumulated during prior periods could have a negative impact on our future cash flows.
It is typical in the aircraft leasing industry for companies that are continuously acquiring additional aircraft to incur significant
tax depreciation, which offsets taxable income but creates a deferred tax liability on the aircraft leasing company's balance sheet. This deferred tax liability is attributable to the excess of the
depreciation claimed for tax purposes over the depreciation claimed for financial statement purposes. As of December 31, 2011, we had a net deferred tax liability of approximately
$4.2 billion, which primarily reflects accelerated depreciation claimed for tax purposes. The recognition of these deferred tax liabilities could have a negative impact on our cash flow in
future periods.
We operate in multiple jurisdictions and may become subject to a wide range of income and other taxes.
We operate in multiple jurisdictions and may become subject to a wide range of income and other taxes. If we are unable to execute our
business in jurisdictions with preferential tax treatment, our operations may be subject to significant income and other taxes.
We are subject to various risks and requirements associated with transacting business in foreign countries.
Our international operations, including those of AeroTurbine, expose us to trade and economic sanctions and other restrictions imposed
by the United States or other
governments or organizations. See "
BusinessGovernment Regulation
" in our Annual Report on Form 10-K for the year ended
December 31, 2011, which is incorporated by reference into this prospectus supplement. The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities
have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the Foreign Corrupt
Practices Act, or FCPA, and other federal statutes and regulations, including the International Traffic in Arms Regulations ("ITAR") and those established by the Office of Foreign Assets Control.
Under these laws and regulations, the government may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned
countries, and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations could
adversely impact our business, operating results, and financial condition.
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We
have in place training programs for our employees with respect to FCPA, OFAC, export controls and similar laws and regulations. There can be no assurance that our employees,
consultants, sales agents, or associates will not engage in conduct for which we may be held responsible. Violations of the FCPA, OFAC and other export control regulations, and similar laws and
regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.
We are subject to various environmental laws and regulations that could have an adverse impact on our results of operations.
Our operations, including AeroTurbine's operations, are subject to various federal, state and local environmental, health and safety
laws and regulations in the United States, including those relating to the discharge of materials into the air, water, and ground, the generation, storage, handling, use, transportation and disposal
of regulated materials, the remediation of contaminated sites, and the health and safety of our employees. A violation of these laws and regulations or permit conditions can result in substantial
fines, permit revocation or other damages. Many of these laws could obligate us to investigate or clean up contamination that may exist at our current facilities, or facilities that we formerly owned
or operated, even if we did not cause the contamination. They could also impose liability on us for related natural resource damages or investigation and remediation of third party waste disposal
sites where we have sent, or may send, waste. We may also be subject to claims for personal injury or property damages relating to any such contamination or non-compliance with other
environmental requirements. We may not be in complete compliance with these laws, regulations or permits at all times. Also, new or more stringent standards in existing environmental laws may cause us
to incur additional costs.
Regulations relating to climate change, noise restrictions, and greenhouse gas emissions may have a negative effect on the airline industry and our business and financial
condition.
Governmental regulations regarding aircraft and engine noise and emissions levels apply based on where the relevant aircraft is
registered and operated. For example, jurisdictions throughout the world have adopted noise regulations which require all aircraft to comply with noise level standards. In addition to the current
requirements, the United States and the International Civil Aviation Organization (the "ICAO") have adopted a new, more stringent set of standards for noise levels which applies to engines
manufactured or certified on or after January 1, 2006. Currently, U.S. regulations would not require any phase-out of aircraft that meet the older standards applicable to engines
manufactured or certified prior to January 1, 2006, but the European Union has established a framework for the imposition of operating limitations on aircraft that is not consistent with these
new standards. In addition to more stringent noise restrictions, the United States and certain other jurisdictions regulate emissions of certain greenhouse gases, such as nitrogen oxide. These limits
frequently apply only to engines manufactured after 1999; however, because aircraft engines are replaced from time to time in the usual course, it is likely that the number of engines subject to these
requirements would increase over time. In addition, concerns over climate change could result in more stringent limitations on the operation of aircraft powered by older, noncompliant engines, as well
as newer engines. For example, the United States is in the process of adopting more stringent nitrogen oxide emission standards for newly manufactured aircraft engines starting in 2013, the European
Union has incorporated aviation-related greenhouse gas emissions into the European Union's Emission Trading Scheme beginning January 1, 2012, and the ICAO recently approved a resolution
designed to cap greenhouse gas emissions from aircraft and committed to propose a greenhouse gas emission standard for aircraft engines by 2013.
European
countries generally have relatively strict environmental regulations that can restrict operational flexibility and decrease aircraft productivity. As noted, the European
Parliament and the
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European
Court of Justice included aviation in the European Union's Emissions Trading Scheme starting January 1, 2012, and all of the emissions associated with international flights that land
or take off within the European Union are now subject to the trading program, even those emissions that are emitted outside of the European Union. Although the United States and other countries
unsuccessfully challenged the extra-territorial application of the Emissions Trading Scheme and are considering other efforts to avoid the extra-territorial application, its inclusion could possibly
distort the European air transport market leading to higher ticket prices and ultimately a reduction in demand for air travel. Beginning in 2007, the United Kingdom doubled its air passenger duties to
respond to the environmental costs of air travel. Similar measures may be implemented in other jurisdictions due to environmental concerns. These increased costs could have a negative impact on the
demand for air travel and, as a result, on our business and financial condition.
In
addition, noise and emission regulations could limit the economic life of our aircraft and engines, reduce their value, limit our ability to lease or sell the
non-compliant aircraft and engines or, if engine modifications are necessary, require us to make significant additional investments in the aircraft and engines to make them compliant.
Compliance with current or future regulations, taxes or duties imposed to deal with environmental concerns could cause lessees to incur higher costs and to generate lower net revenues, resulting in an
adverse impact on their financial conditions. Consequently, such compliance may affect lessees' ability to make rental and other lease payments and reduce the value we receive for the aircraft upon
any disposition, which could have an adverse effect on our business and financial condition.
Failure to obtain certain required licenses and approvals could negatively affect our ability to re-lease or sell aircraft, which would negatively affect our
financial condition and results of operations.
Lessees are subject to extensive regulation under the laws of the jurisdictions in which the aircraft are registered and operated. As a
result, we expect that certain aspects of our leases will require licenses, consents or approvals, including consents from governmental or regulatory authorities for certain payments under our leases
and for the import, export or deregistration of the aircraft. Subsequent changes in applicable law or administrative practice may increase such requirements and governmental consent, once given, could
be withdrawn. Furthermore, consents needed in connection with the future re-leasing or sale of an aircraft may not be forthcoming. Any of these events could adversely affect our ability to
re-lease or sell aircraft which would negatively affect our financial condition and results of operations.
A cyber-attack that bypasses our information technology, or IT, security systems, causing an IT security breach, may lead to a material disruption of our IT systems and the
loss of business information which may hinder our ability to conduct our business effectively and may result in lost revenues and additional costs.
Parts of our business depend on the secure operation of our computer systems to manage, process, store, and transmit information
associated with aircraft leasing. A cyber-attack could adversely impact our daily operations and lead to the loss of sensitive information, including our own proprietary information and that of our
customers, suppliers and employees. Such losses could result in reputational harm, competitive disadvantages, litigation, regulatory enforcement actions, lost revenues, additional costs and liability.
While we devote substantial resources to maintaining adequate levels of cyber-security, our resources and technical sophistication may not be adequate to prevent all types of cyber-attacks.
The timing and amount in which we report our revenue may be significantly impacted by a proposed new standard for lease accounting.
In August 2010, the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board, or IASB, issued an
Exposure Draft that proposes substantial changes to
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existing
lease accounting that will affect all lease arrangements. Subsequent meetings of the joint committee of the FASB and the IASB have made further changes to the proposed lease accounting.
Under
the current proposed accounting model, lessees will be required to record an asset representing the right-to-use the leased item for the lease term, or
Right-of-Use Asset ("ROU"), and a liability to make lease payments. The ROU and liability incorporate the rights arising under the lease and are based on the lessee's
assessment of expected payments to be made over the lease term. The proposed model requires measuring these amounts at the present value of the future expected payments. Lease expense would include
the amortization of the ROU and the recognition of interest expense based upon the lessee's incremental borrowing rate (or the rate implicit in the lease, if known) on the repayment of the lease
obligation.
Under
the current proposed accounting model, lessors will apply the receivable and residual method. This will require a lessor to derecognize its flight equipment into a receivable based
upon the present value of lease payments under a lease and a residual value. Revenue recognized would be interest income based upon the effective interest rate implicit in the lease.
The
FASB and IASB intend to issue a revised exposure draft in 2012. The proposal does not include a proposed effective date; rather it is expected to be considered as part of the
evaluation of the effective dates for the major projects currently undertaken by the FASB. The FASB and IASB continue to deliberate on the proposed accounting. Currently, management is unable to
assess the impact the adoption of the new finalized lease standard will have on our financial statements. Although we believe the presentation of our financial statements, and those of our lessees,
will likely change, we do not believe the accounting pronouncement will change the fundamental economic reasons for which the airlines lease aircraft. Therefore, we do not believe it will have a
material impact on our business.
None of the Federal Reserve Bank of New York (the "FRBNY"), Department of the Treasury, or any other department or agency of the U.S. government has given any guarantee,
undertaking or assurance to provide any financial or other support to us at any time in the future.
Given the previous actions of the FRBNY and the Department of the Treasury in connection with the liquidity issues of AIG and its
subsidiaries, including us, and the Department of the Treasury's ownership of approximately 77% of AIG's outstanding common stock, some debtholders may assume that the FRBNY or Department of the
Treasury may provide support to us if we were to encounter financial or other difficulties in the future. Holders of our debt should be aware that none of the FRBNY, Department of the Treasury, nor
any other department or agency of the U.S. government, nor any of their respective employees, representatives or agents has given any guarantee, undertaking or assurance (whether express or implied
and whether or not the same is legally binding) to provide any financial or other support (whether in the form of debt, equity or otherwise) to us at any time in the future. Accordingly, debtholders
should not assume that any such support would be provided by any such entities in those circumstances.
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USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately $1,478.4 million, after deducting fees, underwriters'
discounts and estimated offering expenses payable by us. We intend to use the net proceeds from this offering to repay all of the amounts outstanding under our $750 million term loan due
March 17, 2015 and, with the remainder, for general corporate purposes, including the repayment of other existing indebtedness and the purchase of aircraft. Pending the application of the
proceeds, we may invest the proceeds in short-term securities.
We
entered into our $750 million term loan agreement on March 17, 2010. The term loan is secured by 43 aircraft and all related equipment and leases. The aircraft securing
the term loan had an average appraised base market value, as defined in the loan agreement, of approximately $1.3 billion, for an initial loan-to-value ratio of
approximately 56%. The loan matures on March 17, 2015, and bears interest at LIBOR plus a margin of 4.75% with a LIBOR floor of 2.0%. The principal of the loan is payable in full at maturity
with no scheduled amortization, but we can voluntarily prepay the loan at any time. As of March 14, 2012, $750 million was outstanding under our term loan agreement.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and total capitalization as of December 31, 2011
on:
-
-
a historical basis; and
-
-
an as adjusted basis (i) to give effect to the issuance of the notes from this offering, after deducting fees,
underwriters' discounts and estimated expenses payable by us, and the use of proceeds therefrom and (ii) to reflect the entry into a new secured term loan for $900 million and the
repayment of the remaining amount of $456.9 million outstanding under our secured credit facility dated October 13, 2006, each of which occurred on February 23, 2012.
The
information presented in the table below should be read in conjunction with "
Use of Proceeds
" and "
Description
of Other Indebtedness
" as well as the consolidated historical financial statements and the notes thereto incorporated in this prospectus supplement by reference.
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
|
Actual
|
|
As Adjusted
|
|
|
|
(dollars in thousands)
|
|
Cash and cash equivalents, excluding restricted cash
|
|
$
|
1,975,009
|
|
$
|
3,603,404
|
|
|
|
|
|
|
|
Long-term debt, including current portion:
|
|
|
|
|
|
|
|
Secured
|
|
|
|
|
|
|
|
Secured Notes
|
|
$
|
3,900,000
|
|
$
|
3,900,000
|
|
ECA financings
|
|
|
2,335,147
|
|
|
2,335,147
|
|
Secured bank debt(1)(3)
|
|
|
2,246,936
|
|
|
1,790,076
|
|
Other secured financings(2)(3)
|
|
|
1,300,000
|
|
|
1,450,000
|
|
Less: Deferred debt discount
|
|
|
(17,452
|
)
|
|
(17,452
|
)
|
Unsecured
|
|
|
|
|
|
|
|
Notes offered hereby(2)(3)
|
|
|
|
|
|
1,500,000
|
|
Bonds and medium-term notes
|
|
|
13,658,769
|
|
|
13,658,769
|
|
Less: Deferred debt discount
|
|
|
(39,128
|
)
|
|
(47,093
|
)
|
Subordinated debt
|
|
|
1,000,000
|
|
|
1,000,000
|
|
|
|
|
|
|
|
Total long-term debt, including current portion
|
|
|
24,384,272
|
|
|
25,569,447
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
7,531,869
|
|
|
7,531,869
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
31,916,141
|
|
$
|
33,101,316
|
|
|
|
|
|
|
|
-
(1)
-
Of
this amount, $97.0 million is non-recourse to ILFC. These secured financings were incurred by VIEs, and consolidated into our
consolidated financial statements. The amounts are considered immaterial for separate disclosure on the face of our consolidated balance sheets. See "
Description of Other
IndebtednessSecured Bank Debt
."
-
(2)
-
The
proceeds from this offering will be used to repay all of the amounts outstanding under our $750 million term loan due March 17, 2015,
which is included under "Other secured financings." See
"Description of Other IndebtednessOther Secured Financing Arrangements2010 Term
Loans."
-
(3)
-
The
"as adjusted" column also reflects our entry into a new secured term loan and the repayment of our secured facility, both of which events happened after
December 31, 2011. On February 23, 2012, through a non-restricted subsidiary, we entered into a new senior secured term loan for $900 million and we prepaid the
remaining amount of $456.9 million outstanding under our secured credit facility dated October 13, 2006 and terminated that facility. The new term loan is included under "Other secured
financings." See
"Description of Other IndebtednessOther Secured Financing Arrangements2012 Term Loan
." The secured credit
facility dated October 13, 2006 is included under "Secured bank debt."
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Table of Contents
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a summary description of our outstanding indebtedness other than the notes. This summary is not a description of all
of the terms of such indebtedness. For additional details on our outstanding indebtedness, see our Annual Report on Form 10-K for the year ended December 31, 2011, which is
incorporated by reference into this prospectus supplement.
Senior Secured Notes
On August 20, 2010, we issued $3.9 billion of senior secured notes, with $1.35 billion maturing in September 2014
and bearing interest of 6.5%, $1.275 billion maturing in September 2016 and bearing interest of 6.75%, and $1.275 billion maturing in September 2018 and bearing interest of 7.125%. The
senior secured notes are secured by a designated pool of aircraft, initially consisting of 174 aircraft and their equipment and related leases, and cash collateral when
required. In addition, two of our subsidiaries, which either own or hold leases of aircraft included in the pool securing the senior secured notes, have guaranteed such notes. We can redeem the senior
secured notes at any time prior to their maturity, provided we give notification between 30 to 60 days prior to the intended redemption date and subject to a penalty of the greater of 1% of the
outstanding principal amount and a "make-whole" premium. There is no sinking fund for the senior secured notes.
The
indenture and the aircraft mortgage and security agreement governing the senior secured notes contain customary covenants that, among other things, restrict our and our restricted
subsidiaries' ability to: (i) create liens; (ii) sell, transfer or otherwise dispose of the assets serving as collateral for the senior secured notes; (iii) declare or pay
dividends or acquire or retire shares of our capital stock; (iv) designate restricted subsidiaries as non-restricted subsidiaries or designate non-restricted
subsidiaries; and (v) make investments in or transfer assets to non-restricted subsidiaries. The indenture governing the senior secured notes also restricts our and the subsidiary
guarantors' ability to consolidate, merge, sell or otherwise dispose of all, or substantially all, of our assets.
The
indenture governing the senior secured notes also provides for customary events of default, including but not limited to, the failure to pay scheduled principal and interest payments
on the notes, the failure to comply with covenants and agreements specified in the indenture, the acceleration of certain other indebtedness resulting from non-payment of that
indebtedness, and certain events of insolvency. If any event of default occurs, any amount then outstanding under the senior secured notes may immediately become due and payable.
Export Credit Agreement ("ECA") Facilities
We entered into ECA facility agreements in 1999 and 2004 through certain direct and indirect wholly owned subsidiaries that have been
designated as non-restricted subsidiaries under our indentures. The 1999 and 2004 ECA facilities were used to fund purchases of Airbus aircraft through 2001 and June 2010, respectively.
New financings are no longer available to us under either ECA facility.
As
of December 31, 2011, approximately $2.3 billion was outstanding under the 2004 ECA facility and no loans were outstanding under the 1999 ECA facility. The interest
rates on the loans outstanding under the 2004 ECA facility are either fixed or based on LIBOR and ranged from 0.44% to 4.71% at December 31, 2011. The net book value of the aircraft purchased
under the 2004 ECA facility was $4.2 billion at December 31, 2011. The loans are guaranteed by various European ECAs. We collateralized the debt with pledges of the shares of wholly
owned subsidiaries that hold title to the aircraft financed under the facilities. The 2004 ECA facility contains customary events of default and restrictive covenants, including a covenant to maintain
a minimum consolidated tangible net worth.
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Table of Contents
Because
of our current long-term debt ratings, the 2004 ECA facility requires us to segregate security deposits, overhaul rentals and rental payments received for aircraft
with loan balances outstanding under the 2004 ECA facility. The segregated rental payments are used to make scheduled principal and interest payments on the outstanding debt under the 2004 ECA
facility. The segregated funds are deposited into separate accounts pledged to and controlled by the security trustee of the facility. In addition, we must register the existing individual mortgages
on certain aircraft funded under both the 1999 and 2004 ECA facilities in the local jurisdictions in which the respective aircraft are registered. The mortgages are only required to be filed with
respect to aircraft that have outstanding loan balances or otherwise as agreed in connection with the cross-collateralization agreement described below. At December 31, 2011, we had segregated
security deposits, overhaul rentals and rental payments aggregating approximately $415 million related to aircraft funded under the 2004 ECA facility. The segregated amounts will fluctuate with
changes in security deposits, overhaul rentals, rental payments and debt maturities related to the aircraft funded under the 2004 ECA facility.
During
the first quarter of 2010, we entered into agreements to cross-collateralize the 1999 ECA facility with the 2004 ECA facility. As part of such cross-collateralization we
(i)
guaranteed the obligations
under the 2004 ECA facility through our subsidiary established to finance Airbus aircraft under the 1999 ECA facility;
(ii)
agreed to grant mortgages over certain aircraft financed under the 1999 ECA
facility and security interests over other collateral related to the
aircraft financed under the 1999 ECA facility to secure the guaranty obligation;
(iii)
accepted a loan-to-value ratio
(aggregating the loans and aircraft from the 1999 ECA facility and the 2004 ECA facility) of no more than 50%, in order to release liens (including the liens incurred under the cross-collateralization
agreement) on any aircraft financed under the 1999 or 2004 ECA facilities or other assets related to the aircraft; and
(iv)
agreed to allow proceeds
generated from certain disposals of aircraft to be applied to obligations under the 2004 ECA facility.
We
also agreed to additional restrictive covenants relating to the 2004 ECA facility, restricting us from
(i)
paying dividends on our
capital stock with the proceeds of asset sales and
(ii)
selling or transferring aircraft with an aggregate net book value exceeding a certain
disposition amount, which is currently approximately $10.1 billion. The disposition amount will be reduced by approximately $91.4 million at the end of each calendar quarter during the
remainder of the effective period. The covenants are in effect from the date of the agreement until December 31, 2012. A breach of these restrictive covenants would result in a termination
event for the ten loans funded subsequent to the date of the agreement and would make those loans, which aggregated $268.8 million at December 31, 2011, due in full at the time of such a
termination event.
In
addition, if a termination event resulting in an acceleration of the obligations under the 2004 ECA facility were to occur, pursuant to the cross-collateralization agreement, we would
have to segregate lease payments, overhaul rentals and security deposits received after such acceleration event occurred
relating to all the aircraft funded under the 1999 ECA facility, even though those aircraft are no longer subject to a loan at December 31, 2011.
Secured Bank Debt
2006 Credit Facility:
We had a credit facility, dated October 13, 2006, as amended, under which the original maximum amount
available was
$2.5 billion. The amended facility prohibited us from re-borrowing amounts repaid under this facility. As of December 31, 2011, the size of the facility was
$456.9 million, consisting of secured loans which were scheduled to mature in October 2012. The interest on the secured loans was based on LIBOR plus a margin of 2.15%, plus facility fees of
0.2% on the outstanding principal balance, for an interest rate of 2.44% at December 31, 2011. On February 23, 2012 we prepaid the total remaining outstanding amount under this facility
of $456.9 million and terminated the facility.
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Table of Contents
2011 Secured Term Loan:
On March 30, 2011, one of our non-restricted subsidiaries entered into a secured term loan agreement with
lender commitments in the amount of approximately $1.3 billion, which was subsequently increased to approximately $1.5 billion. The loan matures on March 30, 2018, with scheduled
principal payments commencing in June 2012, and bears interest at LIBOR plus a margin of 2.75%, or, if applicable, a base rate plus a margin of 1.75%. The obligations of the subsidiary borrower are
guaranteed on an unsecured basis by ILFC and on a secured basis by certain wholly owned subsidiaries of the subsidiary borrower. The security granted initially included a portfolio of 54 aircraft,
together with attached leases and all related equipment, with an average appraised base market value, as defined in the loan agreement, of approximately $2.4 billion as of January 1,
2011, and the equity interests in certain special purpose entities, or SPEs, that own the pledged aircraft and related equipment and leases. The $2.4 billion equals an initial
loan-to-value ratio of approximately 65%. The proceeds of the loan were made available to the subsidiary borrower as aircraft were transferred to the SPEs, at an advance rate
equal to 65% of the initial appraised value of the aircraft transferred to the SPEs. At March 5, 2012, the full $1.5 billion had been advanced to the subsidiary borrower under the
agreement.
The
subsidiary borrower is required to maintain compliance with a maximum loan-to-value ratio, which varies over time, as set forth in the term loan agreement. If
the subsidiary borrower does not maintain compliance with the maximum loan-to-value ratio, it will be required to prepay portions of the outstanding loans, deposit an amount in
the cash collateral account or transfer additional aircraft to SPEs, subject to certain concentration criteria, so that the ratio is equal to or less than the maximum
loan-to-value ratio.
We
can voluntarily prepay the loan at any time, subject to a 2% prepayment penalty prior to March 30, 2012, and a 1% prepayment penalty between March 30, 2012 and
March 30, 2013. The loan facility contains customary covenants and events of default, including covenants that limit the ability of the subsidiary borrower and its subsidiaries to incur
additional indebtedness and create liens, and covenants that limit the ability of ILFC, the subsidiary borrower and its subsidiaries to consolidate, merge or dispose of all or substantially all of
their assets and enter into transactions with affiliates.
AeroTurbine Revolving Credit Agreement:
On December 9, 2011, AeroTurbine amended and extended its revolving credit facility. The
amended
credit facility expires on December 9, 2015 and provides for a maximum aggregate available amount of $335 million, subject to availability under a borrowing base calculated based on
AeroTurbine's aircraft assets and accounts receivable. AeroTurbine has the option to increase the aggregate amount available under the facility by an additional $165 million, either by adding
new lenders or allowing existing lenders to increase their commitments if they choose to do so. Borrowings under the facility will bear interest determined, with certain exceptions, based on LIBOR
plus a margin of 3.0%. AeroTurbine's obligations under the facility are guaranteed by ILFC and by AeroTurbine's subsidiaries (subject to certain exclusions) and are secured by substantially all of the
assets of AeroTurbine and the subsidiary guarantors. The credit agreement contains customary events of default and covenants, including certain financial covenants. Additionally, the credit agreement
imposes limitations on AeroTurbine's ability to pay dividends to us (other than dividends payable solely in common stock). As of December 31, 2011, AeroTurbine had $268.6 million
outstanding under the facility. On February 23, 2012, we increased the aggregate amount available under this facility by $95 million for a maximum aggregate available amount of
$430 million.
2009 Aircraft Financings:
In May 2009, ILFC provided $39.0 million of subordinated financing to a non-restricted subsidiary. The
entity used these funds and an additional $106.0 million borrowed from third parties to purchase an aircraft, which it leases to an airline. ILFC acts as servicer of the lease for the entity.
The $106.0 million loan has two tranches. The first tranche is $82.0 million, fully amortizes over the lease term, and is non-recourse to ILFC. The second tranche is
$24.0 million, partially amortizes over the lease term, and is guaranteed by ILFC. Both tranches of the loan are secured by the aircraft and the lease receivables. Both tranches mature in May
2018 with interest rates based on
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LIBOR.
At December 31, 2011, the interest rates on the $82.0 million and $24.0 million tranches were 3.42% and 5.12%, respectively. The entity entered into two interest rate cap
agreements to economically hedge the related LIBOR interest rate risk in excess of 4.0%. At December 31, 2011, $77.9 million was outstanding under the two tranches and the net book value
of the aircraft was $132.2 million.
In
June 2009, ILFC borrowed $55.4 million through a non-restricted subsidiary of ILFC, which owns one aircraft leased to an airline. Approximately half of the original
loan amortizes over five years and the remaining $27.5 million is due in 2014. The loan is non-recourse to ILFC and is secured by the aircraft and the lease receivables. The
interest rate on the loan is fixed at 6.58%. At December 31, 2011, $40.6 million was outstanding and the net book value of the aircraft was $88.0 million.
Other Secured Financing Arrangements
2010 Term Loans.
On March 17, 2010, we entered into the following term loans:
-
-
a $750 million term loan agreement secured by 43 aircraft and all related equipment and leases. The aircraft had an
average appraised base market value, as defined in the loan agreement, of approximately $1.3 billion, for an initial loan-to-value ratio of approximately 56%. The loan
matures on March 17, 2015, and bears interest at LIBOR plus a margin of 4.75% with a LIBOR floor of 2.0%. The principal of the loan is payable in full at maturity with no scheduled
amortization, but we can voluntarily prepay the loan at any time. We intend to repay this loan with the proceeds from this offering.
-
-
A $550 million term loan agreement entered into through a non-restricted subsidiary. The obligations of
the subsidiary borrower are guaranteed on an unsecured basis by ILFC and on a secured basis by certain non-restricted subsidiaries of ILFC that hold title to 37 aircraft. The aircraft had
an average appraised base market value, as defined in the loan agreement, of approximately $969 million, for an initial loan-to-value ratio of approximately 57%. The
loan matures on March 17, 2016, and bears interest at LIBOR plus a margin of 5.0% with a LIBOR floor of 2.0%. The principal of the loan is payable in full at maturity with no scheduled
amortization. We can voluntarily prepay the loan at any time, subject to a 1% prepayment penalty prior to March 17, 2012.
The
loans require a loan-to-value ratio of no more than 63%. If ILFC or the subsidiary borrower do not maintain compliance with the maximum
loan-to-value ratio, ILFC will be required to either prepay portions of the outstanding loans or transfer additional aircraft to SPEs, subject to certain concentration
criteria, so that the ratio is equal to or less than the maximum loan-to-value ratio.
The
loans also contain customary covenants and events of default, including limitations on the ability of ILFC and its subsidiaries, as applicable, to
(i)
create liens;
(ii)
incur additional indebtedness;
(iii)
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and
(iv)
enter into transactions with affiliates.
2012 Term Loan.
On February 23, 2012, one of our indirect, wholly owned subsidiaries entered into a secured term loan agreement in
the amount
of $900 million. The loan matures on June 30, 2017, and bears interest at LIBOR plus a margin of 4.0%, or, if applicable, a base rate plus a margin of 3.0%. The obligations of the
subsidiary borrower are guaranteed on an unsecured basis by ILFC and on a secured basis by certain wholly owned subsidiaries of the subsidiary borrower. The security granted includes the equity
interests in certain special purpose subsidiaries of the subsidiary borrower ("SPEs") that have been designated as non-restricted under our indentures and that hold title to 62 aircraft
and all related equipment and leases with an average appraised base market value, as defined in the loan agreement, of approximately $1.66 billion as of December 31, 2011. The
$1.66 billion equals an initial loan-to-value ratio of approximately 54%. The principal of the loan is payable in full at
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maturity
with no scheduled amortization. We can voluntarily prepay the loan at any time, subject to a 1% prepayment penalty prior to February 23, 2013.
The
loans require a loan-to-value ratio of no more than 63%. If the subsidiary borrower does not maintain compliance with the maximum
loan-to-value ratio, it will be required to prepay portions of the outstanding loans, deposit an amount in the cash collateral account or transfer additional aircraft to SPEs,
subject to certain concentration criteria, so that the ratio is equal to or less than the maximum loan-to-value ratio.
The
loan facility contains customary covenants and events of default, including covenants that limit the ability of the subsidiary borrower and its subsidiaries to incur additional
indebtedness and create liens, and covenants that limit the ability of ILFC, the subsidiary borrower and its subsidiaries to consolidate, merge or dispose of all or substantially all of their assets
and enter into transactions with affiliates.
Unsecured Bonds and Medium-Term Notes
Shelf Registration Statement:
We have an effective shelf registration statement filed with the SEC. As a result of our well-known
seasoned issuer, or WKSI, status, we have an unlimited amount of debt securities registered for sale under the shelf registration statement.
Under
our shelf registration statement, we have issued the following notes on the following dates: (i) $650 million of 8.625% notes due 2022 on December 22, 2011;
(ii) $1.0 billion of 5.75% notes due 2016 and $1.25 billion of 6.25% notes due 2019 on May 24, 2011; (iii) $1.0 billion of 8.25% notes due 2020 on
December 7, 2010; and (iv) $500 million of 8.875% notes due 2017 on August 20, 2010. At December 31, 2011, we also had $6.5 billion of public bonds and
medium-term notes outstanding, with interest rates ranging from 0.75% to 7.50%, which we had issued in prior years under previous registration statements.
The
aggregate net proceeds from the sale of the notes issued on May 24, 2011 and December 22, 2011, were approximately $2.87 billion after deducting underwriting
discounts and commissions, fees and estimated offering expenses. The net proceeds from the sale of the notes issued on May 24, 2011, were primarily used to purchase notes validly tendered and
accepted in the tender offers that were announced during the second quarter of 2011 to purchase various series of our outstanding debt securities for up to $1.75 billion cash consideration, as
further discussed below. The remaining net proceeds from the sale of the notes issued on May 24, 2011, were used for general corporate purposes.
Tender Offers to Purchase Notes:
On June 17, 2011, we completed the above mentioned tender offers and accepted for purchase
previously issued
notes with an aggregate principal amount of approximately $1.67 billion, resulting in total cash consideration, including accrued and unpaid interest, of approximately $1.75 billion. In
connection with the cancellation of the notes, we recognized losses aggregating approximately $61.1 million, which included the cost of repurchasing the notes and the write off of the remaining
unamortized deferred financing costs.
Euro Medium-Term Note Programme:
had a $7.0 billion Euro Medium-Term Note Programme, which we did not renew when it
expired in September 2011 and that we have since terminated. Notes of $1.2 billion previously outstanding under such Programme were repaid in full at their maturity in August 2011, leaving no
amounts outstanding under the Programme. We had hedged the notes into U.S. dollars and fixed the interest rates at a range of 5.355% to 5.367%.
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A
rollforward for the year ended December 31, 2011, of the foreign currency adjustment related to foreign currency denominated notes is presented below (dollars in thousands):
|
|
|
|
|
Foreign currency adjustment related to foreign currency denominated debt at December 31, 2010
|
|
$
|
165,400
|
|
Foreign currency period adjustment of non-US$ denominated debt
|
|
|
104,800
|
|
Repayment of debt principal from cash receipts under derivative contracts at the maturity of the debt and the derivative contract(a)
|
|
|
(270,200
|
)
|
|
|
|
|
Foreign currency adjustment related to foreign currency denominated debt at December 31, 2011
|
|
$
|
|
|
|
|
|
|
Other Senior Notes:
On March 22, 2010 and April 6, 2010, we issued a combined $1.25 billion aggregate principal amount
of 8.625%
senior notes due September 15, 2015, and $1.5 billion aggregate principal amount of 8.750% senior notes due March 15, 2017, pursuant to an indenture dated as of March 22,
2010. The senior notes are due in full on their scheduled maturity dates. The notes are not subject to redemption prior to their stated maturity and there are no sinking fund requirements.
In
connection with the senior note issuances, we entered into registration rights agreements obligating us to, among other things, complete a registered exchange offer to exchange the
senior notes of each series for new registered notes of such series with substantially identical terms, or register the senior notes pursuant to a shelf registration statement. The registration rights
agreement required the registration statement relating to the exchange offer to be declared effective by January 26, 2011.
Because
the registration rights agreement was not declared effective by such date, the annual interest rate on the affected notes increased by 0.25% per year for 90 days,
commencing on January 26, 2011. On April 26, 2011, the annual interest rate on the affected notes increased by an additional 0.25% because we were unable to consummate the exchange offer
by such date. We completed the exchange offer on May 5, 2011, at which time the applicable interest rate reverted to the original level.
The
indenture governing the senior notes contains customary covenants that, among other things, restrict our and our restricted subsidiaries' ability to (i) incur liens on assets;
(ii) declare or pay dividends or acquire or retire shares of our capital stock during certain events of default; (iii) designate restricted subsidiaries as non-restricted
subsidiaries or designate non-restricted subsidiaries; (iv) make investments in or transfer assets to non-restricted subsidiaries; and (v) consolidate, merge,
sell, or otherwise dispose of all or substantially all of our assets.
The
indenture governing these senior notes also provides for customary events of default, including but not limited to, the failure to pay scheduled principal and interest payments on
the senior notes, the failure to comply with covenants and agreements specified in the indenture, the acceleration of certain other indebtedness resulting from non-payment of that
indebtedness, and certain events of insolvency. If any event of default occurs, any amount then outstanding under the senior notes may immediately become due and payable.
Unsecured Bank Debt
2011 Credit Facility:
On January 31, 2011, we entered into a $2.0 billion unsecured three-year revolving credit facility
with a group of 11 banks. This revolving credit facility expires on January 31, 2014, and provides for interest rates based on either a base rate or LIBOR plus an applicable margin determined
by a ratings-based pricing grid. The credit agreement contains customary events of default and restrictive financial covenants that require us to maintain a minimum fixed charge coverage ratio, a
minimum consolidated tangible net worth and a maximum ratio of consolidated debt to consolidated tangible net worth. As of December 31, 2011 and March 5, 2012, no amounts were
outstanding under this revolving credit facility.
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2006 Credit Facility:
The unsecured loans outstanding under our 2006 credit facility matured and were paid in full on October 13,
2011. The
interest on the loans was based on LIBOR plus a margin of 0.65% plus facility fees of 0.2% of the outstanding balance.
Subordinated Debt
In December 2005, we issued two tranches of subordinated debt totaling $1.0 billion. Both tranches mature on December 21,
2065, but each tranche has a different call option. The $600 million tranche had a call option date of December 21, 2010 and the $400 million tranche has a call option date of
December 21, 2015. We did not exercise the call option at December 21, 2010, and the interest rate on the $600 million tranche changed from a fixed interest rate of 5.90% to a
floating rate with an initial credit spread of 1.55% plus the highest of (i) 3 month LIBOR; (ii) 10-year constant maturity treasury; and
(iii) 30-year constant maturity treasury. The interest will reset quarterly and at December 31, 2011, the interest rate was 4.34%. The $400 million tranche has a fixed
interest rate of 6.25% until the 2015 call option date, and if we do not exercise the call option, the interest rate will change to a floating rate, reset quarterly, based on the initial credit spread
of 1.80% plus the highest of (i) 3 month LIBOR; (ii) 10-year constant maturity treasury; and (iii) 30-year constant maturity treasury. If we choose
to redeem the $600 million tranche, we must pay 100% of the principal amount of the bonds being redeemed, plus any accrued and unpaid interest to the redemption date. If we choose to redeem
only a portion of the outstanding bonds, at least $50 million principal amount of the bonds must remain outstanding.
Derivatives
We employ derivative products to manage our exposure to interest rate risks and foreign currency risks. We enter into derivative
transactions only to economically hedge interest rate risk and currency risk and not to speculate on interest rates or currency fluctuations. These derivative products include interest rate swap
agreements, foreign currency swap agreements and interest rate cap agreements. At December 31, 2011, we had no foreign currency swap agreements outstanding, all of our interest rate swap
agreements were designated as and accounted for as cash flow hedges and we had not designated our interest rate cap agreements as hedges.
When
interest rate and foreign currency swaps are effective as cash flow hedges, they offset the variability of expected future cash flows, both economically and for financial reporting
purposes. We have historically used such instruments to effectively mitigate foreign currency and interest rate risks. The effect of our ability to apply hedge accounting for the swap agreements is
that changes in their fair values are recorded in other comprehensive income instead of in earnings for each reporting period. As a result, reported net income will not be directly influenced by
changes in interest rates and currency rates.
The
counterparty to our interest rate swaps at December 31, 2011, is AIG Markets, Inc., a wholly owned subsidiary of AIG. The swap agreements are subject to a bilateral
security agreement and a master netting agreement, which would allow the netting of derivative assets and liabilities in the case of default under any one contract. Failure of the counterparty to
perform under the derivative contracts
would not have a material impact on our results of operations and cash flows, as we are in a net liability position at December 31, 2011. The counterparty to our interest rate cap agreements is
an independent third party with whom we do not have a master netting agreement.
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DESCRIPTION OF NOTES
General
ILFC will issue 4.875% Senior Notes due 2015 (the "2015 notes") and 5.875% Senior Notes due 2019 (the "2019 notes" and, together with
the 2015 notes, the "notes") under an indenture dated as of August 1, 2006, as supplemented by the first supplemental indenture dated as of August 20, 2010, the second supplemental
indenture dated as of December 7, 2010, the third supplemental indenture dated as of May 24, 2011, the fourth supplemental indenture dated as of December 11, 2011, and the fifth
supplemental indenture to be entered into on or prior to the date of closing (the "indenture") between ILFC and Deutsche Bank Trust Company Americas, as trustee, paying agent, security registrar and
authentication agent (the "Trustee"). The terms of the 2015 notes and the 2019 notes will be identical, except as set forth in this offering memorandum. The 2015 notes and 2019 notes will each
constitute a separate series of notes under the indenture but will vote together
as a single group as described below under "
Amendment, Supplement and Waiver of the Indenture
." Each such series will be separate from any
other series of debt securities (together with the notes, the "Debt Securities") that have been issued or may be issued from time to time in the future under the indenture. The indenture does not
limit the aggregate principal amount of Debt Securities that may be issued thereunder and provides that Debt Securities may be issued in one or more series, in each case as authorized from time to
time by ILFC. Any series of Debt Securities, including either series of the notes, may be reopened, and additional Debt Securities of such series may be issued.
The
following description is a summary of certain provisions of the indenture and the notes. It does not restate the indenture or the notes in their entirety and is qualified in its
entirety by reference to such documents. You may request copies of the indenture at ILFC's address set forth under "
Incorporation of Certain Information by
Reference
."
The
notes will be issued only in fully registered book-entry form without coupons only in minimum denominations of $2,000 principal amount and integral multiples of $1,000
above that amount. The notes will be issued in the form of global notes. Global notes will be registered in the name of a nominee of DTC, New York, New York, as described under
"
Book-Entry; Delivery and Form
."
Principal Amount; Maturity and Interest
ILFC will issue the 2015 notes in an initial aggregate principal amount of $750.0 million. The 2015 notes will mature on
April 1, 2015.
ILFC
will issue the 2019 notes in an initial aggregate principal amount of $750.0 million. The 2019 notes will mature on April 1, 2019.
The
notes will be denominated in U.S. dollars and all payments of principal and interest thereon will be paid in U.S. dollars.
The
2015 notes will bear interest at a rate of 4.875% per year and will be payable semi-annually, in cash in arrears, on April 1 and October 1 of each year,
beginning on October 1, 2012, to the persons in whose name the 2015 notes are registered at the close of business on the immediately preceding March 15 and September 15,
respectively. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months.
The
2019 notes will bear interest at a rate of 5.875% per year and will be payable semi-annually, in cash in arrears, on April 1 and October 1 of each year,
beginning on October 1, 2012, to the persons in whose name the 2019 notes are registered at the close of business on the immediately preceding March 15 and September 15,
respectively. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months.
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Interest
on the notes will accrue from and including the date the notes are issued (the "issue date") or from and including the most recent interest payment date (whether or not such
interest payment date was a business day) for which interest has been paid or provided for to but excluding the relevant interest payment date.
If
an interest payment date falls on a day that is not a business day, the interest payment will be postponed to the next succeeding business day, with the same force and effect as if
made on the date such payment was due, and no interest will accrue as a result of such delay.
Ranking
The notes will rank equally in right of payment with all existing and future unsubordinated unsecured indebtedness of ILFC, including
all Debt Securities, and senior in right of payment to existing and future indebtedness of ILFC that by its terms is expressly subordinated to the notes. The notes will be effectively subordinated to
any secured indebtedness of ILFC to the extent of the value of the assets securing such debt. As of December 31, 2011, we had approximately $24.4 billion aggregate principal amount of
long-term debt outstanding, of which approximately $9.8 billion in aggregate principal amount of secured indebtedness was outstanding. See "
Description of
Other IndebtednessSecured Bank Debt
." and "
Description of Other
Indebtedness
Other Secured Financing Arrangements
."
The
notes will be structurally subordinated to all of the existing and future indebtedness and other liabilities (including trade payables) of subsidiaries of ILFC. As of
December 31, 2011, ILFC, on a stand alone basis, had approximately $26.6 billion in total assets, excluding intercompany receivables, and approximately $26.4 billion of
liabilities outstanding.
The
notes will be unsecured and will not be guaranteed by our parent, any of our subsidiaries or any third party.
Redemption
The notes are not subject to redemption prior to their stated maturity, and there is no sinking fund for the notes.
Certain Covenants
The following is a summary of the covenants included in the indenture. Other than the restrictions described below, the indenture does
not contain any covenants or other provisions designed to afford holders of the notes protection in the event of a highly leveraged transaction involving ILFC or in the event of a decline in its
credit rating as the result of a change of control, takeover, recapitalization, highly leveraged transaction or similar restructuring involving ILFC that could adversely affect such holders.
Restrictions on Liens
The indenture provides that ILFC will not, nor will it permit any Restricted Subsidiary to, issue, assume or guarantee any indebtedness
for borrowed money secured by any mortgage (as defined under the heading "
Certain Definitions
" below), upon any property of ILFC or any Restricted
Subsidiary, or upon any shares of stock of any Restricted Subsidiary, without in any such case effectively providing, concurrently with the issuance, assumption or guaranty of any such indebtedness
for borrowed money, that the notes (together with, any other Debt Securities outstanding under the indenture, and if ILFC shall so determine, any other indebtedness of ILFC or such Restricted
Subsidiary ranking equally with
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the
notes then existing or thereafter created) shall be secured equally and ratably with such indebtedness for borrowed money; provided, however, that the foregoing restrictions shall not apply to:
(1) mortgages
existing on August 1, 2006;
(2) mortgages
to secure the payment of all or part of the purchase price of such property (other than property acquired for lease to a Person other than ILFC or a Restricted
Subsidiary) upon the acquisition of such property by ILFC or a Restricted Subsidiary or to secure any indebtedness for borrowed money incurred or guaranteed by ILFC or a Restricted Subsidiary prior
to, at the time of, or within 60 days after the later of the acquisition, completion of construction or commencement of full operation of such property, which indebtedness for borrowed money is
incurred or guaranteed for the purpose of financing all or any part of the purchase price thereof or construction of improvements thereon;
provided,
however
, that in the case of any such acquisition, construction or improvement, the mortgage shall not apply to any property theretofore owned by ILFC or a Restricted
Subsidiary, other than, in the case of any such construction or improvement, any theretofore unimproved real property on which the property so constructed, or the improvement, is located;
(3) mortgages
on the property of a Restricted Subsidiary on the date it became a Restricted Subsidiary;
(4) mortgages
securing indebtedness for borrowed money of a Restricted Subsidiary owing to ILFC or to another Restricted Subsidiary;
(5) mortgages
on property of a corporation existing at the time such corporation is merged into or consolidated with ILFC or a Restricted Subsidiary or at the time of a
purchase, lease or other acquisition of the properties of a corporation or firm as an entirety or substantially as an entirety by ILFC or a Restricted Subsidiary;
(6) any
replacement or successive replacement in whole or in part of any mortgage referred to in the foregoing clauses (1) to (5), inclusive;
provided
,
however
, that the principal amount of the indebtedness for borrowed money secured by the
mortgage shall not be increased and the principal repayment schedule and maturity of such indebtedness shall not be extended and (A) such replacement shall be limited to all or a part of the
property which secured the mortgage so replaced (plus improvements and construction on such property), or (B) if the property which secured the mortgage so replaced has been destroyed,
condemned or damaged and pursuant to the terms of the mortgage other property has been substituted therefor, then such replacement shall be limited to all or part of such substituted property;
(7) liens
created by or resulting from any litigation or other proceeding which is being contested in good faith by appropriate proceedings, including liens arising out of
judgments or awards against ILFC or any Restricted Subsidiary with respect to which ILFC or such Restricted Subsidiary is in good faith prosecuting an appeal or proceedings for review; or liens
incurred by ILFC or any Restricted Subsidiary for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which ILFC or such Restricted Subsidiary is a
party; or
(8) liens
for taxes or assessments or governmental charges or levies not yet due or delinquent, or which can thereafter be paid without penalty, or which are being contested
in good faith by appropriate proceedings; landlord's liens on property held under lease; and any other liens or charges incidental to the conduct of the business of ILFC or any Restricted Subsidiary
or the ownership of the property and assets of any of them which were not incurred in connection with the borrowing of money or the obtaining of advances or credit and which do not, in the opinion of
ILFC, materially impair the use of such property in the operation of the business of ILFC or such Restricted Subsidiary or the value of such property for the purposes of such business.
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Notwithstanding
the foregoing provisions, ILFC and any one or more Restricted Subsidiaries may issue, assume or guarantee indebtedness for borrowed money secured by mortgages which would
otherwise be subject to the foregoing restrictions in an aggregate amount which, together with all the other outstanding indebtedness for borrowed money of ILFC and its Restricted Subsidiaries secured
by mortgages which is not listed in clauses (1) through (8) above, does not at the time exceed 12.5% of the Consolidated Net Tangible Assets of ILFC as shown on the audited consolidated
financial statements of ILFC as of the end of the fiscal year preceding the date of determination.
Restrictions as to Dividends and Certain Other Payments
The indenture provides that no dividend whatsoever shall be paid or declared nor shall any distributions be made on any capital stock
of ILFC (except in shares of, or warrants or rights to subscribe for or purchase shares of, capital stock of ILFC), nor shall any payment be made by ILFC or any Restricted Subsidiary to acquire or
retire shares of such stock, at a time when an Event of Default as defined under clauses (1), (2) or (3) under the caption "
Events of
Default
" has occurred and is continuing.
Restrictions on Permitting Restricted Subsidiaries to Become Non-Restricted Subsidiaries and Non-Restricted Subsidiaries to Become Restricted
Subsidiaries
ILFC will not permit any Restricted Subsidiary to be designated as or otherwise to become a Non-Restricted Subsidiary
unless immediately after such Restricted Subsidiary becomes a Non-Restricted Subsidiary, it will not own, directly or indirectly, any capital stock or indebtedness of any Restricted
Subsidiary.
ILFC
will not permit any Non-Restricted Subsidiary to be designated as or otherwise to become a Restricted Subsidiary unless:
(1) such
Non-Restricted Subsidiary is not a Subsidiary substantially all of the physical properties of which are located, or substantially all of the business of
which is carried on, outside the United States of America, its territories and possessions and Puerto Rico; and
(2) immediately
thereafter, such Subsidiary has outstanding no mortgages in respect of any of its assets except as would have been permitted by the covenant described under
the caption "
Certain CovenantsRestrictions on Liens
" above had such mortgages been incurred immediately thereafter.
Promptly
after the adoption of any resolution by the Board of Directors designating a Restricted Subsidiary as a Non-Restricted Subsidiary or a Non-Restricted
Subsidiary as a Restricted Subsidiary, ILFC shall file a certified copy thereof with the Trustee, together with an officers' certificate as required by the terms of the indenture.
Restrictions on Investments in Non-Restricted Subsidiaries
ILFC will not, nor will it permit any Restricted Subsidiary to, make any investment in, or transfer any assets to, a
Non-Restricted Subsidiary if immediately thereafter ILFC would be in breach of or in default in the performance of any of its covenants or warranties contained in the indenture.
SEC Reports and Reports to Holders
ILFC will be required to file with the Trustee within 15 days after ILFC is required to file the same with the SEC, copies of
the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may from time to time by rules and regulations prescribe) which
ILFC may be required to file with the SEC pursuant to Section 13 or
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Section 15(d)
of the Exchange Act; or, if ILFC is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the SEC, in
accordance with the rules and regulations prescribed from time to time by the SEC, such of the supplementary and periodic information, documents and reports which may be required pursuant to
Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. In
addition, ILFC will be required to file with the Trustee and the SEC, in accordance with the rules and regulations prescribed from time to time by the SEC, such additional information, documents and
reports with respect to compliance by ILFC with the conditions and covenants provided for in the indenture as may be required from time to time by such rules and regulations.
Merger and Sale of Assets
The indenture provides that ILFC shall not consolidate with or merge into any other Person or convey, transfer or lease its properties
and assets substantially as an entirety to any Person, and ILFC shall not permit any Person to consolidate with or merge into ILFC or convey, transfer or lease its properties and assets substantially
as an entirety to ILFC, unless the following conditions are satisfied:
(1) the
Person formed by such consolidation or merger or to which such assets or properties are conveyed, transferred or leased substantially as an entirety, is a
corporation, partnership or trust organized and validly existing under the laws of the United States, any State or the District of Columbia and such Person expressly assumes the obligations of ILFC
under the indenture;
(2) immediately
after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default,
has happened and is continuing; and
(3) if,
as a result of such consolidation, merger, conveyance, transfer or lease, the property or assets of ILFC become subject to a mortgage, pledge, lien, security
interest or other encumbrance not permitted by the indenture, ILFC or such Person will have taken appropriate steps to secure the notes (and any other Debt Securities outstanding under the indenture)
equally and ratably with the indebtedness secured thereby.
Upon
such consolidation, merger, conveyance, transfer or lease, the successor Person shall be substituted for ILFC under the indenture and, except in the case of a lease, ILFC will be
relieved of all obligations under the indenture.
Events of Default
The indenture defines an Event of Default with respect to each series of the notes as being any one of the following occurrences:
(1) default
in the payment of any installment of interest upon such series of the notes when it becomes due and payable, and continuance of such default for a period of
30 days or more; or
(2) default
in the payment of all or any part of the principal of such series of the notes when it becomes due and payable at its Maturity; or
(3) default
in the performance, or breach, of any other covenant or warranty of ILFC in the indenture applicable to such series of the notes or the notes of such series, and
continuance of such default or breach for a period of 60 days after notice to ILFC by the Trustee, or to ILFC and the Trustee by the holders of at least 25% in principal amount of such series
of notes at the time Outstanding; or
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(4) default
under any mortgage, indenture (including the indenture governing the notes) or instrument under which there is issued, or which secures or evidences, any
indebtedness for borrowed money of ILFC or any Restricted Subsidiary now existing or created after the issue date of the notes, which default shall constitute a failure to pay principal of such
indebtedness in an amount exceeding $50,000,000 when due and payable (other than as a result of acceleration), after expiration of any applicable grace period with respect thereto, or shall have
resulted in an aggregate principal amount of such indebtedness exceeding $50,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and
payable, without such indebtedness having been discharged or such acceleration having been rescinded or annulled within a period of 30 days after there has been given a notice to ILFC by the
Trustee, or to ILFC and the Trustee by the holders of at least 25% in principal amount of such series of notes at the time Outstanding; or
(5) certain
events in bankruptcy, insolvency, reorganization, receivership, or liquidation, whether voluntary or involuntary.
If
an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of such series of the notes at the time Outstanding may declare such
series of the notes to be due and payable immediately, but under certain conditions such acceleration may be rescinded by the holders of a majority in principal amount of such series of the notes at
the time Outstanding.
The
holder of any note will not have any right to institute any proceeding with respect to the indenture or remedies thereunder, unless:
(1) such
holder previously gives the Trustee written notice of an Event of Default with respect to its series of the notes that is continuing;
(2) the
holders of not less than 25% in principal amount of such series of Outstanding notes shall have made a written request to the Trustee to institute proceedings in
respect of such Event of Default and offered the Trustee reasonable indemnity to institute such proceeding as Trustee; and
(3) the
Trustee shall have failed to institute such proceeding for 60 days after its receipt of such notice and the Trustee has not been given inconsistent direction
during such 60-day period by holders of a majority in principal amount of such series of the notes at the time Outstanding.
However,
the right of any holder of any note to institute suit for enforcement of any payment of principal and interest on any note on or after the applicable due date, may not be
impaired or affected without such holder's consent.
The
holders of a majority in principal amount of such series of Outstanding notes may direct the time, method and place of conducting any proceeding for any remedy available to the
Trustee or for exercising any trust or power conferred on the Trustee with respect to such series of the notes. However, the Trustee may refuse to follow any direction that conflicts with any rule of
law or the indenture. Before proceeding to exercise any right or power under the indenture at the direction of such holders, the Trustee shall be entitled to receive reasonable security or indemnity
from such holders against the costs, expenses and liabilities which could be incurred in compliance with any such direction. The Trustee may withhold from holders of the notes notice of any continuing
default (except a default in payment of principal or interest), if it determines that withholding notice is in their interests.
ILFC
is required under the indenture to furnish to the Trustee within 120 days after the end of each fiscal year a statement as to whether it is in default under the indenture
and, if it is in default, specifying all such defaults and the nature and status thereof.
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Amendment, Supplement and Waiver of the Indenture
The indenture contains provisions permitting ILFC and the Trustee to amend or supplement the indenture with the consent of the holders
of a majority in principal amount of the Outstanding notes voting as a single group; provided that any amendment or supplement that affects the terms of any series of notes as distinct from any other
series of notes shall require the consent of the holders of a majority in principal amount of the Outstanding notes of such series. Any past default by ILFC in respect of any series of notes and its
consequences may be waived with the consent of the holders of a majority in principal amount of the Outstanding notes of such series. However, ILFC will not be permitted to enter into any amendment,
supplement or waiver without the consent of the holders of all affected notes if the amendment, supplement or waiver would:
(1) change
the stated maturity of the principal of or any installment of principal or interest on any note;
(2) reduce
the principal amount payable of, or the rate of interest on, any note;
(3) adversely
affect any right of repayment at the option of the holder of any note;
(4) make
any note payable in a currency other than U.S. dollars;
(5) impair
the right of the holders of the notes to institute suit for the enforcement of any payment on or after the stated maturity thereof;
(6) reduce
the percentage in principal amount of outstanding notes (or outstanding notes of a series) whose holders must consent to any amendment, supplement or waiver;
(7) amend,
change or modify any provision of the indenture affecting the ranking of the notes of a series in a manner adverse to the holders of such notes; or
(8) modify
certain provisions in the indenture with respect to the notes providing for the amendment, supplement or waiver that specify the percentage necessary to take such
actions, except to increase such percentage.
The
indenture also contains provisions permitting ILFC and the Trustee, to amend or supplement the terms of the indenture with respect to the notes without the consent of any holder of
notes, for purposes including:
(1) to
evidence ILFC's succession by another corporation;
(2) to
add covenants for the benefit of the holders of the notes (or any series of notes) or any additional Event of Default for the notes (or any series of notes);
(3) to
secure the notes (or any series of notes);
(4) to
evidence the appointment of a successor trustee; or
(5) to
cure any ambiguity, to correct or supplement any provision of the indenture inconsistent with other provisions or make any other provision which does not adversely
affect the interests of the holders of the notes in any material respect.
Defeasance and Covenant Defeasance
The obligations of ILFC under the indenture with respect to either series of the notes will terminate (other than certain specified
conditions) and ILFC will be released upon payment in full of all of the notes of such series. ILFC may, at its option, and at any time, elect to have all its obligations
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discharged
under the indenture with respect to such series of the notes and cure any then existing Events of Default with respect to such series of the notes ("legal defeasance"), other than:
(1) ILFC's
obligation with respect to the register, transfer and exchange of such series of the notes, with respect to mutilated, destroyed, lost or stolen notes;
(2) ILFC's
obligations to maintain an office or agency in the place designated for payment of such series of the notes and with respect to the treatment of funds held by
paying agents;
(3) ILFC's
obligation to hold, or cause the paying agent to hold, in trust money for the payment of principal and interest due on outstanding notes of such series for the
benefit of the holders;
(4) certain
obligations to the Trustee; and
(5) certain
obligations arising in connection with such discharge of obligations.
ILFC
may also, at its option and at any time, elect to be released from the restrictions described under the caption "
Certain
Covenants
" above with respect to either series of the notes ("covenant defeasance") and thereafter, any omission to comply with such covenants will not constitute an Event of
Default with respect to such series of the notes.
The
conditions ILFC must satisfy for legal defeasance or covenant defeasance include the following:
(1) ILFC
must have irrevocably deposited with the Trustee or another satisfactory trustee, trust funds for the payment of such series of the notes. The trust funds must
consist of money or U.S. Government Obligations, or a combination thereof, which will be in an amount sufficient without reinvestment to pay at maturity or redemption the entire amount of principal
and interest on such series of the notes.
(2) No
Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such series of the notes shall have occurred and
be continuing on the date ILFC makes such deposit or, for certain purposes, during the period ending on the 123rd day after the date of such deposit, or on the day after the expiration of any
longer preference periods.
(3) The
legal defeasance or covenant defeasance will not cause the Trustee to have a conflicting interest as referred to in the indenture.
(4) The
legal defeasance or covenant defeasance will not result in a breach or violation of, or constitute a default under, the indenture or other material agreements or
instruments of ILFC.
In
the case of legal defeasance, ILFC is also required to deliver to the Trustee an opinion of counsel stating that it has received a direct ruling from the Internal Revenue Service, or
such a ruling has been published, or since the issue date of the notes there has been a change in the applicable federal income tax law, such that the holders of the outstanding notes of such series
to be legally defeased will not recognize income, gain or loss for federal income tax purposes as a result of the legal defeasance. The ruling must provide that the holders of the outstanding notes of
such series to be defeased will be subject to federal income tax on the same amounts, in the same manner, and at the same times as would have been the case if the defeasance had not occurred.
In
the case of a covenant defeasance, ILFC is required to deliver to the Trustee an opinion of counsel to the effect that the holders of the outstanding notes of such series will not
recognize income, gain or loss for federal income tax purposes as a result of the covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if the covenant defeasance had not occurred.
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The Trustee, Registrar and Paying Agent
The Trustee, registrar and paying agent will be Deutsche Bank Trust Company Americas under the indenture. ILFC may maintain bank
accounts, borrow money and have other commercial banking, investment banking and other business relationships with the Trustee, the registrar or any paying agent and any of their affiliates in the
ordinary course of business. Affiliates of the Trustee, the registrar or any paying agent may participate as underwriters, agents or dealers in offerings of ILFC's or its affiliates' securities.
Governing Law
The indenture and the notes will be governed by and construed in accordance with the laws of the State of New York.
Certain Definitions
Certain significant terms which are defined in the indenture are set forth below:
"
Affiliate
" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"
Board of Directors
" means either the board of directors of ILFC or any committee of that board duly authorized to act under the terms of
the indenture.
"
Consolidated Net Tangible Assets
" means the total amount of assets (less depreciation and valuation reserves and other reserves and items
deductible from the gross book value of specific asset amounts under generally accepted accounting principles) which under generally accepted accounting principles would be included on a balance sheet
of ILFC and its Restricted Subsidiaries, after deducting therefrom (i) all liability items except indebtedness (whether incurred, assumed or guaranteed) for borrowed money maturing by its terms
more than one year from the date of creation thereof or which is extendible or renewable at the sole option of the obligor in such manner that it may become payable more than one year from the date of
creation thereof, shareholder's equity and reserves for deferred income taxes, (ii) all good will, trade names, trademarks, patents, unamortized debt discount and expense and other like
intangibles, which in each case would be so included on such balance sheet, and (iii) amounts invested in, or equity in the net assets of, Non-Restricted Subsidiaries.
"
Maturity
" when used with respect to any note, means the date on which the principal thereof becomes due and payable as provided in the
indenture and the notes, whether at the stated maturity or by declaration of acceleration, call for redemption or otherwise.
"
mortgages
" means any mortgage, pledge, lien or other encumbrance of any nature.
"
Non-Restricted Subsidiary
" means (i) any Subsidiary which shall be designated by the Board of Directors as a
Non-Restricted Subsidiary, and (ii) any other Subsidiary of which the majority of the voting stock is owned directly or indirectly by one or more Non-Restricted
Subsidiaries, if such other Subsidiary is a corporation, or in which a Non-Restricted Subsidiary is a general partner, if such other Subsidiary is a limited partnership. An initial list of
Non-Restricted Subsidiaries will be set forth in an exhibit attached to the indenture.
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"
Outstanding
" means, as of the date of determination, all notes (or series of notes, as applicable) theretofore authenticated and
delivered under the indenture, except:
(1) notes
theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;
(2) notes
for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any paying agent (other than ILFC) in trust or set
aside and segregated in trust by ILFC (if ILFC shall act as its own paying agent);
(3) notes
which have been defeased pursuant to the procedures specified under the caption "
Defeasance
" above;
and
(4) notes
which have been paid in lieu of reissuance relating to lost, stolen, destroyed or mutilated certificates, or in exchange for or in lieu of which other notes have
been authenticated and delivered pursuant to the indenture, other than any such notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such notes are
held by a bona fide purchaser in whose hands such notes are valid obligations of ILFC;
provided, however
, that in determining whether the holders of the requisite principal amount of the Outstanding notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, notes owned by ILFC or any other obligor upon the notes or any Affiliate of ILFC or of such other obligor shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only notes
which the Trustee knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such notes and that the pledgee is not ILFC or any other obligor upon the notes or any Affiliate of ILFC or of such other obligor.
"
Person
" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"
Restricted Subsidiary
" means any Subsidiary other than a Non-Restricted Subsidiary;
provided,
however
, that the Board of Directors may, subject to the covenant described under the caption "
Certain CovenantsRestrictions
on Permitting Restricted Subsidiaries to Become Non-Restricted Subsidiaries and Non-Restricted Subsidiaries to Become Restricted Subsidiaries
" above,
designate any Non-Restricted Subsidiary, substantially all of the physical properties or business of which are located in the United States of America, its territories and possessions, or
Puerto Rico and which does not meet the requirements of clause (ii) of the definition of Non-Restricted Subsidiary, as a Restricted Subsidiary.
"
Subsidiary
" means a corporation, partnership or trust more than 50% of the outstanding Voting Stock of which is owned, directly or
indirectly, by ILFC or by one or more other Subsidiaries, or by ILFC and one or more other Subsidiaries.
"
U.S. Government Obligations
" means securities that are:
(1) direct
obligations of the United States of America for the payment of which its full faith and credit is pledged, or
(2) obligations
of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of America.
In
either case, the U.S. Government Obligations may not be callable or redeemable at the option of the issuer, and shall also include a depository receipt issued by a bank, as defined in
Section 3(a)(2)
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of
the Securities Act of 1933, as amended, as custodian with respect to such U.S. Government Obligation or a specific payment of principal of or interest on such U.S. Government Obligation held by the
custodian for the account of the holder of such depository receipt. However, the custodian is not authorized to make any deduction from the amount payable to the holder of the depository receipt
except as required by law.
"
Voting Stock
" means stock or other interests evidencing ownership in a corporation, partnership or trust which ordinarily has voting
power for the election of directors, or other persons performing equivalent functions, whether at all times or only so long as no senior class of stock has such voting power by reason of any
contingency.
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BOOK-ENTRY; DELIVERY AND FORM
The Global Notes
The certificates representing the notes will be issued in fully registered form without interest coupons (each, a "Global Note") and
will be deposited with the Trustee as a custodian for The Depository Trust Company ("DTC"), as depositary, and registered in the name of a nominee of such depositary. We expect that, pursuant to
procedures established by DTC, (i) upon the issuance of the Global Notes, DTC or its custodian will credit, on its internal system, the principal amount at maturity of the individual beneficial
interests represented by such Global Notes to the respective accounts of persons who have accounts with such depositary ("participants") and (ii) ownership of beneficial interests in the Global
Notes will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than
participants). Such accounts initially will be designated by or on behalf of the underwriters and ownership of beneficial interests in the Global Notes will be limited to participants or persons who
hold interests through participants. Holders may hold their interests in the Global Notes directly through DTC if they are participants in such system, or indirectly through organizations that are
participants in such system.
So
long as DTC or its nominee is the registered owner or holder of the notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes
represented by such Global Notes for all purposes under the indenture governing the notes. No beneficial owner of an interest in the Global Notes will be able to transfer that interest except in
accordance with DTC's procedures, in addition to those provided for under the indenture with respect to the notes.
Payments
of the principal of, and premium (if any) and interest (including additional interest, if any) on, the Global Notes will be made to DTC or its nominee, as the case may be, as
the registered owner thereof. None of the issuer, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest.
We
expect that DTC or its nominee, upon receipt of any payment of principal of, and premium (if any) and interest (including additional interest, if any) on the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Notes as shown on the records of DTC or its nominee. We
also expect that payments by participants to owners of beneficial interests in the Global Notes held through such participants will be governed by standing instructions and customary practice, as is
now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants.
Transfers
between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in
same-day funds. If a holder requires physical delivery of a Certificated Security, such holder must transfer its interest in a Global Note, in accordance with the normal procedures of DTC
and with the procedures set forth in the Indenture governing the notes.
DTC
has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account the DTC interests in the
Global Notes are credited and only in respect of such portion of the aggregate principal amount of notes as to which such participant or participants has or have given such direction. However, if
there is an event of default under the indenture governing the notes, DTC will exchange the Global Notes for Certificated Securities, which it will distribute to its participants.
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DTC
has advised us as follows: DTC is a limited purpose trust company organized under New York banking law, a "banking organization" within the meaning of the New York banking law, a
member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC holds and provides asset servicing for issues of U.S. and non-U.S. equity, corporate and municipal debt issues that participants deposit with
DTC. DTC also facilitates the post-trade settlement among participants of sales and other securities transactions in deposited securities through electronic computerized
book-entry transfers and pledges between participants' accounts. This eliminates the need for physical movement of securities certificates. Participants include both U.S. and
non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to the DTC system is also available to indirect participants
such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Although
DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of DTC, it is under no obligation to perform such
procedures, and such procedures may be discontinued at any time. None of us, the Trustee or any paying agent will have any responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures governing their operations.
Certificated Securities
A Global Note is exchangeable for certificated notes in fully registered form without interest coupons ("Certificated Securities") only
in the following limited circumstances:
-
-
DTC notifies us that it is unwilling or unable to continue as depositary for the Global Note and we fail to appoint a
successor depositary within 90 days of such notice, or
-
-
there shall have occurred and be continuing an event of default with respect to the notes under the indenture and DTC
shall have requested the issuance of Certificated Securities.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a description of material United States federal income tax consequences relating to the purchase, ownership
and disposition of the notes to persons who purchase notes from us in the offering at their issue price (as defined below). The discussion is for general information only and does not consider all
aspects of federal income taxation that may be relevant to the purchase, ownership and disposition of notes by a holder in light of such holder's personal circumstances. In particular, this discussion
does not address the federal income tax consequences of ownership of notes by investors that do not hold the notes as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code"), or the federal income tax consequences to holders subject to special treatment under the federal income tax laws, such
as:
-
-
dealers in securities or foreign currency;
-
-
traders that elect to mark their securities to market;
-
-
tax-exempt investors;
-
-
partnerships and other entities treated as partnerships for U.S. federal income tax purposes or investors therein;
-
-
S corporations and any investors therein;
-
-
United States expatriates;
-
-
regulated investment companies, real estate investment trusts, banks, thrifts, insurance companies or other financial
institutions or financial service entities;
-
-
persons that hold the notes as a position in a straddle or as part of a synthetic security or hedge, constructive sale or
conversion transaction or other integrated investment;
-
-
persons that do not purchase notes from us in the offering at their issue price;
-
-
holders who are subject to U.S. federal alternative minimum tax;
-
-
holders subject to Medicare contribution tax;
-
-
U.S. holders (as defined below) that have a functional currency other than the U.S. dollar;
-
-
controlled foreign corporations;
-
-
passive foreign investment companies;
-
-
foreign governments or international organizations, within the meaning of Section 892 of the Code; or
-
-
retirement plans.
Holders
subject to the special circumstances described above may be subject to tax rules that differ significantly from those summarized below.
The
term "U.S. holder" means a beneficial owner of notes that is for United States federal income tax purposes:
-
-
an individual who is a citizen or resident of the United States;
-
-
a corporation (or other entity treated as a corporation for United States federal income tax purposes) organized or
created in or under the laws of the United States, any state thereof or the District of Columbia;
-
-
an estate, the income of which is subject to United States federal income tax regardless of its source; or
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-
-
a trust (i) with respect to which a court within the United States is able to exercise primary supervision over its
administration and one or more U.S. persons have the authority to control all of the substantial decisions of the trust, or (ii) that has a valid election in place to be treated as a domestic
trust.
The
term "non-U.S. holder" means a beneficial owner of notes that is, for United States federal income tax purposes, an individual, corporation, estate or trust and is not a
U.S. holder.
The
tax treatment of a partner or owner of an entity that holds the notes and is treated as a partnership for United States federal income tax purposes generally depends on the status
and tax situs of the partner and the activities of the partnership. Partners of partnerships considering the purchase of the notes should consult their tax advisors.
This
summary is based upon the Code, existing and proposed federal income tax regulations promulgated thereunder, administrative pronouncements and judicial decisions, all as in effect
as of the date hereof, and all of which are subject to change, possibly on a retroactive basis, and any such change could affect the continuing validity of this discussion. There can be no assurance
that the Internal Revenue Service (the "IRS") will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS with
respect to the U.S. federal income tax consequences of purchasing, owning or disposing of the notes.
This
discussion does not address the effect of any other federal tax laws (e.g., federal estate or gift tax laws) or applicable state, local or foreign tax laws.
Consequences to U.S. Holders
Interest on the Notes.
Interest payable on the notes should be includible in your gross income as ordinary income when accrued or
received in
accordance with your regular method of accounting for United States federal income tax purposes.
Sale of the Notes.
Upon the sale or retirement of the notes, you will recognize taxable gain or loss equal to the difference between
the amount of
cash or other property received (other than any amount attributable to accrued but unpaid interest, which will be taxable as such to the extent not already included in income) and your tax basis in
the notes. Your tax basis in your notes generally will be your purchase price for the notes. Any gain or loss you realize upon a sale or disposition of a note generally will be capital gain or loss.
This gain or loss will be long-term capital gain or loss if your holding period for the notes is greater than one year. Under current law, long-term capital gains of certain
non-corporate holders are generally taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations.
Consequences to Non-U.S. Holders
Interest on the Notes.
Under present U.S. federal income tax law, and subject to the discussions below concerning backup withholding and
FATCA
withholding, the payment by us or our paying agent of interest to a non-U.S. holder that is not effectively connected with such holder's U.S. trade or business will not be subject to U.S.
federal income or withholding tax, provided that:
-
-
you do not actually or constructively own 10% or more of the total combined voting power of all classes of our voting
stock within the meaning of Section 871(h)(3) of the Code and the Treasury Regulations thereunder;
-
-
you are not a controlled foreign corporation that is related to us;
-
-
you are not a bank holding the notes as loans made in the ordinary course of business; and
-
-
you satisfy certain certification requirements (summarized below).
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In
order to meet the aforementioned certification requirement, current Treasury Regulations generally require that:
-
-
you (or your agent) deliver to the withholding agent an IRS Form W-8BEN (or successor form), signed by
you or your agent on your behalf, certifying your non-U.S. status; or
-
-
if you hold your notes through a securities clearing organization or certain other financial institutions, the
organization or institution that holds your notes provides a signed statement to the withholding agent that is accompanied by a properly completed and duly executed IRS Form W-8BEN
(or successor form) provided by you to that same organization or institution.
Special
rules apply to the certifications that must be provided by entities like partnerships, estates, trusts and intermediaries. You should consult your tax advisor regarding the
application of the U.S. federal income and withholding tax rules to your particular circumstances.
In
the event that you do not meet the foregoing requirements, interest on the notes will be subject to U.S. federal income and withholding tax at a rate of 30% unless reduced by an
applicable income tax treaty.
Interest
on your notes that is effectively connected with your U.S. trade or business will not be subject to U.S. federal withholding tax if you have certified, generally on a properly
completed and duly executed IRS Form W-8ECI, or under certain circumstances, Form W-8BEN (or, in each case, its successor form), that you are exempt from
withholding tax. Such interest will be subject to U.S. federal income tax on a net basis generally in the same manner as if you were a U.S. holder, unless an applicable income tax treaty provides
otherwise. In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lower applicable income tax treaty rate) of your earnings and profits for the
taxable year, subject to adjustments, that are effectively connected with your conduct of a trade or business in the United States. If you are eligible for the benefits of a tax treaty between the
United States and your country of residence, interest that is effectively connected with a United States trade or business will be subject to United States federal income tax generally only if such
interest is attributable to a permanent establishment (or a fixed base in the case of an individual) you maintain in the United States. To claim the benefit of an income tax treaty, you will need to
provide a properly completed and duly executed IRS Form W-8BEN (or successor form).
Sale of Notes.
If you sell or otherwise dispose of your notes in a transaction that is treated as a taxable sale or exchange for U.S.
federal income
tax purposes (including a retirement), subject to the discussion below concerning FATCA withholding, you generally will not be subject to U.S. federal income tax on any gain you recognize on this
transaction, unless:
-
-
the gain is effectively connected with a trade or business you conduct or are deemed to conduct in the United States; or
-
-
you are an individual who is present in the U.S. for 183 days or more in the year in which you dispose of your
notes and certain other conditions are met.
A
non-U.S. holder described in the first bullet point above will be subject to U.S. federal income tax on the net gain derived from the sale generally in the same manner as
described above with respect to effectively connected interest. An individual non-U.S. holder described in the second bullet point above will generally be subject to a 30% (or lower
applicable treaty rate) U.S. federal income tax on the gain derived from the sale (net of certain U.S. source capital losses).
Information Reporting and Backup Withholding
When required, amounts paid on or with respect to the notes, proceeds from a sale or other disposition (including a retirement) of the
notes, and the amount of tax, if any, withheld from such
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payments
and proceeds will be reported to the holders of the notes and the IRS during each calendar year.
A
holder may be subject under certain circumstances to backup withholding at a current rate of 28% with respect to interest payments and gross proceeds from the sale, exchange or
disposition (including a retirement) of our notes, unless (i) the holder is a corporation or comes within certain other exempt categories or (ii) prior to payment, the holder provides an
accurate taxpayer identification number and certifies as required on a duly completed and executed IRS Form W-9 (or permitted substitute or successor form) or provides a duly
completed and executed IRS Form W-8 (or successor form), as applicable, and otherwise complies with the requirements of the backup withholding rules.
Backup
withholding is not an additional tax. The amount of any backup withholding from a payment to a holder of our notes will be allowed as a credit against such holder's federal income
tax liability and may entitle the holder to a refund, provided the required information is timely furnished to the IRS.
FATCA Withholding
The Foreign Account Tax Compliance Act provisions of the Hiring Incentives to Restore Employment Act (generally referred to as
"FATCA"), when applicable, will impose a U.S. federal withholding tax of 30% on certain payments to foreign financial institutions and other non-U.S. persons (whether as beneficial owners
or intermediaries) that fail to comply with certain certification and information reporting requirements. FATCA as initially enacted generally applies to the notes issued after March 18, 2012.
Recently issued proposed Treasury regulations extended the grandfathering date and provide that FATCA will generally not apply to notes that are outstanding on January 1, 2013 (unless the notes
are significantly modified after such date), although taxpayers cannot rely on the proposed Treasury regulations until they become finalized. If FATCA does apply to the notes, a withholding tax of 30%
may apply to payments of interest with respect to the notes made after December 31, 2013 and to payments made in respect of gross proceeds from sales or other dispositions of the notes after
December 31, 2014. Investors are encouraged to consult with their own tax advisors regarding the implications of FATCA on their investment in the notes.
If you are considering the purchase of the notes, you should consult your own tax advisor regarding the application of United States federal income tax laws, as
well as other federal tax laws and the laws of any state, local, or foreign taxing jurisdiction, to your particular situation.
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UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated the date of this prospectus supplement, among us and Credit
Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives of the underwriters listed in the table below, the underwriters have severally and not jointly agreed to
purchase from us, and we have agreed to sell to the underwriters, the principal amount of the notes set forth opposite their names in the table below.
|
|
|
|
|
|
|
|
Underwriters
|
|
Aggregate Principal
Amount of 2015 Notes
to be Purchased
|
|
Aggregate Principal
Amount of 2019 Notes
to be Purchased
|
|
Credit Suisse Securities (USA) LLC
|
|
$
|
67,500,000
|
|
$
|
75,000,000
|
|
J.P. Morgan Securities LLC
|
|
|
75,000,000
|
|
|
67,500,000
|
|
Barclays Capital Inc.
|
|
|
67,500,000
|
|
|
67,500,000
|
|
Macquarie Capital (USA) Inc.
|
|
|
67,500,000
|
|
|
67,500,000
|
|
Citigroup Global Markets Inc.
|
|
|
67,500,000
|
|
|
67,500,000
|
|
Deutsche Bank Securities Inc.
|
|
|
67,500,000
|
|
|
67,500,000
|
|
Goldman, Sachs & Co.
|
|
|
67,500,000
|
|
|
67,500,000
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
67,500,000
|
|
|
67,500,000
|
|
Morgan Stanley & Co. LLC
|
|
|
67,500,000
|
|
|
67,500,000
|
|
RBC Capital Markets, LLC
|
|
|
67,500,000
|
|
|
67,500,000
|
|
UBS Securities LLC
|
|
|
67,500,000
|
|
|
67,500,000
|
|
|
|
|
|
|
|
Total
|
|
$
|
750,000,000
|
|
$
|
750,000,000
|
|
|
|
|
|
|
|
The
underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters are committed to take and pay for all
of the notes, if any are taken. We have agreed to indemnify the several underwriters and their controlling persons against certain liabilities in connection with this offering, including liabilities
under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect thereof.
Notes
sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus supplement. Any notes sold by the
underwriters to securities dealers may be sold at a discount from the initial public offering price of up to 0.500% of the principal amount of the notes with respect to the 2015 notes and up to 0.600%
of the principal amount of the notes with respect to the 2019 notes. Any such securities dealers may resell any notes purchased from the underwriters to certain other brokers or dealers at a discount
from the initial public offering price of up to 0.250% of the principal amount of the notes with respect to the 2015 notes and with respect to the 2019 notes. If all the notes are not sold at the
initial offering price, the underwriters may change the offering price and the other selling terms.
We
do not intend to apply for listing of the notes on a national securities exchange. The underwriters have advised us that following the completion of this offering, they presently
intend to make a market in the notes. They are not obligated to do so, however, and any market-making activities with respect to the notes may be discontinued at any time without notice. Accordingly,
we cannot give any assurance as to the development of any market or the liquidity of any market for the notes.
ILFC
has agreed that it will not, from the date of this prospectus supplement through the date of delivery by ILFC of the notes to investors, without first obtaining the prior written
consent of Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, offer, sell, contract to sell or otherwise
dispose of in a capital markets transaction any debt securities issued or guaranteed by ILFC and having a tenor of more than one year, except for the notes sold to the underwriters pursuant to the
underwriting agreement.
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In
connection with the offering of the notes, the underwriters may engage in overallotment, stabilizing transactions and syndicate covering transactions. Overallotment involves sales in
excess of the offering size, which creates a short position for the underwriters. Stabilizing transactions involve bids to purchase the notes in the open market for the purpose of pegging, fixing or
maintaining the price of the notes. Syndicate covering transactions involve purchases of the notes in the open market after the distribution has been completed in order to cover short positions.
Stabilizing transactions and syndicate covering transactions may cause the price of the notes to be higher than it would otherwise be in the absence of those transactions. If the underwriters engage
in stabilizing or syndicate covering transactions, they may discontinue them at any time. In addition, the underwriters may bid for and purchase the notes in the open market to stabilize the price of
the notes and may impose "penalty bids" under contractual arrangements whereby they may reclaim from dealers participating in this offering for the account of such underwriter the selling concession
with respect to the notes that are distributed in this offering but subsequently purchased for the account of such underwriter.
In
relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has represented and agreed
that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an
offer of notes which are the subject of the offering contemplated by this prospectus to the public in that Relevant Member State other than:
(a) to
any legal entity which is a qualified investor as defined in the Prospectus Directive;
(b) to
fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than
qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the
issuer for any such offer; or
(c) in
any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided
that no such offer of notes shall require the issuer or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For
the purposes of this provision, the expression an offer of notes to the public in relation to any notes in any Relevant Member State means the communication in any form and by any
means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe the notes, as the same may be varied in that Member
State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending
Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means
Directive 2010/73/EU.
Each
underwriter has agreed that:
(a) (i)
it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its
business and (ii) it has not offered or sold and will not offer or sell the notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the
purposes of their businesses where the issue of the notes would otherwise constitute a contravention of Section 19 of the FSMA by the issuer;
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(b) it
has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the notes in circumstances in which Section 21(1) of the FSMA does not apply to the
issuer or the guarantors; and
(c) it
has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the notes in, from or otherwise involving
the United Kingdom.
The
notes may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder,
or (iii) in other
circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating
to the notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only
to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
The
securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has
agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in
Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan,
except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and
ministerial guidelines of Japan.
This
prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the
offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275
of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where
the notes are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of
which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an
accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the
beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the notes under Section 275 except:
(1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified
in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
The
underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment
banking, financial
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advisory,
investment management, investment research, principal investment, hedging, financing and brokerage activities. If any of the underwriters or their affiliates has a lending relationship with
us, certain of those underwriters or their affiliates routinely hedge, and certain other of those underwriters or their affiliates may hedge, their credit exposure to us consistent with their
customary risk management policies. A typical hedging strategy would include these underwriters or their affiliates hedging such exposure by entering into transactions which consist of either the
purchase of credit default swaps or the creation of short positions in our securities, including potentially the notes offered hereby. Any such credit default swaps or short positions could adversely
affect future trading prices of the notes offered hereby. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array
of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their
customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriters and their respective affiliates may also make investment
recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short
positions in such securities and instruments.
Certain
of the underwriters and their respective affiliates have provided, from time to time, and in the future may provide, certain commercial banking, investment banking and financial
advisory services to us and our affiliates, for which they have received, and in the future will receive, customary fees. In addition, some of the underwriters and their respective affiliates may have
owned, currently own or may own, equity or equity-like securities of us. Affiliates of certain of the underwriters are lenders and/or agents under our revolving credit facilities,
$1.5 billion secured term loan due 2018, $750 million secured term loan due 2015, and $550 million secured term loan due 2016 and may have other roles in connection with such
facilities. In addition, affiliates of certain of the underwriters are agents and lenders under AeroTurbine's $335 million secured revolving credit facility. We intend to use the net proceeds
from this offering to repay our $750 million secured term loan due 2015 and will pay such amounts to the underwriters or their respective affiliates in proportion to their respective current
commitments under such term loan.
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CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the purchase of the notes by employee benefit plans that are
subject to Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended ("ERISA"), plans, individual retirement accounts and other arrangements that are subject to
Section 4975 of the Code or provisions under any other federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA
(collectively, "Similar Laws"), and entities whose underlying assets are considered to include "plan assets" of any such plan, account or arrangement (each, a "Plan").
General fiduciary matters
ERISA imposes certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA (an "ERISA Plan") and prohibits
certain transactions involving the assets of an ERISA Plan and its management or fiduciaries or other interested parties. Under ERISA, any
person who exercises any discretionary authority or control over the administration of an ERISA Plan or any authority or control over the management or disposition of the assets of an ERISA Plan, or
who renders investment advice for a fee or other compensation to an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.
In
considering an investment in the notes of a portion of the assets of any Plan, a fiduciary should determine whether the investment is in accordance with the documents and instruments
governing the Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to a fiduciary's duties to the Plan including, without limitation, the prudence, diversification,
delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws.
Prohibited transaction issues
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans and other Plans subject to Section 4975 of
the Code from engaging in specified transactions involving plan assets with persons or entities who are "parties in interest," within the meaning of ERISA, or "disqualified persons," within the
meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engaged in a non-exempt prohibited transaction may be subject
to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the Plan that engaged in such a non-exempt prohibited transaction may be subject
to penalties and liabilities under ERISA and the Code. The acquisition and/or holding of notes by an ERISA Plan or other Plan subject to Section 4975 of the Code with respect to which we or an
underwriter is considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or
Section 4975 of the Code, unless the investment is acquired and is held in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the
U.S. Department of Labor has issued prohibited transaction class exemptions, or "PTCEs," that may apply to the acquisition and holding of the notes. These class exemptions include, without limitation,
PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE
91-38 respecting bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23 respecting transactions determined
by in-house asset managers. In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provide relief from the prohibited transaction provisions of ERISA
and Section 4975 of the Code for certain transactions, provided that neither the issuer of the securities nor any of its affiliates (directly or indirectly) have or exercise any discretionary
authority or control or render any investment advice with respect to the assets of any Plan involved in the transaction and provided further that the Plan pays no more than adequate consideration in
connection with the transaction. There can be no assurance that all of the conditions of any such exemptions will be satisfied.
Because
of the foregoing, the notes should not be purchased or held by any person investing "plan assets" of any Plan, unless such purchase and holding will not constitute a
non-exempt
prohibited transaction under ERISA and the Code or a similar violation of any applicable Similar Laws.
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LEGAL MATTERS
The validity of the notes offered hereby and certain legal matters in connection with this offering will be passed upon for us by
O'Melveny & Myers LLP. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cahill Gordon & Reindel
LLP
.
EXPERTS
The financial statements incorporated in this prospectus supplement by reference to the Annual Report on Form 10-K
for the year ended December 31, 2011 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy, at
prescribed rates, any document we have filed at the SEC's public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330
(1-800-732-0330) for further information on the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC
(http://www.sec.gov). You also may read and copy reports and other information filed by us at the office of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
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PROSPECTUS
Debt Securities
By this prospectus, we may offer from time to time our unsecured debt securities in one or more series, with the same or different amounts,
offering prices, interest rates, maturities and other terms agreed
upon by us and the purchasers. When we offer debt securities, we will provide you with a prospectus supplement describing the specific terms of the securities. You should read this prospectus and the
prospectus supplement carefully before you invest.
The
debt securities may be sold by us through agents, to or through underwriters or dealers, or directly to purchasers. This prospectus may be used in secondary market transactions,
although there are no assurances that there will be a secondary market for these securities. Unless stated otherwise in the accompanying prospectus supplement, we do not intend to list any of these
securities on an exchange.
Investing in these securities involves risks. See "Risk Factors" on page 1 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
You should rely only on the information contained in this prospectus or the prospectus supplement that we have referred you to. No one is authorized to provide
you with different information. If the terms of particular debt securities described in a prospectus supplement are different from those described in this prospectus, you should rely on the
information in the prospectus supplement. We are not making an offer of these securities in any state where the offer is not permitted.
The
date of this prospectus is August 7, 2009
TABLE OF CONTENTS
Table of Contents
ABOUT THIS PROSPECTUS
This prospectus is part of a "shelf" registration statement that we have filed with the Securities and Exchange Commission (the "SEC").
By using a shelf registration statement, we may sell, at any time and from time to time, in one or more offerings, debt securities described in this prospectus. For further information about our
business and the securities, you should refer to the registration statement and its exhibits. This prospectus summarizes material provisions of agreements and other documents that we refer you to.
However, because the prospectus may not contain all the information you may find important, you should review the full text of these documents. We have included copies of these documents as exhibits
to the registration statement. The registration statement and the exhibits can be obtained from the SEC as indicated under the heading "Where You Can Find More Information."
This
prospectus only provides you with a general description of the securities we may offer. Each time we sell securities, we will file with the SEC a prospectus supplement that contains
specific information about the terms of those securities. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and
any prospectus supplement together with the additional information described below under the heading "Where You Can Find More Information."
You should rely on only the information incorporated by reference or provided in this prospectus and any prospectus supplement. We have not authorized any other
person to provide you with different information. We are not making an offer of these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus or a prospectus supplement is accurate as of any date other than their respective dates.
Except
as otherwise indicated, references in this prospectus to "we", "us" and "our" refer to International Lease Finance Corporation.
RISK FACTORS
Investing in our securities involves risks. You should carefully consider the risks described under "Risk Factors" in Part I,
Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and in Part II, Item 1A of our Quarterly Reports on
Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009 or in the other documents incorporated by reference into this prospectus (which risk factors are
incorporated by reference herein), as well as the other information contained or incorporated by reference in this prospectus or in any prospectus supplement hereto before making a decision to invest
in our securities. See "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports with the SEC. You may read and copy any document we file at the SEC's public reference
room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public on the SEC's website at http://www.sec.gov and on our website at http://www.ilfc.com/investor.htm.
The
SEC allows us to "incorporate by reference" the information that we file with them, which means that we can disclose important information to you by referring you to those documents.
The information incorporated by reference is considered to be part of this prospectus and supplements to this prospectus. We incorporate by reference:
-
(1)
-
our
Annual Report on Form 10-K for the year ended December 31, 2008;
-
(2)
-
our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009; and
-
(3)
-
our
Current Report on Form 8-K, filed May 14, 2009.
The
information filed by us with the SEC in the future will automatically update and supersede this information.
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We
also incorporate by reference any filings we may make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), after the date of the original filing of the registration statement, of which this prospectus is part, and until our offering is completed, except for any portion of a document deemed to have
been "furnished" and not "filed" in accordance with SEC rules.
You
may request a copy of these filings, at no cost, by writing or calling us at the following address or telephone number:
Alan
H. Lund
Vice Chairman and Chief Financial Officer
International Lease Finance Corporation
10250 Constellation Boulevard, Suite 3400
Los Angeles, California 90067
Telephone: 310-788-1999
FORWARD-LOOKING STATEMENTS
Some of the information included or incorporated by reference into this prospectus contains forward-looking statements. These include
statements regarding, among other matters, the potential sale of us by our parent, American International Group, Inc., a Delaware corporation ("AIG"), the state of the airline industry, our
access to the capital markets, our ability to restructure leases and repossess aircraft, the structure of our leases, regulatory matters pertaining to compliance with governmental regulations and
other factors affecting our financial condition or results of operations. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and "should" and variations of
these words and similar expressions, are used in many cases to identify these forward-looking statements. Any such forward-looking statements are not guarantees of future performance and involve
risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to vary materially from our future results, performance or achievements, or
those of the industry, expressed or implied in such forward-looking statements. Such factors include, among others, general industry economic and business conditions, which will, among other things,
affect demand for aircraft, availability and creditworthiness of current and prospective lessees, lease rates, availability and cost of financing and operating expenses, governmental actions and
initiatives and environmental and safety requirements, as well as the factors discussed under "Risk Factors" in our incorporated documents. We will not update any forward-looking information to
reflect actual results or changes in the factors affecting the forward-looking information.
INTERNATIONAL LEASE FINANCE CORPORATION
We primarily acquire new commercial jet aircraft from The Boeing Company and Airbus S.A.S. and lease these aircraft to airlines
throughout the world. In addition to our leasing activity, we sell aircraft from our leased aircraft fleet to other leasing companies, financial services companies and airlines. In some cases, we
provide fleet management services to investors and/or owners of aircraft portfolios for a management fee. We have also provided asset value guarantees and a limited number of loan guarantees to buyers
of aircraft or to financial institutions for a fee. Additionally, we remarket and sell aircraft owned or managed by others for a fee.
We
are an indirect wholly owned subsidiary of AIG.
We
are incorporated in the State of California. We maintain our principal executive offices at 10250 Constellation Boulevard, Suite 3400, Los Angeles, California 90067. Our
telephone number is (310) 788-1999 and our facsimile number is (310) 788-1990.
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Ratio of Earnings to Fixed Charges
The following table sets forth our ratio of earnings to fixed charges for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Six Months Ended
June 30, 2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
1.94
|
|
1.66
|
|
1.53
|
|
1.44
|
|
1.51
|
|
1.63
|
For
purposes of computing the ratio of earnings to fixed charges, earnings consist of net income adjusted for the provision for income taxes, fixed charges and capitalized interest, and
fixed charges consist of interest expense, capitalized interest and the interest factor of rents.
AMERICAN INTERNATIONAL GROUP, INC.
AIG is a holding company which, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in
the United States and abroad. AIG's primary activities include both general insurance and life insurance and retirement services operations. Other significant activities include financial services and
asset management. The common stock of AIG is listed on the New York Stock Exchange, among others.
Neither AIG nor any of its subsidiaries will be a co-obligor or guarantor of the debt securities.
USE OF PROCEEDS
We will use proceeds that we receive from the sale of the debt securities, together with internally generated funds, for general
corporate purposes unless the prospectus supplement states otherwise. General corporate purposes will include our purchases of aircraft and repayment of our debt as it matures. We will invest any
proceeds from the sale of the debt securities not immediately used in marketable securities until spent.
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DESCRIPTION OF DEBT SECURITIES
We may offer unsecured debt securities (the "Debt Securities") under an indenture dated as of August 1, 2006 (the "Indenture")
between us and Deutsche Bank Trust Company Americas, as trustee (the "Trustee"). The following is a summary of the material provisions of the Debt Securities and of the Indenture. You should read all
provisions of the Indenture carefully, including the definitions of certain terms, before you decide to invest in the Debt Securities. A copy of the Indenture is incorporated by reference as an
exhibit to the registration statement of which this prospectus is a part. See "Where You Can Find More Information."
General
The Debt Securities will rank equally with our other unsecured and unsubordinated indebtedness, unless otherwise provided in the
prospectus supplement. The Indenture
does not limit the amount of Debt Securities that we may issue. We may issue Debt Securities in one or more series.
The
prospectus supplement will set forth the initial offering price, the aggregate principal amount, the maturity date and some or all of the following terms of the Debt
Securities:
-
(1)
-
the
title;
-
(2)
-
any
limit on the aggregate principal amount of a particular series;
-
(3)
-
to
whom interest on the Debt Securities should be paid if other than the registered owner;
-
(4)
-
the
date or dates on which we agree to pay principal and any provision for the deferral of such date or dates;
-
(5)
-
the
rate or rates of interest for the Debt Securities (which may be fixed or variable) and, if applicable, the method used to determine the rate or rates of
interest, the date or dates from which interest will accrue, the dates that interest shall be payable and the record date for the payment of the interest;
-
(6)
-
the
place or places where the principal of, and premium, if any, and any interest on the Debt Securities will be payable, or the method of such payment;
-
(7)
-
the
period or periods within which, the price or prices at which, and the terms and conditions upon which the Debt Securities may be redeemed, in whole or
in part, at our option;
-
(8)
-
any
mandatory or optional sinking fund or analogous provisions and our obligation, if any, to redeem or repurchase the Debt Securities pursuant to any
sinking fund or similar provisions or at the option of a holder thereof, and the period, price and terms and conditions for the redemption or repurchase;
-
(9)
-
the
authorized denominations if other than the specified denominations set forth in the Indenture;
-
(10)
-
the
currency or currencies in which we agree to make payments on Debt Securities;
-
(11)
-
the
method of determining amounts of principal, any premium and interest payable on the Debt Securities if these amounts are calculated in reference to an
index;
-
(12)
-
the
amount of principal that we will pay upon acceleration, if other than the entire principal amount;
-
(13)
-
if
the Debt Securities of a particular series will not rank equally and
pari passu
with the Debt Securities
of each other series, the ranking of the Debt Securities of that series;
-
(14)
-
additional
Events of Default (as defined under the heading "Events of Default" below) or modifications to the Events of Default, covenants, notice
requirements or redemption provisions, if any;
-
(15)
-
whether
we will issue the debt securities in certificates or book-entry form (see "Certificated Securities" and "Global Securities" below); and
-
(16)
-
any
additional terms.
The
prospectus supplement will also describe any federal income tax consequences and other special considerations applicable to any Debt Securities issued with original issue discount.
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Payment of Interest and Exchange
We will issue the Debt Securities of each series either in the form of one or more global securities (each a "Global Security")
registered in the name of Cede & Co. as the nominee of The Depository Trust Company (the "Depository") or such other name as may be requested by an authorized representative of the
Depository, or as a certificate issued in definitive registered form (a "Certificated Security"), as set forth in the prospectus supplement. If we do not state the form of a series of Debt Securities
in a prospectus supplement, we are issuing the series as a Global Security. Principal, premium, if any, and interest, if any, is to be paid to registered holders at the office of the Trustee in the
Borough of Manhattan, City and State of New York or at any paying agency maintained by the Company for that purpose as described under "Global Securities" below. We may provide at our option for
payment of interest to registered holders of Certificated Securities by check mailed to the address of the holder as it appears on the register for the Certificated Securities.
Certificated Securities
A holder may present Certificated Securities for transfer or exchange at the Trustee's office or paying agencies in accordance with the
terms of the Indenture unless the prospectus supplement states otherwise. There will not be a service charge for any transfer or exchange of Certificated Securities, but the transfer or exchange is
subject to other limitations set forth in the Indenture.
Global Securities
Unless we tell you otherwise in a prospectus supplement, we will register each Global Security representing Debt Securities in the name
of Cede & Co. (the Depository's partnership nominee). Cede & Co. may not transfer any Global Security, in whole or in part, to anyone except the Depository or a nominee of
the Depository unless it is exchanged first for a Certificated Security.
The
information under the headings "The Depository" and "Book-Entry System" in this section concerning the Depository and the Depository's book-entry system has
been obtained from sources we believe to be reliable, but we take no responsibility for the accuracy thereof.
The Depository
The Depository is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning
of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934. The Depository holds securities that the Depository's participants ("Direct Participants") deposit with the Depository. The
Depository also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized
book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and
non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations.
The
Depository is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for the Depository, National Securities Clearing
Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the Depository system is also
available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Depository Rules applicable to its Participants are on file with the Securities and Exchange Commission. More
information about the Depository can be found at www.dtcc.com and www.dtc.org.
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The
laws of some states require that certain purchasers of securities take physical delivery of the securities in definitive form. Those laws may impair the ability to transfer
beneficial interests in Debt Securities represented by Global Securities.
Book-Entry System
We anticipate that the following provisions will apply to all depository arrangements unless the prospectus supplement states
otherwise.
Ownership
of beneficial interests in Debt Securities will be limited to Direct Participants or Indirect Participants.
Upon
the issuance of a Global Security, the Depository will credit, on its book-entry registration and transfer system, to the accounts of the applicable Direct Participants,
the respective principal amounts of the Debt Securities represented by such Global Security. The accounts to be credited will be designated by any underwriters or agents participating in the
distribution of those Debt Securities. Purchases of Debt Securities under the Depository system must be made by or through Direct Participants, which will receive a credit for the Debt Securities on
the Depository's records. The ownership interest of each actual purchaser of each Debt Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depository of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests
in the Debt Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Securities, except in the event that use of the book-entry system for the Debt Securities is discontinued.
To
facilitate subsequent transfers, all Debt Securities deposited by Direct Participants with the Depository are registered in the name of the Depository's partnership nominee,
Cede & Co., or such other name as may be requested by an authorized representative of the Depository. The deposit of Debt Securities with the Depository and their registration in the
name of Cede & Co. or such other the Depository nominee do not effect any change in beneficial ownership. The Depository has no knowledge of the actual Beneficial Owners of the
Securities; the Depository's records reflect only the
identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
So
long as the Depository or its nominee is the registered owner of a Global Security, it will be considered the sole owner or holder of the Debt Securities represented by that Global
Security for all purposes under the Indenture. Beneficial Owners will not be entitled to have the Debt Securities represented by a Global Security registered in their names, will not receive or be
entitled to receive physical delivery of Debt Securities in definitive form and will not be considered the owners or holders thereof under the Indenture.
We
will make payments of redemption proceeds, principal, premium, if any, and interest on book-entry Debt Securities to the Depository or its nominee, as the registered owner
of the Global Security representing such Debt Securities. Neither we nor the Trustee nor any of our agents will have any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security, or with respect to maintaining, supervising or reviewing any records relating to a beneficial ownership interest.
We
expect that the Depository, upon receipt of any redemption proceeds or any principal, premium or interest payment, will immediately credit Direct Participants' accounts with payments
in amounts proportionate to the respective beneficial interests in the Global Security, as shown on the
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records
of the Depository. We also expect that payments by Direct Participants to Indirect Participants and by Direct Participant and Indirect Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and accordingly will be the
responsibility of the Direct and Indirect Participants and not of the Depository, its nominee, us or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to
time. Payment of redemption proceeds or principal, premium, or interest payments to the Depository or its nominee is our responsibility, disbursement of such payments to Direct Participants will be
the responsibility of the Depository and disbursement of such payments to Beneficial Owners will be the responsibility of Direct Participants and Indirect Participants.
As
long as the Debt Securities are held by the Depository or its nominee and the Depository continues to make its same day funds settlement system available to us, all payments of
principal and interest on the Debt Securities will be made in immediately available funds.
We
expect that the forwarding of notices and other communications by the Depository to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners will be governed by arrangements among themselves, subject to any statutory or regulatory requirements which may be in effect from time to time. Neither
the Depository nor Cede & Co. (nor any other Depository nominee) will consent or vote with respect to the Debt Securities unless authorized by a Direct Participant in accordance with the
Depository's procedures. We are advised that the Depository's usual procedure is to mail an omnibus proxy to us as soon as possible after the record date with respect to any such consent or vote. The
omnibus proxy would assign Cede & Co.'s consenting or voting rights to the Direct Participants to whose accounts the Debt Securities are credited on the applicable record date, which
will be identified in a listing attached to the omnibus proxy.
In
the event the Depository is unwilling or unable to continue as Depository for a series of Debt Securities and we do not appoint a successor Depository within 90 days, we will
issue the Debt Securities in certificated form in exchange for the Global Security.
We
may decide at any time not to have Debt Securities of a particular series represented by one or more Global Securities and, accordingly will issue Debt Securities representing such
series in certificated form in exchange for all of the Global Security or Securities representing those Debt Securities.
Certain Covenants of the Company
Restrictions on Liens.
We will not, and will not permit any Restricted Subsidiary to, issue, assume or guarantee any indebtedness for
borrowed money
secured by any mortgage, as defined under the heading "Certain Definitions" below:
-
-
upon any of our property or the property of any Restricted Subsidiary, as defined under the heading "Certain Definitions"
below, or
-
-
upon any shares of stock of any Restricted Subsidiary,
without
ensuring that the Debt Securities are equally and ratably secured with such indebtedness for borrowed money. We may also choose to secure our other indebtedness and the indebtedness of a
Restricted Subsidiary ranking equally with the Debt Securities at the time we secure the Debt Securities. This limitation does not apply to:
-
(1)
-
mortgages
existing on August 1, 2006;
-
(2)
-
certain
mortgages securing all or a part of the purchase price of property, other than property acquired for lease to another person;
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-
(3)
-
mortgages
on the property of a Restricted Subsidiary existing at the time it became a Restricted Subsidiary;
-
(4)
-
mortgages
securing indebtedness for borrowed money owed by a Restricted Subsidiary to us or another Restricted Subsidiary;
-
(5)
-
mortgages
on property of another corporation that are in existence at the time we or a Restricted Subsidiary acquire the property of that corporation as an
entirety or substantially as an entirety, including acquisition by merger or consolidation;
-
(6)
-
any
replacement of any of the items listed in clauses (1) through (5) above, provided that the principal amount of the indebtedness secured by
the mortgage may not be increased and the principal repayment schedule and maturity may not be extended and the mortgage is limited to the same property subject to the mortgage replaced or property
substituted therefor;
-
(7)
-
liens
in connection with certain legal proceedings;
-
(8)
-
liens
for certain taxes or assessments or certain governmental charges or levies, landlord's liens and charges incidental to the conduct of our business or
the business of a Restricted Subsidiary or the ownership of property and assets by us or a Restricted Subsidiary, if the liens are not incurred in connection with the borrowing of money or the
obtaining of advances or credit and do not, in our opinion, materially impair the use of that property in our business operations or the business operations of a Restricted Subsidiary or the value to
the business of that property; and
-
(9)
-
mortgages
not otherwise excepted above securing indebtedness for borrowed money which, when aggregated with all other outstanding indebtedness for borrowed
money of ours and of the Restricted Subsidiaries secured by mortgages not otherwise excepted above, does not exceed 12.5% of our Consolidated Net Tangible Assets, as defined under the heading "Certain
Definitions" below.
Restrictions as to Dividends and Certain Other Payments.
We may not pay or declare any dividend or make any distributions on any of our
capital
stock, except in shares of, or warrants or rights to subscribe for or purchase shares of, capital stock of the Company, or make any payment ourselves or through any Restricted Subsidiary to acquire or
retire shares of stock, at a time when an Event of Default has occurred and is continuing under the Indenture because:
-
(1)
-
we
have failed to pay interest on the Debt Securities for at least 30 days after such interest was due;
-
(2)
-
we
have failed to pay the principal or premium, if any, on the Debt Securities when due and payable at maturity, upon redemption, by declaration or
otherwise; or
-
(3)
-
we
have failed to deposit any sinking fund payment with respect to Debt Securities when and as due.
Restrictions on Investments in Non-Restricted Subsidiaries.
We will not, nor will we permit any Restricted Subsidiary to, invest in or
transfer assets to a Non-Restricted Subsidiary if immediately after the transfer we would be in breach of or default under the Indenture.
Limited Covenants in the Event of a Highly Leveraged Transaction.
Other than our covenants included in the Indenture described above
and as described
below in "Merger and Sale of Assets," there are no covenants or provisions in the Indenture that afford holders protection should we participate in a highly leveraged transaction, leveraged buyout,
reorganization, restructuring, merger or similar transaction.
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Certain Definitions
Certain significant terms which are defined in the Indenture are set forth below:
"Consolidated Net Tangible Assets"
means the total amount of assets (less depreciation and valuation reserves and other reserves and items
deductible from the gross book value of specific asset amounts under generally accepted accounting principles) which under generally accepted accounting principles
would be included on a balance sheet for us together with our Restricted Subsidiaries, after deducting:
-
(1)
-
all
liability items except indebtedness (whether incurred, assumed or guaranteed) for borrowed money maturing by its terms more than one year from the date
of creation thereof or which is extendible or renewable at the sole option of the obligor in a manner where it could become payable more than one year from the date of creation thereof, shareholder's
equity and reserves for deferred income taxes,
-
(2)
-
all
goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, which in each case, would be included on
our balance sheet, and
-
(3)
-
investments
and equity in the net assets of Non-Restricted Subsidiaries.
"Mortgages"
means any mortgage, pledge, lien or other encumbrance of any nature.
"Non-Restricted Subsidiary"
means (1) any Subsidiary designated as non-restricted by our Board of Directors
in accordance with the Indenture, and (2) any other Subsidiary of which the majority of the voting stock is owned, directly or indirectly, by one or more Non-Restricted
Subsidiaries, if such Subsidiary is a corporation, or in which a Non-Restricted Subsidiary is a general partner, if such Subsidiary is a limited partnership.
"Restricted Subsidiaries"
means all Subsidiaries other than Non-Restricted Subsidiaries. Our Board of Directors may change the
designations of Restricted Subsidiaries and Non-Restricted Subsidiaries, subject to specified conditions in the Indenture.
"Subsidiary"
means any corporation, partnership or trust of which we or one or more other Subsidiaries own, or we together with one or
more Subsidiaries own, directly or indirectly, more than 50% of the stock or other interests evidencing ownership in such corporation, partnership or trust, which ordinarily has voting power for the
election of directors (or other persons performing equivalent functions).
Merger and Sale of Assets
We may consolidate with or merge into any other Person (as defined in the Indenture) or convey, transfer or lease our properties and
assets substantially as an entirety to any Person, and another Person may consolidate or merge with us or convey, transfer or lease its properties and assets to us substantially as an entirety only if
the following conditions are satisfied:
-
(1)
-
the
entity formed by consolidation or merger or to which such assets or properties are conveyed, transferred or leased, is a corporation, partnership or
trust organized and validly existing under the laws of the United States, any State or the District of Columbia and such Person expressly assumes our obligations under the Indenture;
-
(2)
-
immediately
after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event
of Default, has happened and is continuing; and
-
(3)
-
if,
as a result of such consolidation, merger, conveyance, transfer or lease, our property or assets become subject to a mortgage, pledge, lien, security
interest or other encumbrance not
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Upon
such consolidation, merger, conveyance, transfer or lease, the successor entity shall be substituted for us under the Indenture and, except in the case of a lease, we will be
relieved of all obligations under the Indenture.
Events of Default
The Indenture defines an Event of Default with respect to Debt Securities of any series as being any one of the following
occurrences:
-
(1)
-
our
failure to pay any installment of interest on the Debt Securities of that series when due and payable, and the continuation of our failure to pay for
30 days or more;
-
(2)
-
our
failure to pay all or any part of the principal of or premium, if any, on the Debt Securities of that series when due at maturity, when due upon
redemption, or when due by declaration or otherwise;
-
(3)
-
our
failure to deposit any sinking fund payment for that series of Debt Securities when and as due;
-
(4)
-
our
default in the performance of any other covenant contained in the Indenture or any Debt Security of that series (except as to covenants included in the
Indenture not for the benefit of that particular series of Debt Securities) continued for 60 days after written notice to us by the Trustee, or notice to each of us and the Trustee by the
holders of at least 25% in principal amount of the outstanding Debt Securities of that series;
-
(5)
-
our
default under any mortgage, indenture (including the Indenture) or instrument under which indebtedness for borrowed money is issued or is secured or
evidenced, which default constitutes a failure to pay principal of such indebtedness in an amount exceeding $50,000,000 when due and payable (other than as a result of acceleration) after expiration
of any applicable grace periods or results in indebtedness for borrowed money in the aggregate of $50,000,000 or more becoming or being declared due and payable before the date on which it would
otherwise become due and payable, and such acceleration is not rescinded or annulled or such indebtedness for borrowed money is not discharged within 30 days after written notice to us by the
Trustee, or notice to each of us and the Trustee by the holders of at least 25% in principal amount of the outstanding Debt Securities of that series;
-
(6)
-
certain
events in bankruptcy, insolvency, reorganization, receivership, or liquidation, whether voluntary or involuntary; or
-
(7)
-
any
other events of default provided in a supplemental indenture, if any, or an officer's certificate, if any, with respect to the Debt Securities of that
series.
If
an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Debt Securities of each affected series may declare the Debt
Securities of that series to be due and payable immediately, but under certain conditions such acceleration may be rescinded by the holders of a majority in principal amount of the Debt Securities of
each affected series.
The
holder of any Debt Security of any series will not have any right to institute any proceeding with respect to the Indenture or remedies thereunder, unless
-
(1)
-
the
holder previously gives the Trustee written notice of an Event of Default with respect to that series that is continuing,
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-
(2)
-
the
holders of not less than 25% in principal amount of the outstanding Debt Securities of that series shall have made written request to the Trustee and
offered the Trustee satisfactory indemnity to institute such proceeding as Trustee, and
-
(3)
-
the
Trustee shall have failed to institute such proceeding for 60 days after its receipt of such notice.
However,
the right of any holder of any Debt Security to institute suit for enforcement of any payment of principal, premium, if any, and interest on such Debt Security on or after the
applicable due date, may not be impaired or affected without such holder's consent.
The
holders of a majority in principal amount of outstanding Debt Securities of any series may direct the time, method and place of conducting any proceeding for any remedy available to
the Trustee or for exercising any trust or power conferred on the Trustee with respect to Debt Securities of that series. However, the Trustee may refuse to follow any direction that conflicts with
any rule of law or the Indenture. Before proceeding to exercise any right or power under the Indenture at the direction of such holders, the Trustee shall be entitled to receive reasonable security or
indemnity from such Holders against the costs, expenses and liabilities which could be incurred in compliance with any such direction. The Trustee may withhold from holders of Debt Securities notice
of any continuing default (except a default in payment of principal, premium, if any, or interest), if it determines that withholding notice is in their interests.
We
are required to furnish to the Trustee within 120 days after the end of each fiscal year a statement as to whether we are in default under the Indenture and, if we are in
default, specifying all such defaults and the nature and status thereof.
Amendment, Supplement and Waiver of the Indenture
We, together with the Trustee, may amend or supplement the Indenture with the consent of the holders of a majority in principal amount
of the outstanding Debt Securities of each series affected by such amendment or supplement. Any past default by us and its consequences may be waived with the consent of the holders of a majority in
principal amount of the outstanding Debt Securities of each series affected by such default. However, we may not enter into any amendment, supplement or waiver without the consent of the holders of
all affected Debt Securities if the amendment, supplement or waiver would:
-
(1)
-
change
the stated maturity of the principal of or any installment of principal or interest on any Debt Security;
-
(2)
-
reduce
the principal amount payable of, the rate of interest on, or any premium payable upon the redemption of any Debt Security;
-
(3)
-
reduce
the amount of principal of an original issue discount security that would be due and payable upon a declaration of acceleration;
-
(4)
-
adversely
affect any right of repayment at the option of the holder of any Debt Security;
-
(5)
-
reduce
the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation;
-
(6)
-
make
any Debt Security payable in a currency other than that stated in the Debt Security;
-
(7)
-
impair
the right to institute suit for the enforcement of any payment on or after the stated maturity thereof; or
-
(8)
-
reduce
the percentage in principal amount of outstanding Debt Securities of any series whose holders must consent to any amendment, supplement or waiver.
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We,
together with the Trustee, may, without the consent of any holder of Debt Securities, amend or supplement the Indenture for purposes including:
-
(1)
-
to
evidence our succession by another corporation;
-
(2)
-
to
add covenants for the benefit of the holders of all or any series of Debt Securities or any additional Event of Default;
-
(3)
-
to
permit or facilitate the issuance of Debt Securities in bearer or uncertificated form;
-
(4)
-
to
change or eliminate any provision of the Indenture if such change or elimination is effective only when there are no Debt Securities outstanding issued
prior to such change or elimination and entitled to the benefit of such provision;
-
(5)
-
to
secure the Debt Securities;
-
(6)
-
to
establish the form or terms of the Debt Securities of any series as permitted under the Indenture;
-
(7)
-
to
evidence the appointment of a successor trustee with respect to one or more series of Debt Securities;
-
(8)
-
to
cure any ambiguity; or
-
(9)
-
to
correct or supplement any provision of the Indenture inconsistent with other provisions or make any other provision which does not materially adversely
affect the interests of the holders of Debt Securities.
Defeasance and Covenant Defeasance
We may discharge our obligations under the Indenture with respect to any series of Debt Securities other
than:
-
(1)
-
our
obligation to register, transfer and exchange certificated Debt Securities;
-
(2)
-
our
obligations with respect to mutilated, destroyed, lost or stolen certificated Debt Securities;
-
(3)
-
our
obligations to maintain an office or agency in the place designated for payment of the Debt Securities and with respect to the treatment of funds held
by paying agents;
-
(4)
-
our
obligation to prepare and exchange definitive Debt Securities for any temporary Debt Securities issued, if any;
-
(5)
-
our
obligation to hold, or cause the paying agent to hold, in trust money for the payment of principal, premium, if any, and interest due on outstanding
Debt Securities of that series for the benefit of such holders;
-
(6)
-
certain
obligations to the Trustee; and
-
(7)
-
certain
obligations arising in connection with such discharge of obligations.
We
refer to this as a "defeasance." We may also be released from the restrictions described under the heading "Certain Covenants of the Company" above and any other restrictions
identified in the applicable prospectus supplement with respect to a series of Debt Securities. We refer to this as "covenant defeasance."
The
conditions we must satisfy for defeasance or covenant defeasance include the following:
-
(1)
-
We
must have irrevocably deposited with the Trustee or another satisfactory trustee, trust funds for the payment of the Debt Securities of that series. The
trust funds must consist of money or U.S. Government Obligations, as defined below, or a combination thereof, which will be in an amount sufficient without reinvestment to pay at maturity or
redemption the
12
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entire
amount of principal, premium, if any, and interest on the Debt Securities of that series, and to pay any mandatory sinking fund or analogous payments.
-
(2)
-
No
Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the Debt Securities of that series
shall have occurred and be continuing on the date we make the deposit or, for certain purposes, during the period ending on the 123rd day after the date of the deposit, or on the day after the
expiration of any longer preference periods.
-
(3)
-
The
defeasance or covenant defeasance will not cause the Trustee to have a conflicting interest as referred to in the Indenture.
-
(4)
-
The
defeasance or covenant defeasance will not result in a breach or violation of, or constitute a default under, the Indenture or other material agreements
or instruments or cause the Debt Securities of that series, if listed on a national securities exchange, to be delisted.
In
the case of defeasance, we are also required to deliver to the Trustee an opinion of counsel stating that we have received a direct ruling from the Internal Revenue Service, or such a
ruling has been published, or since the date of the Indenture there has been a change in the applicable federal income tax law, such that the holders of the outstanding Debt Securities of the series
to be defeased will not recognize income, gain or loss for federal income tax purposes as a result of the defeasance. The ruling must provide that the holders of the outstanding Debt Securities to be
defeased will be subject to federal income tax on the same amounts, in the same manner, and at the same times as would have been the case if the defeasance had not occurred.
In
the case of a covenant defeasance, we are required to deliver to the Trustee an opinion of counsel to the effect that the holders of the outstanding Debt Securities of the series for
which covenant defeasance is proposed will not recognize income, gain or loss for federal income tax purposes as a result of the covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the case if the covenant defeasance had not occurred.
"U.S.
Government Obligations" is defined in the Indenture as securities that are:
-
(1)
-
direct
obligations of the United States of America for the payment of which its full faith and credit is pledged, or
-
(2)
-
obligations
of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United States of America.
In
either case, the U.S. Governmental Obligations may not be callable or redeemable at the option of the issuer, and shall also include a depository receipt issued by a bank, as defined
in Section 3(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), as custodian with respect to such U.S. Government Obligation or a specific payment of principal of or
interest on such U.S. Government Obligation held by the custodian for the account of the holder of such depository receipt. However, the custodian is not authorized to make any deduction from the
amount payable to the holder of the depository receipt except as required by law.
The Trustee
Deutsche Bank Trust Company Americas acts as the Trustee under the Indenture. We may maintain bank accounts, borrow money and have
other commercial banking, investment banking and other business relationships with the Trustee and its affiliates in the ordinary course of business. Affiliates of the Trustee may participate as
underwriters, agents or dealers in offerings of our securities.
Governing Law
The Indenture and the Debt Securities will be governed by and construed in accordance with the laws of the State of New York.
13
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain U.S. federal income tax considerations generally of importance to holders of Debt Securities.
With respect to a specific series of Debt Securities, the prospectus supplement relating to such series of Debt Securities may contain additional discussion regarding the U.S. federal income tax
considerations with respect to that series of Debt Securities that will supplement or supersede this general discussion. This summary only applies to persons that purchase Debt Securities at their
issue price as part of the original issuance of the Debt Securities.
Subject
to any additional discussion in the applicable prospectus supplement, it is expected, and the discussion below assumes, that all Debt Securities are 100% principal-protected
(i.e., that their holders would be entitled to receive payment at maturity equal to at least 100% of their principal amount).
This
summary discusses only Debt Securities held as capital assets, within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). It does not
discuss tax considerations that may be relevant to a holder in light of its particular circumstances or to holders subject to special
rules, such as financial institutions, insurance companies, tax-exempt investors, traders in securities that elect to mark to market, regulated investment companies, dealers in securities
or currencies, persons holding Debt Securities as a currency, interest rate or other hedge, or as a position in a "straddle" or other integrated transaction for tax purposes, U.S. expatriates or
persons treated as residents of more than one country, persons who acquire or for U.S. federal income tax purposes are deemed to have acquired Debt Securities in an exchange or for property other than
cash, holders whose functional currency (as defined in Section 985 of the Code) is not the U.S. dollar, persons subject to the alternative minimum tax, partnerships or other entities classified
as partnerships for U.S. federal income tax purposes, or persons holding Debt Securities through any such entities. This summary does not discuss Debt Securities issued with original issue discount
("OID"). The discussion below is based on existing provisions of the Code, judicial decisions and administrative rulings and pronouncements, and existing and proposed Treasury Regulations, all of
which are subject to alternative construction or to change possibly with retroactive effect.
Prospective investors are urged to consult their tax advisors regarding the U.S.
federal tax consequences of acquiring, holding and disposing of the Debt Securities, as well as any tax consequences that may arise under the laws of any foreign, state, local or other taxing
jurisdiction.
If
a partnership or other entity treated as a partnership for U.S. tax purposes holds Debt Securities, the tax consequences to a partner will generally depend upon the status of the
partner and the activities of the partnership. A holder of Debt Securities that is a partnership, and partners in such a partnership, should consult their tax advisors about the U.S. federal income
tax consequences to them of the ownership and disposition of the Debt Securities.
U.S. Tax Considerations for U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of a Debt Security that
is:
-
-
a citizen or resident of the United States,
-
-
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or
under the laws of the United States or of any political subdivision thereof,
-
-
an estate whose income is includable in gross income for U.S. federal income tax purposes regardless of its source, or
-
-
a trust, (i) if a U.S. court is able to exercise primary supervision over the administration of the trust and one
or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) the trust has in effect a valid election to be treated as a U.S. person.
Interest
Interest on the Debt Securities generally will be taxable to a U.S. Holder as ordinary interest income at the time it is accrued or
received, depending in part on the U.S. Holder's regular method of tax accounting.
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Disposition or Repayment of a Debt Security
A U.S. Holder generally will recognize taxable gain or loss equal to the difference between any amount realized on the taxable sale,
exchange or retirement of the Debt Securities and that holder's adjusted tax basis in the Debt Securities except to the extent that gain or loss is attributable to accrued but unpaid interest. A U.S.
Holder's adjusted tax basis in the Debt Securities generally will be equal to that holder's initial investment in the Debt Securities. The gain or loss will generally be capital gain or loss and will
be long-term capital gain or loss if the Debt Securities were held by the holder for more than twelve months. The deductibility of capital losses is subject to a number of limitations.
Prospective purchasers of Debt Securities should consult their own tax advisors concerning the tax consequences of a sale, exchange or other disposition of the Debt Securities.
Information Reporting and Backup Withholding
The amount of any interest paid on the Debt Securities in each calendar year and the amount of tax withheld, if any, with respect to
the payments will generally be required to be reported to the Internal Revenue Service ("IRS"). A U.S. Holder may be subject to backup withholding tax with respect to interest payments and gross
proceeds from the sale, exchange or disposition of Debt Securities unless (i) the U.S. Holder is a corporation or comes within certain other exempt categories or (ii) prior to payment,
the U.S. Holder provides an accurate taxpayer identification number and certifies as required on a duly completed and executed IRS Form W-9 (or permitted substitute or successor
form), and otherwise complies with the requirements of the backup withholding rules.
Backup
withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against such U.S. Holder's U.S. federal
income tax liability and may entitle the U.S. Holder to a refund, provided the required information is furnished to the IRS.
Certain U.S. Tax Considerations for Foreign Holders
Set forth below is a summary of certain U.S. tax consequences for Foreign Holders of Debt Securities. For purposes of this discussion,
"Foreign Holder" means a beneficial owner of a Debt Security that is an individual, corporation (including an entity treated as a corporation for U.S. federal income tax purposes), trust or estate
that is not a U.S. Holder.
Income, Withholding and Estate Tax
Subject to the discussion of backup withholding below:
-
-
Payments of principal of and interest on a Debt Security to a Foreign Holder will not be subject to U.S. federal income
tax or withholding tax if, in the case of interest:
-
(1)
-
the
payments are not effectively connected with the conduct of a U.S. trade or business,
-
(2)
-
the
Foreign Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock entitled to vote,
-
(3)
-
the
Foreign Holder is not (a) a controlled foreign corporation related to us through stock ownership, (b) a bank receiving interest pursuant
to a loan agreement entered into in the ordinary course of its trade or business, or (c) a foreign tax-exempt organization or a foreign private foundation for U.S. federal income
tax purposes,
-
(4)
-
the
interest is not contingent on our profits, revenues, or changes in the value of our property or otherwise described as contingent interest in
Section 871(h)(4) of the Code ("Contingent Interest"), and
-
(5)
-
either
(a) prior to payment, a statement (generally made on a properly completed and duly executed IRS Form W-8BEN) is received
certifying that the beneficial owner of the Debt Security is not a U.S. person and certain other requirements are met or (b) the Foreign Holder holds the Debt Security through a foreign
intermediary or partnership and the certification requirements of applicable Treasury Regulations are satisfied;
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-
-
A Foreign Holder of a Debt Security will not be subject to U.S. federal income tax on gain realized on the sale, exchange
or redemption of a Debt Security unless in general:
-
(1)
-
the
gain is effectively connected with the conduct of a U.S. trade or business of the Foreign Holder, or
-
(2)
-
the
Foreign Holder is an individual who is present in the United States for 183 days or more during the taxable year and either (a) the
individual's "tax home" for U.S. federal income tax purposes is in the United States, or (b) the gain is attributable to an office or other fixed place of business maintained in the United
States by the individual; and
-
-
A Debt Security beneficially owned by an individual who at the time of death was not a citizen or resident of the United
States (as defined for U.S. federal estate tax purposes) will not be included in the decedent's gross estate for U.S. federal estate tax purposes as a result of such individual's death, unless the
individual:
-
(1)
-
actually
or constructively owned 10% or more of the total combined voting power of all classes of our stock entitled to vote, or
-
(2)
-
held
the Debt Security in connection with a U.S. trade or business, or
-
(3)
-
the
Debt Security provided for the payment of Contingent Interest.
A
Foreign Holder that does not qualify for exemption from withholding under the rules summarized above generally will be subject to U.S. withholding at a rate of 30% (or lower treaty
rate under an applicable income tax treaty) on payments of interest on the Debt Securities.
If
a Foreign Holder is engaged in a trade or business in the United States, and if interest on its Debt Securities (or gain realized on its sale, exchange or other disposition) is
effectively connected with the conduct of such trade or business, the Foreign Holder, although exempt from the withholding tax discussed above (provided the Foreign Holder timely provides a properly
completed and duly executed IRS Form W-8ECI or successor form), will generally be subject to regular U.S. federal income tax on such effectively connected income in the same manner
as if it were a U.S. person unless such Foreign Holder properly claims the benefits of an applicable income tax treaty, if any, between the
United States and its country of residence (generally by providing a properly completed and duly executed IRS Form W-8BEN) and such interest or gain is not attributable to a
permanent establishment or fixed base of such Foreign Holder in the United States. In addition, if a Foreign Holder is a foreign corporation, it may be subject to a 30% branch profits tax (unless
reduced or eliminated by an applicable income tax treaty) on its effectively connected earnings and profits for the taxable year, subject to certain adjustments.
The
foregoing does not deal with all aspects of U.S. federal income and withholding tax that may be relevant to Foreign Holders, including Foreign Holders that hold Debt Securities
through a partnership, qualified intermediary or other "pass-through" entity. Foreign Holders are advised to consult their own tax advisors for specific advice concerning the ownership and
disposition of Debt Securities.
Backup Withholding and Information Reporting
The amount of any interest paid on the Debt Securities in each calendar year and the amounts of tax withheld, if any, with respect to
the payments will generally be required to be reported to the IRS. Foreign Holders who have provided the form and certifications mentioned above or who have otherwise established an exemption will
generally not be subject to backup withholding tax if neither we nor our agent has actual knowledge or reason to know that any information in those forms and certifications is unreliable or that the
conditions of the exemption are in fact not satisfied.
Payments
of the proceeds from the sale of a Debt Security held by a Foreign Holder to or through a foreign office of a broker will generally not be subject to information reporting or
backup withholding. However, information reporting, but not backup withholding, may apply to those payments if the broker is one of the following:
-
-
a U.S. person,
-
-
a controlled foreign corporation for U.S. federal income tax purposes,
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-
-
a foreign person 50 percent or more of whose gross income from all sources for the three-year period
ending with the close of its taxable year preceding the payment was effectively connected with a U.S. trade or business, or
-
-
a foreign partnership with specified connections to the United States.
Information
reporting and backup withholding may apply to payment of the proceeds from a sale of a Debt Security held by a Foreign Holder to or through the U.S. office of a broker unless
the holder establishes an exemption from one or both.
Foreign
Holders should consult their tax advisors regarding the application of information reporting and backup withholding in their particular situations, the availability of an
exemption therefrom, and the procedure for obtaining such an exemption, if available. Backup withholding is not a separate tax, but is allowed as a refund or credit against the holder's U.S. federal
income tax, provided the necessary information is furnished to the IRS.
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PLAN OF DISTRIBUTION
We may sell the Debt Securities on a continuous or delayed basis through underwriters, dealers or agents or directly to one or more
purchasers.
If
underwriters or dealers are used in the sale, the underwriters or dealers will acquire the Debt Securities for their own account and may later resell the Debt Securities. Resale
transactions for the Debt Securities may include negotiated transactions, the resale at a fixed public offering price or resale at varying prices determined at the time of sale. The Debt Securities
may be offered to the public through underwriting syndicates which may be represented by managing underwriters. Such underwriting firms may purchase and sell the Debt Securities in the secondary
market, but they are not obligated to do so. There are no assurances that there will be a secondary market for the Debt Securities. The obligations of the underwriters to purchase the Debt Securities
will be subject to certain conditions. The underwriters will be obligated to purchase all the Debt Securities of a series if any are purchased. We will include the names of the underwriters (including
any managing underwriters) or dealers and the terms of the transactions, including the compensation the underwriters and dealers will receive, in our prospectus supplement. Any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.
We
may also sell the Debt Securities directly or through agents designated by us. We will name any agent involved in the offer or sale of the Debt Securities and state any commissions
paid by us to that agent in the prospectus supplement. We will set forth in the prospectus supplement the net proceeds we will receive from the sale of the Debt Securities. Unless indicated in the
prospectus supplement, any agent is acting on a best efforts basis for the period of its appointment. Any agent will also be deemed to be an underwriter as that term is defined in the Securities Act
of any of the Debt Securities it offers or sells.
We
may authorize agents, underwriters or dealers to solicit offers by certain institutional investors to purchase Debt Securities at the public offering price provided in the prospectus
supplement and provide for payment and delivery on a future date specified in the prospectus supplement. Contracts for those delayed purchases will be subject only to the conditions contained in the
prospectus supplement and the prospectus supplement will set forth the commission to be paid for solicitation of those contracts.
We
may indemnify any underwriters, dealers and agents who participate in the distribution of the Debt Securities against certain civil liabilities, including liabilities under the
Securities Act. We also may agree to make contributions with respect to payments which the agents or underwriters may be required to make. Our underwriters, dealers and agents may be customers of,
engage in transactions with, or perform services for us in the ordinary course of business.
FINRA Regulations
Affiliates of ours may act as an underwriter, dealer or agent in a sale of the Debt Securities. Rule 2720 of the NASD Conduct
Rules of the Financial Industry Regulatory Authority, Inc. ("FINRA") imposes certain requirements when a FINRA member distributes an affiliated company's securities. As a result, we will
conduct any offering in which any of our affiliates acts as an underwriter, dealer or agent in compliance with the applicable requirements of Rule 2720. The maximum compensation we will pay to
a FINRA member or independent broker-dealer in connection with any offering of the Debt Securities will not exceed 8% of the maximum proceeds of such offering.
None
of our affiliates, or any other FINRA member participating in an offering of these securities in which any of our affiliates is acting as an underwriter, dealer or agent will
confirm initial sales to any discretionary accounts over which it has authority without the prior specific written approval of the customer.
Our
affiliates may use this prospectus in the initial sale of these securities or in a secondary market transaction in these or similar securities after their initial sale. In secondary
market transactions, our affiliates may resell the securities they acquire from other holders, after the original offering and sale of the securities. Resales of this kind may occur in the open market
or may be privately negotiated, at prevailing market prices at the time of resale or at related or negotiated prices. In these transactions, our affiliates may act as principal or agent and may
receive compensation in the form of discounts and commissions from both the purchaser and seller.
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We
will not receive any proceeds from secondary market transactions and we do not expect that any of our affiliates that engage in these transactions will pay any proceeds from secondary
market transactions to us. Information about trade and settlement dates, as well as the purchase price, for secondary market transactions will be provided to the purchaser in a separate confirmation
of sale. You may assume that the prospectus is being used in a secondary market transaction unless we or our agent or one of our affiliates informs you otherwise.
EXPERTS
The financial statements and financial statement schedule incorporated in this prospectus by reference to the Annual Report on
Form 10-K for the year ended December 31, 2008 have been so incorporated in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the issuance of the Debt Securities we are offering will be passed upon for us by O'Melveny & Myers LLP,
Los Angeles, California.
19
$1,500,000,000
$750,000,000 4.875% Senior Notes due 2015
$750,000,000 5.875% Senior Notes due 2019
Joint Book-Running Managers
Credit Suisse
J.P. Morgan
Barclays Capital
Macquarie Capital
Co-Managers
BofA Merrill Lynch
Citigroup
Deutsche Bank Securities
Goldman, Sachs & Co.
Morgan Stanley
RBC Capital Markets
UBS Investment Bank
March 14, 2012