Fitch downgrades international lease Finance Corp's IDR to 'BB'; watch negative

ILFC's ratings remain on Rating Watch Negative where they were originally placed on Sept. 25, 2009. Approximately $18 billion of debt is affected by these actions. (A full list of ratings actions follows at the end of this release.)

Fitch believes that continued alignment of ILFC's ratings with AIG's ratings is no longer warranted due to several factors. ILFC is no longer viewed as a core part of AIG's overall franchise, and the prospect of a near-term sale of ILFC has become more unlikely. In the past, the alignment of ILFC's ratings with AIG's reflected ILFC's significant dependence on the underlying explicit and implicit support provided to the AIG organization by the Federal Reserve Bank of New York (FRBNY) until AIG could divest ILFC through a near-term sale to a buyer with the financial wherewithal to lend support to ILFC and preserve its investment-grade capital structure.

The downgrade primarily reflects Fitch's belief that AIG's long-term willingness to extend support to ILFC may be more limited than previously assumed. It also reflects the agency's concern that ILFC's efforts to restructure its capital structure and generate liquidity extend beyond the dates at which AIG has indicated that it will provide financial support. Further, Fitch is increasingly concerned that even if the restructuring is completed as envisioned by ILFC and AIG, the resulting capital structure and business profile may be insufficient to support investment grade ratings.

ILFC's current ratings continue to benefit from AIG's underlying intention to provide support to ILFC through November 2010 to the extent that ILFC's efforts to procure secured third-party debt financing, aircraft sales, and other sources of funds are insufficient to meet existing commitments. Thus, Fitch is assuming that sufficient support will be provided to ensure all maturing debt obligations through November 2010 are satisfied. Fitch also believes that in the near to mid term, AIG will likely continue to take reasonable steps to maximize the value of its investment in ILFC. Such steps would include extending support of ILFC beyond November 2010 to the extent ILFC is unable to meet existing commitments. Further, Fitch's analysis of ILFC's aircraft portfolio indicates that the company has significant economic value above its debt levels under most scenarios.

However, if ILFC is unable to generate sufficient liquidity via assets sales and third-party secured financing and is further required to draw on support from its parent, Fitch believes ILFC's business is at a greater risk of transitioning into a portfolio liquidation scenario in order to preserve liquidity and minimize future funding requirements. Absent continued support from AIG, ILFC's ratings would likely fall into the highly speculative rating category.

Resolution of the Rating Watch will primarily reflect ILFC's ability to resolve substantial near-term funding pressure by generating sufficient liquidity through aircraft sales, extension or amendment of the current bank facilities and procurement of third party secured debt financing to satisfy near-term funding obligations and minimize the likelihood for further support from AIG.

Furthermore, although unencumbered collateral, primarily aircraft, remains adequate to support repayment of unsecured debt, Fitch remains concerned that further encumbrance of the aircraft portfolio, either via indirect government support or third-party secured financing, may effectively result in subordination of existing unsecured bondholders. This would likely result in downward notching of the senior unsecured debt rating.

ILFC's preferred securities reflect their deep subordination to senior unsecured creditors and the growing potential for ILFC to exercise deferral options given the company's liquidity challenges. At their current level, the ratings are consistent with Fitch's ratings on AIG's preferred securities as well as Fitch's ratings on hybrid securities issued by other entities that have experienced significant liquidity challenges over the last 12-18 months.

Fitch's rating actions today are the result of a focused review of its 'Master Global Financial Institutions Criteria' dated Dec. 29, 2009 and 'Finance and Leasing Companies Criteria' dated Dec. 30, 2009. This review concentrated in particular on liquidity and stress testing. Although insurance holding companies are specifically excluded, Fitch reviewed and applied criteria outlined ' Rating Linkages in Parent and Nonbank Financial Subsidiary Relationships' dated Dec. 30, 2009 in performing its analysis of parent support.

Fitch has downgraded ILFC's ratings as follows:

--Long-term IDR to 'BB' from 'BBB';

--Senior unsecured debt to 'BB' from 'BBB'.

All of ILFC's ratings remain on Rating Watch Negative including the following:

--Preferred stock 'B'.

Fitch had downgraded and subsequently withdrawn the following ratings:

--Short-term IDR to 'B' from 'F2';

--Commercial paper to 'B' from 'F2'.