AIG Agrees to Repay Fed Credit Line

AIG Agrees to Repay Fed Credit Line in Deal with U.S. Treasury

By Andrew Frye -

A flag flies outside 70 Pine Street, home to the headquarters of American International Group (AIG), in New York. Photographer: Daniel Acker/Bloomberg

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Dec. 8 (Bloomberg) -- American International Group Inc. struck a deal to repay its Federal Reserve credit line as the insurer seeks independence from the government. AIG owed about $21 billion last week on the line, which was created in 2008 after regulators said a failure of the insurer would hobble the global economy. Bloomberg's Carol Massar, Matt Miller, Dominic Chu, Adam Johnson and Julie Hyman report. (Source: Bloomberg)

American International Group Inc. struck a deal to repay a Federal Reserve credit line as the insurer seeks independence from the government.

AIG will use proceeds from the sales of two non-U.S. life insurance units to repay the line, on which it owed about $21 billion as of last week, the New York-based company said today in a filing. The deal was struck with regulators including the U.S. Treasury Department, which holds a $49 billion preferred stake in the company.

“It represents a great step forward for AIG and for the taxpayers to effectively narrow the number of counterparties from two to one,” said Clark Troy, senior analyst at Aite Group in Chapel Hill, North Carolina. “We’ve had a number of steps in a row in AIG’s recovery process go off without a hitch.”

The Treasury Department plans to convert its investment into about 1.66 billion shares of common stock, or about 92 percent of the total, by March 15. The stake will then be sold to private investors.

AIG, which is seeking to replace government funds with private capital, may raise as much as $7 billion in share sales through Aug. 15, under the deal. The insurer last month sold $2 billion of bonds in its first offering since the bailout.

The insurer slid $1.73, or 3.9 percent, to $42.22 on the New York Stock Exchange, where trading was halted for the release of news. The company has surged about 41 percent this year as profit rebounded at units the company plans to keep.

Treasury Divestitures

The U.S. is selling holdings in financial firms that taxpayers bailed out at the depths of the financial crisis. The Treasury this week divested its remaining stock in Citigroup Inc. for $10.5 billion. Treasury aims to raise at least $15 billion from an offering of AIG shares in the first quarter of next year, the Wall Street Journal said today, citing unidentified people.

AIG’s Fed credit line was created in 2008 after regulators said a failure of the insurer would hobble the global economy. The bailout swelled to $182.3 billion as it was revised at least four times to make more funds available, lower interest payments and to give the company more time to rebuild.

AIG divested a 67 percent stake in AIA Group Ltd. in October for $20.5 billion and sold American Life Insurance Co. last month to MetLife Inc. for $16.2 billion.

Today’s agreement is an “important step forward in our progress toward completely repaying taxpayers,” AIG said in a statement. “We remain committed to executing the steps and meeting all conditions in the agreement as soon as possible.”