March 2, 2009
U.S. Is Said Set to Offer A.I.G. Up to $30 Billion More
By ANDREW ROSS SORKIN
The federal government is preparing to loosen the terms of its huge loan to the American International Group and provide another $30 billion to the insurer as it prepares to report the biggest quarterly loss in history on Monday, $62 billion, people involved in the discussions said Sunday night.
The intervention marks the fourth time that A.I.G., the giant insurer, has had to seek assistance from the federal government. The government already owns nearly 80 percent of the insurer’s holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company’s toxic assets.
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March 2, 2009
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By ANDREW ROSS SORKIN
The federal government is preparing to loosen the terms of its huge loan to the American International Group and provide another $30 billion to the insurer as it prepares to report the biggest quarterly loss in history on Monday, $62 billion, people involved in the discussions said Sunday night.
The intervention marks the fourth time that A.I.G., the giant insurer, has had to seek assistance from the federal government. The government already owns nearly 80 percent of the insurer’s holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company’s toxic assets.
The deal would have the government commit another $30 billion in cash to A.I.G. from the Troubled Assets Relief Fund, should the company need it, according to the people involved in the talks.
A.I.G. is not expected to draw down the money immediately. Instead, the money is intended to assure credit-rating agencies that A.I.G. can make good on its debts to the government and to private lenders.
Credit-rating agencies like Moody’s, Fitch Ratings and Standard & Poor’s had been preparing to sharply downgrade A.I.G.’s credit ratings on Monday because of the record quarterly loss. That would have forced A.I.G. to default on its debt, possibly forcing it into bankruptcy.
The restructuring is likely to avert such a fate. Indeed, the major credit-rating agencies have been briefed on the pending deal between A.I.G. and the government, the people involved in the talks said, and they have committed not to downgrade the company’s debt as a result.
Another part of the deal would allow A.I.G. to exchange some of its preferred nonvoting shares, which paid a 10 percent dividend, for new preferred shares that do not require a dividend. That would save A.I.G. $4 billion annually.
To further ease A.I.G.’s debt burden, some of its other debt to the government would be converted into equity in two of the insurer’s subsidiaries in Asia —American International Assurance and the American Life Insurance Company. Both units are performing well. This would give the government direct ownership in those subsidiaries and provide sellable assets to American taxpayers even if the A.I.G. holding company were to default on its loans.
The government stake in American International Assurance is likely to be controversial. The unit had been put up for sale recently, without success. That suggests that the government is giving A.I.G. better terms than private investors were willing to give, exposing the government to further accusations that it is providing a handout to A.I.G.
Also as part of the deal, the government would agree to lower the interest rate on all remaining A.I.G. debt to match the London Interbank Offered Rate, or Libor. That would replace the previous rate, which was 3 percentage points higher than Libor. That move would save A.I.G. another $1 billion in interest payments.
The loss that A.I.G. is preparing to report on Monday would be the largest ever by any company in a single quarter. Still, of the $62 billion loss being reported, only about $2 billion is a cash loss. The rest is the result of noncash items like write-downs on the value of the company’s assets.
Copyright 2009 The New York Times Company