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AIG set to secure revised deal
By Paritosh Bansal |
March 2, 2009, Monday
|
Print Edition
Print Edition
AMERICAN International Group Inc is close to signing a deal with the United States government that would ease the terms of its bailout, provide a further equity commitment and help it pay down debt, a person familiar with the matter said on Saturday.
The revision would be the latest sign of how federal regulators are having to tweak bailout packages for financial institutions deemed too big to fail as the economy and markets continue to worsen.
The board of the troubled insurer was due to meet yesterday to vote on the deal, which could be announced when AIG reports its quarterly results today, the source said.
That would be just days after the government agreed to boost its equity stake in Citigroup Inc to as much as 36 percent in a bid to bolster another financial giant that taxpayers had already poured billions of dollars into.
The revised AIG agreement is expected to include an additional equity commitment of about US$30 billion, more lenient terms on an existing preferred investment, and a lower interest rate on a US$60-billion government credit line, the source said.
The new commitment would enable AIG to issue preferred stock to the government later, the source said.
The London Interbank Offered Rate floor on the interest rate AIG pays on the government's credit line is set to be removed under the new terms, which would save the insurer about US$1 billion a year, the source said. The firm now pays 3 percentage points above Libor.
AIG will also give the US Federal Reserve ownership interests in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co in return for reducing its debt, the source said.
The insurer had been trying to sell Alico and a part of AIA in a bid to raise money to pay back the government.
AIG may also securitize some US life insurance policies and give them to the government to further reduce its debt, the source said.
Last year, AIG said that it planned to sell all assets except its US property and casualty business, foreign general insurance and an ownership interest in some foreign life operations.
The revision would be the latest sign of how federal regulators are having to tweak bailout packages for financial institutions deemed too big to fail as the economy and markets continue to worsen.
The board of the troubled insurer was due to meet yesterday to vote on the deal, which could be announced when AIG reports its quarterly results today, the source said.
That would be just days after the government agreed to boost its equity stake in Citigroup Inc to as much as 36 percent in a bid to bolster another financial giant that taxpayers had already poured billions of dollars into.
The revised AIG agreement is expected to include an additional equity commitment of about US$30 billion, more lenient terms on an existing preferred investment, and a lower interest rate on a US$60-billion government credit line, the source said.
The new commitment would enable AIG to issue preferred stock to the government later, the source said.
The London Interbank Offered Rate floor on the interest rate AIG pays on the government's credit line is set to be removed under the new terms, which would save the insurer about US$1 billion a year, the source said. The firm now pays 3 percentage points above Libor.
AIG will also give the US Federal Reserve ownership interests in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co in return for reducing its debt, the source said.
The insurer had been trying to sell Alico and a part of AIA in a bid to raise money to pay back the government.
AIG may also securitize some US life insurance policies and give them to the government to further reduce its debt, the source said.
Last year, AIG said that it planned to sell all assets except its US property and casualty business, foreign general insurance and an ownership interest in some foreign life operations.
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