New Measures Will Reduce Debt Owed to Government, Strengthen Capital Base, Allow Time to Execute Restructuring Plan under Better Market Conditions
AIG Positioning Certain Key Franchises as Independent Operations to Benefit Customers and Enhance Franchise Values
Emphasis on Reducing Risk Through Increased Transparency
NEW YORK--Mar. 2, 2009--
American International Group, Inc. (AIG) today announced a broad set of
actions, taken in cooperation with the U.S. Department of the Treasury
(U.S. Treasury) and the Federal Reserve, to improve AIG’s capital
structure, protect and enhance the value of its key businesses, and
position these franchises for the future as more independently run,
These actions will reduce the debt AIG owes the government, strengthen
AIG’s capital base, and allow AIG time to execute its plan and benefit
from future improvements in market and industry conditions. AIG’s
liquidity needs have been stabilized since last November. Now, AIG has
access to additional financial backstops should conditions change that
will facilitate certain types of structured divestiture or
recapitalization activities for AIG subsidiaries. The key actions
announced today are:
Improved terms of existing U.S. Treasury preferred investment: The
terms of the U.S. Treasury’s preferred stock investment in AIG will be
modified to make these preferred securities more closely resemble
common equity and improve AIG’s financial leverage.
New standby equity capital facility: The U.S. Treasury will
provide AIG with a new five-year equity capital facility, which
will allow AIG to raise up to $30 billion of capital by issuing
non-cumulative preferred stock to the U.S. Treasury from time to time
Repayment of the FRBNY credit facility: AIG will transfer to
the Federal Reserve Bank of New York (FRBNY) (or to a trust for the
benefit of the FRBNY) preferred interests in American Life Insurance
Company (ALICO) and American International Assurance Company, Ltd.
(AIA) in return for a reduction in the outstanding balance of up to
$26 billion of the FRBNY senior secured credit facility. AIG also
expects to transfer to the FRBNY securitization notes of up to $8.5
billion representing embedded value of certain of its U.S. life
insurance businesses in return for a further reduction in its
outstanding FRBNY credit facility balance. Securitization is a capital
management strategy and will not affect the day-to-day operations,
sales activities, or customers of these businesses.
Reduced cost of FRBNY credit facility: The FRBNY will remove
the LIBOR floor on the senior secured credit facility. This will save
AIG an estimated $1 billion in interest costs per year, based on the
current level of LIBOR and the current facility balance.
Maintain availability of FRBNY credit facility: AIG will
continue to have access to the FRBNY credit facility. Following the
repayment of the outstanding amount on the facility with the preferred
interests and securitization notes, the total amount available to AIG
under the facility will remain at least $25 billion.
“AIG is executing one of the most extensive corporate restructuring
programs in history at a time when the global economy and capital
markets are in turmoil,” said Edward M. Liddy, Chairman and Chief
Executive Officer, AIG. “While we have made meaningful progress, we have
concluded, along with Treasury and the Federal Reserve, that additional
tools are needed to enable success. The measures announced today provide
the necessary U.S. government support for a plan to establish separate
capital structures, including outside ownership, for certain AIG
“AIG’s underlying businesses remain strong, well-capitalized, and
competitive. Moreover, policy holders, regulators, agents and business
partners around the globe can be confident that policies written by any
AIG company are sound,” Mr. Liddy said.
The U.S. Treasury and the Federal Reserve issued a press release today
related to the restructuring of government assistance to AIG that
contained the following statement: “The steps announced today provide
tangible evidence of the U.S. Government’s commitment to the orderly
restructuring of AIG over time in the face of continuing market
dislocations and economic deterioration. Orderly restructuring is
essential to AIG’s repayment of the support it has received from U.S.
taxpayers and to preserving financial stability. The U.S. Government is
committed to continuing to work with AIG to maintain its ability to meet
its obligations as they come due.”
Since September 2008, when the Federal Reserve first extended emergency
assistance to AIG and Mr. Liddy was appointed CEO, AIG has made progress
in its restructuring by: reducing the excessive risk from exposure to
certain financial products, derivatives trading activities, and
securities lending; rationalizing AIG’s cost structure; selling easily
separable assets; and stabilizing the company’s liquidity.
However, global economic conditions have continued to deteriorate
significantly, posing challenges to AIG’s ability to divest assets at
acceptable values. “The very same global forces that we face have
greatly diminished the ability of qualified buyers to raise the capital
necessary to buy AIG’s businesses right now,” said Paula Rosput
Reynolds, AIG Vice Chairman and Head of Restructuring.
“As a result, AIG is redirecting the divestiture process away from
relying solely on immediate sales for cash and will use a greater
variety of tools to maximize the value of the individual businesses. The
U.S. Treasury, the Federal Reserve, and AIG have taken actions that will
allow AIG to achieve a complete restructuring over the next several
years through a process that protects policyholders, continues to reduce
risk, and produces strong, focused franchises that can operate as
independent entities,” Ms. Reynolds said.
AIG is working closely with the management of each of its major
operating businesses to establish the appropriate governance and capital
structures for those businesses. Certain businesses that are already
positioned for sale will continue on this track; some will be held for
later divestiture; and some businesses, such as AIA and ALICO, will
continue to review their divestiture options, which ultimately may
include a public offering of shares, depending on market conditions.
AIG intends to contribute the equity of AIA and ALICO into special
purpose vehicles (SPVs) in exchange for preferred and common interests
in the SPVs. This will enable the FRBNY (or a trust for the benefit of
the FRBNY) to receive preferred interests in repayment of a portion of
the FRBNY facility. The amount of the preferred interests will be a
percentage of the fair market value of AIA and ALICO based on valuations
acceptable to the FRBNY. AIG will continue to hold the common interests
in the SPVs. These transactions will reduce AIG’s debt and interest
carrying costs, while allowing AIG to continue to benefit from its
ongoing common interests in the SPVs.
“Given the importance of AIA and ALICO to repaying our obligation to the
U.S. government, we think this structure is the optimal solution to
maintain the value of these businesses and best position them to enhance
their franchises,” Mr. Liddy said.
In addition, to protect and enhance the value of AIG’s global property
and casualty subsidiaries for all stakeholders, AIG intends to form a
General Insurance holding company, including its Commercial Insurance
Group, Foreign General unit, and other property and casualty operations,
to be called AIU Holdings, Inc., with a board of directors, management
team, and brand distinct from AIG. The establishment of AIU Holdings,
Inc. will assist AIG in preparing for the potential sale of a minority
stake in the business, which ultimately may include a public offering of
shares, depending on market conditions.
AIG also announced that it is considering combining its domestic life
and retirement businesses to enhance market competitiveness. With
combined assets of $246.8 billion, 17 million customers, and nearly
300,000 licensed financial professionals, the combined companies would
be operating from a position of significant strength and business
diversification. “The ultimate success of our restructuring plan centers
on ensuring that the unique businesses that make up AIG can thrive on
their own. While this process may take up to several years to complete,
we will ultimately create stronger, sounder businesses worthy of
investor, customer, and regulatory confidence. We greatly appreciate the
continued cooperation and support of our customers, business partners,
the U.S. government and regulators around the world,” Mr. Liddy said.
A conference call for the investment community will be held Monday,
March 2, 2009, at 8:30 a.m. EST. The call will be broadcast live on the
Internet at www.aigwebcast.com.
A replay will be archived at the same URL through Friday, March 20, 2009.
Blackstone Advisory Services is acting as financial advisor to AIG.
It should be noted that information contained in this press release or
remarks made on the conference call may include projections and
statements which may constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. These
projections and statements are not historical facts but instead
represent only AIG’s belief regarding future events, many of which, by
their nature, are inherently uncertain and outside AIG’s control. These
projections and statements may address, among other things, the outcome
of proposed transactions with the Federal Reserve Bank of New York and
the United States Department of the Treasury, the number, size, terms,
cost and timing of dispositions and their potential effect on AIG’s
businesses, financial condition, results of operations, cash flows and
liquidity (and AIG at any time and from time to time may change its
plans with respect to the sale of one or more businesses), AIG’s
exposures to subprime mortgages, monoline insurers and the residential
and commercial real estate markets and AIG’s strategy for growth,
product development, market position, financial results and reserves. It
is possible that AIG's actual results and financial condition will
differ, possibly materially, from the anticipated results and financial
condition indicated in these projections and statements. Factors that
could cause AIG's actual results to differ, possibly materially, from
those in the specific projections and statements include a failure to
complete the proposed transactions with the NY Fed and the United States
Department of the Treasury, developments in global credit markets and
such other factors as discussed in Item 1A. Risk Factors and throughout
Management’s Discussion and Analysis of Financial Condition and Results
of Operations in AIG's Annual Report on Form 10-K for the year ended
December 31, 2008. AIG is not under any obligation (and expressly
disclaims any obligation) to update or alter any projection or other
statement, whether written or oral, that may be made from time to time,
whether as a result of new information, future events or otherwise.
Restructuring package – additional details
Improved terms of existing preferred investment: Increasing the
equity content of the Treasury’s preferred stake and reducing the
annual cost of servicing dividends by more than $4 billion per year.
Existing Series D to be exchanged for Series E preferred.
Dividends on Series E preferred payable quarterly in cash at a
rate of 10% per year, on a non-cumulative basis, only if declared
Right to elect two directors/20% of the Board of Directors upon
non-payment of dividends for four dividend periods.
Replacement capital covenant and statement of intent.
New equity capital commitment: Up to $30 billion equity capital
commitment from the U.S. government.
New Series F non-voting preferred to be issued as needed by AIG.
Capital commitment facility has 5-year term.
Terms of Series F substantially similar to new Series E non-voting
Repayment of FRBNY credit facility with subsidiary preferred
interests and securitization notes: Allow AIG to tap the value of
certain life insurance units, including AIA, ALICO, and certain of its
U.S. life insurance companies, to repay a portion of the outstanding
balance on the FRB credit facility.
AIG will contribute the equity of each of ALICO and AIA to SPVs in
exchange for preferred and common interests in the SPVs. The FRBNY
will then accept preferred interests in the SPVs in repayment of a
portion of the outstanding balances. AIG will retain the common
interests in the SPVs, and will consolidate these entities for
Certain of AIG’s U.S. life insurance businesses will create SPVs
that will issue embedded value securitization notes to the FRBNY
(or a trust for the benefit of the FRBNY) in repayment of a
portion of the outstanding balance under the FRBNY credit
facility. These notes will be backed by net cash flows from the
designated blocks of existing life insurance policies held by
Specific amounts and terms for the subsidiary preferred interests
and the securitization notes to be accepted in repayment will be
determined between AIG and the FRBNY.
Reduced cost of current FRBNY credit facility: Interest rate on
the FRBNY credit facility, which is three-month LIBOR plus 300 basis
points, will be modified by removing the existing floor of 3.5% on the
Maintain current FRBNY credit facility: Continued access to the
FRBNY credit facility of at least $25 billion following the repayment
of the outstanding amount on the facility with the preferred interests
and securitization notes.
American International Group, Inc. (AIG), a world leader in insurance
and financial services, is the leading international insurance
organization with operations in more than 130 countries and
jurisdictions. AIG companies serve commercial, institutional and
individual customers through the most extensive worldwide
property-casualty and life insurance networks of any insurer. In
addition, AIG companies are leading providers of retirement services,
financial services and asset management around the world. AIG’s common
stock is listed on the New York Stock Exchange, as well as the stock
exchanges in Ireland and Tokyo.
American International Group, Inc.