AIG Places American Life Insurance
Company (ALICO), American International Assurance Company, Ltd. (AIA) in
Special Purpose Vehicles
NEW YORK Dec. 1, 2009
-- American International Group, Inc. (AIG) today announced that it has
closed two previously announced transactions with the Federal Reserve
Bank of New York (FRBNY) that have reduced the debt AIG owes the FRBNY
by $25 billion in exchange for the FRBNY’s acquisition of preferred
equity interests in certain newly formed subsidiaries. As of today,
including the $25 billion debt reduction, AIG’s outstanding principal
balance under the FRBNY credit facility is approximately $17 billion,
down from approximately $42 billion, excluding interest and fees. As
a result of these transactions, the total amount available under the
facility has been reduced from $60 billion to $35 billion.
These transactions advance AIG’s goal of positioning two of the
company’s leading international life insurance franchises, American
International Assurance Company, Limited (AIA) and American Life
Insurance Company (ALICO), for initial public offerings or third party
sale, depending on market conditions and subject to customary regulatory
“Today’s announcement that we have reduced our debt to the Federal
Reserve Bank of New York by $25 billion sends a clear message to
taxpayers: AIG continues to make good on its commitment to pay the
American people back,” said Bob Benmosche, AIG chief executive officer.
“Moreover, these transactions position AIA and ALICO, two terrific,
unique international life insurance businesses, for the future.”
Mr. Benmosche noted that AIG would take an incremental charge related to
its prepaid commitment asset in the fourth quarter in connection with
the reduction in the total amount available under the FRBNY credit
facility resulting from the closing of the AIA and ALICO transactions.
The prepaid commitment asset was established at the inception of the
FRBNY credit facility on September 16, 2008, in an amount of $23 billion
and represented the value to AIG of the initial $85 billion of credit
provided by the FRBNY. Since the inception of the FRBNY credit facility
and through September 30, 2009, AIG has recognized a total of $11.7
billion of amortization expense, and expects to recognize in the fourth
quarter an additional amount of $5.7 billion, including $5.2 billion of
accelerated amortization related to these transactions. These cumulative
charges reflect the reduction of the facility from the initial amount of
$85 billion to $35 billion as well as periodic amortization. Mr.
Benmosche further noted that after the FRBNY facility is fully repaid,
the AIG Credit Facility Trust will continue to hold a preferred voting
interest in AIG, currently approximately 79.8 percent, through the
ownership of the Series C Preferred Stock.
“We continue to focus on stabilizing and strengthening our businesses,
but expect continued volatility in reported results in the coming
quarters, due in part to charges related to ongoing restructuring
activities, such as the previously announced loss that we expect to
recognize in the upcoming quarter related to our announced agreement to
sell our Taiwan-based life insurer Nan Shan,” Mr. Benmosche said.
The AIA and ALICO transactions involve AIG contributing the equity of
each of AIA and ALICO to separate special purpose vehicles (SPVs) in
exchange for interests in the SPVs. Under the terms of the transactions,
the FRBNY receives preferred interests with a liquidation preference in
the AIA SPV of $16 billion and with a liquidation preference in the
ALICO SPV of $9 billion.
The liquidation preference of the preferred interests represents a
percentage of the estimated fair market value of AIA and ALICO. AIG
holds all of the common interests in the AIA and ALICO SPVs and will
benefit from the fair market value of AIA and ALICO in excess of the
value of the preferred interests as the SPVs monetize their stakes in
these companies in the future.
Until AIG divests a majority of its common interests in AIA and ALICO,
AIA and ALICO will continue to be consolidated in AIG’s financial
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.
Source: American International Group, Inc.
American International Group, Inc.
Christina Pretto (News Media)
Watson (Investment Community)