Magazine article Economic Trends

The Execution of the AIG Exit Plan

Magazine article Economic Trends

The Execution of the AIG Exit Plan

Article excerpt

01.27.11

On January 14, American International Group (AIG), paid down the remaining balances on its loans at the New York Fed--removing the Fed from any direct exposure to AIG, and in accordance with a recapitalization plan announced on September 30, 2010. According to the plan, the revolving credit facility was to be repaid, along with interest and fees, and the preferred interests held by the New York Fed in two AIG subsidiaries (AIA, ALICO) were to be bought by AIG. The figure below shows that those two balances are now at zero.

[GRAPHIC OMITTED]

The way in which AIG exited from its assistance is worth a closer look. The very first form of assistance extended to AIG was a revolving credit line with a maximum balance of $85 billion. This credit facility was created the day after Lehman Brothers collapsed in September 2008, and it was backed by a nearly 80 percent equity interest in AIG. By November 2008, AIG was facing a potential credit-rating downgrade and a subsequent spike in collateral calls, so the New York Fed restructured its assistance and created the limited liability companies Maiden Lane II and Maiden Lane III. As a result, AIG was relieved of some of the constraints on its liquidity, and the limit on the credit facility was dropped to $60 billion. Similar problems again appeared in March 2009 and were followed by another restructuring of the aid, this time dropping the credit limit to $25 billion in exchange for preferred interests in two of AIG's subsidiaries. The finalization of this second restructuring did not take place until December 2009.

Throughout this extended period, ranging from September 2008 to January 2011, AIG has been raising cash through the sale of many of its subsidiary companies. While the majority of these sales have been relatively small, the two most important and public have contributed the most toward AIG's repayment. The first sale, agreed upon in March 2010, gave MetLife control of American Life Insurance Company (ALICO). AIG received $16.2 billion for the sale, $7.2 billion of which was cash and $9 billion was MetLife securities. After a dispute with Prudential Financial and its board over the sale of AIA, AIG eventually conducted an initial public offering of AIA Group (AIA) on the Hong Kong Stock Exchange in October 2010. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.