AIG Lowers Fed Debt, Transfers Non-U.S. Life Insurers
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12/01/09By Kevin Crowley and Hugh Son
(Bloomberg) – American International Group Inc. lowered its debt by $25 billion as the company transferred two overseas life insurance units destined for sale to Federal Reserve vehicles.
AIG reduced its debt on a Federal Reserve credit line by $16 billion through the handover of American International Assurance Co. and $9 billion with the transfer of American Life Insurance Co. The moves lower principal borrowing on a Fed credit line to $17 billion, New York-based AIG said in a statement today.
AIG plans to sell AIA and Alico to rivals or private-equity buyers or in initial public offerings “depending on market conditions,” the insurer said. The company said it will take a $5.7 billion charge in the fourth quarter tied to a reduction in the credit line, in addition to a previously disclosed $1.4 billion accounting expense linked to the sale of a Taiwan unit.
“AIG continues to make good on its commitment to pay the American people back,” Robert Benmosche, the insurer’s chief executive officer, said in the statement. AIG expects “volatility in reported results in the coming quarters due in part to charges related to ongoing restructuring activities.”
AIG is entitled to a portion of the proceeds if the sales reap more than $25 billion. The Fed has a preferred interest in the vehicles holding the units.
The plan to transfer the businesses was disclosed in March amid the company’s fourth bailout. The deal allows AIG to pay down its debts while waiting for credit markets to recover, which may yield higher sale prices for the assets.
China, India
AIA operates in countries including China, India, Korea, Australia, Singapore, Malaysia, Thailand, Vietnam and Indonesia. Alico operates in more than 50 countries, including parts of Europe, Latin America, the Caribbean, the Middle East and Japan. AIG restructured management at the operations to prepare them for independence.
European insurers including Prudential Plc and Assicurazioni Generali SpA and Canada’s Manulife Financial Corp. were among companies interested in buying parts of the life insurance units.
The insurer’s bailout was valued at $182.5 billion in June, including a $60 billion Fed credit line, a $70 billion investment from the Treasury and $52.5 billion to fund two vehicles to retire credit-default swaps and AIG’s securities- lending program.
AIG has struck deals to sell more than $12 billion in assets including a U.S. auto insurer, banking units and a Japanese office tower since the rescue.
The total size of the Fed credit line has been reduced to $35 billion from $60 billion, AIG said in the statement, contributing to the fourth-quarter charge.
To contact the reporters on this story: Kevin Crowley in London at kcrowley1@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net
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