Analysts applauded the newly restructured bailout plan for American International Group Inc., citing benefits for the insurer.
AIG of New York today received easier loan terms for its $85 billion credit facility from the federal government, bringing the interest rate down to the London interbank offered rate plus 3% from Libor plus 8.5%.
The carrier has also been given additional cash to form a pair of new special-purpose vehicles to buy up troubled residential mortgage-backed securities and collateralized debt obligations. Additionally, the Department of the Treasury will buy $40 billion in preferred stock offerings through the Troubled Asset Relief Program.
The additional help gave analysts more confidence that the insurer will pull through, as the transactions reduce the liquidity needs and capital drains from both the CDO/credit default swaps portfolio and the securities lending program. Fitch Ratings is keeping the double A- ratings for
AIG’s domestic life insurance subsidiaries, which are to be sold, on rating watch “evolving.”
“Fitch views the explicit and implicit support provided by the U.S. government as sufficient to overcome the significant execution risks underlying
AIG’s restructuring plan,” the New York-based ratings agency noted in a report today.
Still, there are risks, including the fact that segments of the credit-default-swaps contracts portfolio that aren’t part of the new plan could still need cash and capital. Also, Fitch noted that subsidiaries, including the ratings-sensitive annuities business, could experience varying degrees of stress, including policy cancellations and key personnel losses.
Taxpayers could also benefit from the new transactions, according to a report from CreditSights of New York. The taxpayers benefit from fees, interest and repayment of the New York
Federal Reserve Bank’s loan and will own 77.9% of
AIG’s equity.
They will also hold warrants to purchase an additional 2% equity interest, according to CreditSights.
The government’s restructured bailout could also give the insurer the flexibility to sell its assets at a price that is closer to their intrinsic value as opposed to being deeply discounted.
