AIG will repay part of Fed debt through IPOs

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In an effort to repay some of its $173.3 billion debt to the United States government, AIG (AIG) reached an agreement with the Federal Reserve Bank of New York to pay back $25 billion through initial public offerings of two of its international life-insurance units -- American International Assurance and American Life Insurance Co. (ALICO).

AIG said last month it would expedite its efforts to spin off American International Assurance by listing the initial public offering on the Asian Stock Exchange. As part of that deal and the decision to spin off American Life Insurance Co., these entities would be put into "separate special purpose vehicle in exchange for preferred and common interests in the vehicles," The Wall Street Journal reported. "The New York Fed will get $25 billion in preferred interests in the two special purpose vehicles, reducing the debt AIG owes the bank by the same amount."
AIG will hold common interests in the vehicles, expecting them to be sold by the second half of this year. American International operates mostly in Asia, while ALICO has operations in 50 countries around the world.

The transaction "represents a major step toward repaying taxpayers and preserving the value of AIA and ALICO," CEO Edward Liddy said in a statement announcing the deal. The special investment vehicles "will enhance the value of these franchises as we move forward with our global restructuring."

AIG continues to look for ways to reduce assets and raise capital. It has sold some units, including its Mexican consumer-finance operations and two-thirds of its stake in long-time holding reinsurer Transatlantic Holdings. "The outstanding balance of AIG's credit facility with from the Federal Reserve Bank of New York is $40 billion," Bloomberg reported.

Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies.
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