AIG close to new bailout deal; did rating agencies pre-approve it?
Insurance firm AIG (AIG) appears to have a deal with the federal government to get more capital and better terms on the money it has already borrowed. The $150 billion restructuring would also give taxpayers stakes in some of AIG's more financially healthy divisions. Reuters is reporting that AIG's board will meet today to vote on the deal, which could be announced Monday as part of AIG's earnings announcement.
But what may be the most interesting facet of this ongoing story is that, as a part of the overhaul, management and the government have gone to credit agencies to get the restructuring "pre-approved," according toThe Wall Street Journal.
A stamp of approval from rating agencies would avoid downgrades in the company's debt which could drive it into bankruptcy. Both Standard & Poor's and Moody's Investors Services have quietly endorsed the terms of the revised bailout, which was negotiated over a period of months between AIG and government officials," says the Journal.
It is unusual for the rating agencies to determine opinions about a company's financial moves before they are actually made. It raises the issue of whether those opinions are truly independent or party to a bit of "arm twisting" by the government.
The credit agencies have already been tarnished by their role in the subprime mortgage derivatives disaster. The latest news does not help improve how they will be viewed.
Douglas A. McIntyre is an editor at 24/7 Wall St.