American International Group (NYSE: AIG) announced Tuesday that it closed two deals with the Federal Reserve Bank of New York that will reduce the debt it owes the bank by $25 billion. The move knocks AIG’s debt balance with the New York Fed bank down to $17 billion, after being as high as $42 billion early this year.
Terms of the deal required AIG to provide the New York Fed bank with preferred equity interests in two newly formed subsidiaries. Those units are the American International Assurance Company (AIA) and the American Life Insurance Company (ALICO).
The insurance giant is setting up the entities for eventual initial public offerings or third party sales. Basically, AIG placed the equity of the units in special purpose vehicles (SPV), of which the New York Fed bank receives preferred interest and liquidation rights to the $16 billion AIA SPV and $9 billion ALICO SPV.
“Moreover, these transactions position AIA and ALICO, two terrific, unique international life insurance businesses, for the future,” continued Benmosche.
As a result of the transaction, the New York Fed bank reduced the total amount available under AIG’s credit facility from $60 billion to $35 billion.
AIG said it will take an incremental charge in the fourth quarter related to its prepaid commitment in the closing of the deal, which is connected to the reduction in the total credit facility with the New York Fed bank.
“We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities, such as the previously announced loss that we expect to recognize in the upcoming quarter related to our announced agreement to sell our Taiwan-based life insurer Nan Shan,” Mr. Benmosche added.
