S&P Removes AIG from CreditWatch; Rating Outlook Remains Negative

May 23, 2008

Standard & Poor’s Ratings Services has affirmed and removed from CreditWatch negative its ‘AA-/A-1+’ counterparty credit and senior debt ratings on American International Group Inc.

S&P also affirmed and removed from >CreditWatch negative its ‘AA+/A-1+’ counterparty credit and financial strength ratings on AIG’s core operating subsidiaries and its ‘A+/A-1′ counterparty credit rating on the Grouip’s airplane leasing operation International Lease Finance Corp. (ILFC).

However, the rating agency said “the outlook on all these companies is negative.”

“These actions follow the settlement of most of AIG’s recently announced capital plan,” explained credit analyst Rodney Clark. “To date, AIG has raised about $17 billion of a total $20 billion planned through the issuance of new common shares, equity units, and junior subordinated debentures.”

S&P noted that the money raised by the issues “replaces essentially all of the capital lost in the previous two quarters due to market valuation losses and other-than-temporary impairments on mortgage-related securities.” S&P added that the total capital raised has exceeded its “expectations and restores the firm to a very strong consolidated capital position.”

Clark added that S&P believes “a meaningful portion of the market valuation losses are overstated due to volatile and illiquid conditions, and that some recovery is likely to occur. However, due to uncertainty as to the timing and magnitude of recoveries, it was appropriate for AIG to raise capital at this time.”

S&P explained that the “negative outlook reflects continued uncertainty in the investment markets.” The rating agency does, however, expect that “AIG’s earnings for the year will improve from first-quarter levels, but will still fall short of those in 2007.”

It also warned that possible further “significant deterioration in mortgage market performance or in AIG’s relative performance could result in future downgrades.”

There is also an upside possibility for AIG’s ratings. “If significant recoveries of asset values emerge,” S&P said it “could revise the outlook to stable, but that would not be likely for at least two quarters. Following the recent issuances, fixed-charge coverage is somewhat depressed, but is likely to return to at least 5x in 2009.”

Source: Standard & Poor’s – www.standardandpoors.com

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