AIG Sells Residential Mortgage-Backed Securities Portfolio to Government

December 16, 2008

American International Group’s life insurance companies have sold residential mortgage-backed securities with a face value of $39.3 billion to the Federal Reserve Bank of New York (FRBNY) as part of its efforts to solve its liquidity problems.

The troubled securities were sold to Maiden Lane II LLC , a newly formed Delaware LLC in which the FRBNY is the sole member.

The agreement for the sale was to the FRBNY was announced on Nov. 10, 2008.

Edward M. Liddy, AIG chairman and chief executive officer, said
the deal helps it move toward its goal of paying back its federal loan.

“AIG’s highest priority is the full repayment of the federal loan facility with interest. The creation and launch of this financing entity will eliminate the liquidity issues associated with AIG’s U.S. securities lending program, which will facilitate our repayment plan. Although we have more work ahead of us, this is an important step forward,” Liddy said.

FRBNY extended a senior loan to ML II to enable the purchase of the RMBS for an initial purchase price of $19.8 billion. The loan has a six-year term, subject to extension by FRBNY. It is secured by the $39.3 billion face amount of RMBS and bears interest at one-month LIBOR plus 1.0 percent. The purchase price may be increased as a result of the payment of the deferred contingent purchase price described below.

AIG’s life insurance companies applied the initial consideration from the sale of the RMBS, along with available cash and $5.1 billion provided by AIG, to settle outstanding securities lending transactions under AIG’s U.S. securities lending program. Included in the terminations were AIG’s securities lending transactions with FRBNY from an October agreement, which totaled approximately $20.5 billion at Dec. 12, 2008. As a result of these transactions, AIG’s October securities lending agreement with FRBNY and AIG’s U.S. securities lending program have been terminated.

Source: American International Group Inc.
www.aig.com

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