American International Group Inc. and the U.S. government laid out a plan for the insurer to repay its $182.3 billion taxpayer bailout, just over two years after it was rescued from the brink of collapse.
The deal, reached after AIG’s board met with government officials on Wednesday, shows the insurer is making gradual progress in disentangling itself from the government, although the U.S. Treasury initially will take a larger stake the company in preparation for selling it down.
AIG shares were up 6.5 percent at $39.89 in morning trading.
Under the repayment plan, the U.S. Treasury will convert some of the AIG securities it owns into common stock and sell the stock on the open market over time.
AIG will repay a $20 billion Federal Reserve Bank of New York loan facility, using funds raised from selling assets like its Asian life insurance business.
AIG Chief Executive Robert Benmosche told Reuters the company is talking to banks about a $3 billion credit line that would replace part of the Fed facility.
He also said in an interview that AIG could look at an initial public offering for part of its stake in aircraft lessor International Lease Finance Corp.
An outright sale of ILFC or of money-losing mortgage insurer United Guaranty could also be on the table, Benmosche said.
The government is under pressure to show it is extracting itself from the financial system that it offered more than a trillion dollars of support to in 2008.
The Troubled Asset Relief Program, set up amid the 2008 financial crisis to shore up the financial industry, expires on Sunday, and when Americans go to the polls for mid-term elections in November, the state of the financial system and the economy will be a big issue.
Under the repayment plan, the Treasury will get about 1.66 billion AIG common shares, worth $62 billion at Wednesday’s closing share price, in exchange for the $49.1 billion of AIG preferred shares it now holds.
That exchange will happen by the end of the 2011 first quarter and will give taxpayers an instant paper profit of more than $10 billion. It will also raise taxpayers’ stake in the company to 92.1 percent.
AIG will also issue to existing common shareholders up to 75 million warrants with a strike price of $45 per share.
The exchange of the Treasury’s preferred stock will not be executed until the Fed credit facility is repaid in full. AIG expects the money for this to come from the initial public offering of its American International Assurance (AIA) unit and the sale of its American Life Insurance Co. (Alico) unit to MetLife Inc and other assets.
Question marks still remain for AIG, however. Liberty Mutual Agency Corp. postponed its initial public offering indefinitely on Wednesday. It was set to be the largest IPO of the year. Liberty Mutual’s difficulties in selling shares raise questions about how much investor appetite there will be in the near term for AIG’s AIA.
The Fed also owns preferred interest worth about $26 billion in AIA and Alico. Under the plan, AIG would effectively transfer a part of that interest to the Treasury, and pay that down when it sells the assets.
MetLife Inc. plans to close its purchase of Alico, AIG’s foreign life insurance business, by the end of the year. The deal was originally worth about $15.5 billion.
(Reporting by Paritosh Bansal; Additional reporting by Dan Wilchins, Editing by Derek Caney and John Wallace)
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