AIG edges closer to $25bn restructuring

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AIG on Tuesday moved a step closer to selling or listing two of its biggest businesses – its Asian insurance unit AIA and the international life insurer Alico – after spinning them off into separate vehicles partly owned by the New York Federal Reserve.

The deal with the authorities, which control 80 per cent of AIG, would more than halve the stricken insurer’s debt to the Fed to $17bn from $42bn excluding interest and fees. The insurer has also drawn about $44bn from a $70bn facility under the government’s Troubled Asset Relief Programme.

After Tuesday’s deal with the Fed, AIG will have to take a $5.7bn charge in the fourth quarter to reflect the fall in the value of the credit facility provided by the government when it bailed out the insurer last year.

The debt-for-equity swap with the Fed was first announced in March and its completion could pave the way for the sale of Alico, which has drawn the interest of MetLife, the US insurer, and the listing of AIA. AIG and MetLife have been in talks over Alico since July, when the Financial Times revealed the discussions.

People close to the situation said the sale process was still ongoing and could be given new impetus by the transfer of Alico, which operates in more than 50 countries, to the new vehicle partly controlled by the Fed.

Both AIG and the Fed are keen to sell Alico, which could fetch $10bn-$15bn, to accelerate the repayment of the funds it owes US taxpayers. A speedy repayment is crucial to AIG’s hopes of surviving as a stand-alone business and defusing the political outcry over its bonus payments.

Robert Benmosche, a former chief executive of MetLife, took the helm at AIG in August – another factor that could facilitate a sale of Alico.

AIG declined to comment on the talks and MetLife could not be reached.

AIG has said it will list AIA in Hong Kong.

Under the debt-for-equity swap with the Fed, AIA and Alico will be placed in two special purpose vehicles. The Fed will receive preferred shares worth $16bn in AIA’s vehicle and $9bn in Alico’s vehicle, giving it a large stake in the two entities and enabling it to be paid first if they are sold or listed. AIG will retain the common equity in the two vehicles.

Separately, AIG declined to comment on an analyst report by Todd Bault of Bernstein Research claiming it had a shortfall of about $11bn in the reserves of its US property and casualty business – a cornerstone of its future as an independent company. In the note, distributed to clients on Monday, Mr Bault said the result was “very unexpected” and “could have major ramifications in coming years”.

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