AIG to Create Holding Company in Accordance with Latest Bailout Terms
March 3, 2009 – Officials for struggling American International Group (AIG) today announced their intention to create a general insurance holding company called AIU Holdings for its commercial insurance, overseas insurers and AIG’s other property and casualty operations.
The holding company will have its own board of directors and management team and its own brand identity to distinguish it from AIG. Officials gave no timeline for the holding company’s creation but said it will be done as soon as practicable.
“AIG is executing one of the most extensive corporate restructuring programs in history,” said Edward Liddy, AIG’s chairman and chief executive officer. “The formation of AIU Holdings will help protect and enhance the value of these key businesses and position them for the future as more independently run, transparent companies.”
The move is designed to help prevent further “erosion” of AIG’s property and casualty operations and to prepare for a potential offering of a minority interest in the new business that might include a public offering of shares. It’s also part of the latest deal worked out with federal officials to help AIG repay its debt to U.S. taxpayers.
“(AIG) continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year and continued turbulence in the markets generally. The additional resources will help stabilize the company and in doing so help to stabilize the financial system,” officials representing the U.S. Treasury and Federal Reserve said in a joint statement.
AIG officials yesterday posted a record $61.7 billion loss during the final quarter of 2008, forcing the insurer to obtain yet another revision of its nearly $153 billion federal bailout. The loss was the most ever reported by a company in world history.
The U.S. Treasury Department created a new $30 billion capital facility in exchange for non-cumulative preferred stock in AIG that is in addition to the nearly $153 billion in taxpayer money already lent to the insurer. Officials for the Treasury and the Federal Reserve also eased terms on AIG’s existing debt and accepted payment in the form of preferred shares in AIG’s financially sound subsidiary units.
The new plan was announced after AIG reported a record fourth-quarter loss of $61.7 billion – $22.95 a share. The insurer posted $5.3 billion loss – $2.08 a share – during the fourth quarter of 2007. The insurer’s fourth-quarter 2008 results were much lower than analyst estimates.
In response to the insurer’s record fourth-quarter loss and federal bailout restructuring, analysts for Moody’s and Fitch issued a “negative” outlook, citing a potential loss of policyholders, insurance distributors and key employees combined with uncertainty about the insurer’s future ownership. Analysts did affirm credit ratings for some types of AIG debt and said that the revised plan provides some stability.
The Federal Reserve will reduce the amount of AIG’s revolving credit facility and will accept preferred stock in two AIG subsidiaries as payment for a $38 billion loan plus interest. The shares are in two Asian-based life insurance units the insurer had been shopping for bidders: the American Life Insurance Company (ALICO) and American International Assurance Company (AIA). The Treasury also will exchange its existing $40 billion in preferred AIG stock for new shares that do not pay dividends.