The Hindu Business Line : AIG inks definitive pact with Fed for $85 bn credit facility

NEW YORK: Beleaguered insurance major American International Group has inked a definitive agreement with the US Federal Reserve to avail the credit facility worth USD 85 billion as part of the bailout package for the insurer. Following the deal, the cent ral bank would take a 79.9 per cent stake in the insurance giant.

On September 16, the US Federal Reserve had announced the two-year revolving credit facility to rescue AIG from a virtual collapse in a tumultuous financial market.

AIG has to repay the loan by way of the proceeds of certain asset sales and issuance of debt or equity securities, among others.

“These mandatory repayments permanently reduce the amount available to be borrowed under the facility,'' the company said in a statement on Tuesday.

Commenting on the definitive agreement with the Federal Reserve, AIG Chairman and Chief Executive, Mr Edward M Liddy said that the “facility was the company's best alternative''.

“We are pleased to have finalised the terms of the facility, and are already developing a plan to sell assets, repay the facility and emerge as a smaller but profitable company. Importantly, AIGs insurance subsidiaries remain strong, liquid and well-capi talised,'' he pointed out.

Mr Liddy also noted that exhaustive efforts were made to address the company's liquidity needs through private sector financing but could not succeed in the “current environment.''

According to the agreement terms, there would be an interest at a rate based on three-month LIBOR in addition to 8.50 per cent. There would be an initial gross commitment fee of 2 per cent on the total facility.

AIG would also pay a commitment fee on undrawn amounts at the rate of 8.50 per cent per annum. The interest and commitment fees would be added to the outstanding balance amount.

The revolving credit facility would be secured by a pledge of the capital stock and assets of certain of AIG's arms.

However, there would be exclusions for certain property, the pledge of which is not permitted by AIG debt instruments, as well as exclusions of assets of regulated subsidiaries, assets of foreign subsidiaries and assets of special purpose vehicles, the s tatement added. - PTI

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