AIG raises enough cash to repay NY Fed

By Ben Berkowitz

NEW YORK (BestGrowthStock) – Bailed-out insurer AIG raised $27.71 billion in cash in 10 days with the initial public offering of its Asian life business AIA Group Ltd and the sale of its global life unit Alico, enough to repay a credit facility from the Federal Reserve Bank of New York.

These steps leave the company one step closer to paying back the U.S. government, whose support ballooned to as much as $182.3 billion as the company teetered on the edge during the financial crisis. Even after repaying the New York Fed, though, AIG will still owe around $100 billion.

American International Group Inc said on Monday it closed the sale of Alico to MetLife Inc for $16.2 billion, of which $7.2 billion was cash.

That followed the October 22 sale of shares in AIA and the October 29 exercise of the overallotment option on the sale, for gross proceeds of $20.51 billion.

AIG said it would use the cash to repay the NY Fed facility and make other bailout-related payments to the government. AIG owed the New York Fed about $20 billion in principal and interest on the credit facility as of last week.

The proceeds from the deals are being put in escrow until a recapitalization deal, announced in September, closes in the first quarter of 2011. The recapitalization aims to accelerate AIG’s payback of the bailouts and leave the U.S. Treasury with a 92.1 percent stake in the company.

As part of the deal, AIG will draw $22 billion from the government’s Troubled Asset Relief Program (TARP) to repurchase Federal Reserve preferred interests in two special purpose vehicles, that hold interests in AIA and ALICO, the Treasury said in a statement on Monday.

The Treasury said it will then receive the remainder of the assets in the special purpose vehicles, which are worth more than the money drawn from TARP.

AIG shares closed down 9 cents to $41.92 in afternoon trading. Through Friday, the shares were up 40 percent this year, against an 8.7 percent rise for the S&P insurance index.


Besides cash, AIG also received 78.2 million shares of MetLife stock for Alico, plus 6.9 million shares of contingent convertible preferred stock and 40 million equity units.

The common stock alone makes AIG — and by extension the U.S. government — MetLife’s largest shareholder, with an interest around 8 percent. If all other equities were ultimately converted, AIG’s stake would be around 20 percent.

But the stake is not expected to ever get that high, as AIG is expected to sell shares as soon as it can.

The lockup on the stock bars AIG from selling any stock for nine months. After that, it can sell up to half its stake, subject to dollar limits on sales. After 12 months, it can sell the rest, with continued limits on the size of the sales.

MetLife said last Friday the Alico deal would add more to its 2011 earnings per share than previously forecast, though it did not specify how much more.

MetLife Chief Financial Officer Bill Wheeler told Reuters on Monday the company was still working on computing the guidance boost, and was aiming to give details at its investor day on December 6.

But he said MetLife was already seeing some more momentum in Alico’s businesses, particularly in certain Japanese channels and in Latin America. Analysts said that was precisely the kind of exposure MetLife was seeking with the deal.

“The bottom line is that they want to increase their international exposure and what this does is, by 2011 40 percent of their earnings will be derived outside the U.S.,” said Bret Howlett, insurance equity analyst at S&P.

MetLife shares closed down 37 cents to $39.96. Through Friday the stock was up 14 percent this year.

(Reporting by Ben Berkowitz; editing by John Wallace, Gerald E. McCormick and Carol Bishopric)

AIG raises enough cash to repay NY Fed