AIG Poised to Pay Down $37B in Government Aid
Photo credit: James Diggans, flickr.com
The largest U.S. insurance giant has poised to repay the U.S. government almost $37 billion of bailout money it received from the government during the financial crisis.
AIG has sold its two overseas insurance units and is planning to use the proceeds to pay down the government debt.
On Monday AIG closed the sale of American Life Insurance Co. (ALICO) to MetLife Inc. for about $16.2 billion, of which AIG will receive $9 billion in MetLife securities and the rest $7.2 billion in cash.
Last week, AIG sold its Hong Kong insurance unit AIA Group Ltd. for $20.50 billion in cash.
AIG is planning to use the money raised from the two sales to pay off a line of credit it had received from the government, with the MetLife securities to be eventually sold to further repay the outstanding government aid, estimated at $100 billion.
American International Group Inc., a New York-based insurance and investment company, has been hit the hardest during the financial crisis and subsequently received as much as $180 billion in government aid, in exchange for 80% stake in the company.
The U.S. Treasury Department has announced it would trade the AIG’s preferred shares it currently holds for AIG’s common stock, aiming at eventually selling those shares on the open market.
The cash generated from the sale of AIA and ALICO will be used to completely pay down AIG’s line of credit with the Federal Reserve Bank. The principal and interest AIG owes on the line of credit is estimated at $20 billion. The remaining cash will be used by AIG to repay other debt it has with the government.
The experts say the two overseas units were the biggest assets AIG has dropped off in an attempt to streamline its operations and repay the bailout money.
Back in 2008, the U.S. government decided to step in to rescue AIG because it believed its collapse could further hurt financial credit markets around the world as AIG worked with hundreds of financial institutions around the globe.
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