American International Group Inc, the insurer rescued by the US government, sold $2 billion of bonds in its first offering since the bailout in 2008.
AIG issued $500 million of 3.65 per cent notes due January 2014 that yield 295 basis points more than similar-maturity Treasuries, and $1.5 billion of 6.4 per cent debt due December 2020 at a spread of 362.5 basis points, according to data compiled by Bloomberg. The bonds rose in trading today.
“AIG’s ability to access private financing is an important step for that company toward future independence,” Mark Paustenbach, a spokesman for the Treasury Department, said in an e-mailed statement. “It demonstrates growing market confidence in the progress AIG has made both in stabilising its operations and in putting itself in a position to repay all of its obligations to US taxpayers.”
Chief Executive Officer Robert Benmosche tapped the corporate bond market after announcing on September 30 a plan to pay back taxpayers and regain the firm’s independence. AIG, based in New York, expects to repay a Federal Reserve credit line with proceeds from asset sales and convert the Treasury Department’s $49.1 billion stake into common stock by the end of March. The government may then sell the shares on the open market.
Orders for the bonds “showed the pent-up demand for the AIG name,” said Anne Daley, managing director at Barclays Capital in New York, which helped underwrite the sale. “We’re getting close to the end of the year, and we felt there was a compelling opportunity to get the size in and out of the market in one day, so we decided to move forward.”
‘Relatively cheap’
The price of AIG’s newly issued debt rose in secondary trading, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The 3.65 per cent notes gained 0.83 cent to 100.8 cents on the dollar to yield 179 basis points more than Treasuries as of 8.39 am in New York, Trace data show. The 6.4 per cent debt added 0.33 cent to 100.07 cents on the dollar, a spread of 349 basis points, according to Trace.
“It was a good deal because it was relatively cheap,” said Michael Donelan, who oversees $3.5 billion of bonds as director of trading and head portfolio manager at Ryan Labs Inc, a New York-based money management firm that purchased some of the debt AIG sold yesterday. “They priced it at concession, but not as much as what we would have hoped.”
While the cost to protect AIG bonds from default has declined this year, it rose in November. Corporate bond issuance has tumbled amid concern that Ireland’s debt woes will spread across Europe and slow the global economy.
