The Federal Reserve plans to cut American International Group’s credit line by about $3.6 billion in a sign of confidence the insurer can reduce reliance on taxpayer funds, said a person with knowledge of the proposal.
Under terms of AIG’s 2008 rescue, paying down the line was supposed to lower the amount of credit available. The Fed gave an exemption in 2009 on $3.6 billion in proceeds from asset sales and has decided this year that the relief may no longer be necessary, said the person, who declined to be identified because the plan isn’t public. AIG had $13.3 billion in credit remaining on the line as of June 30.
“This means there’s little anticipation AIG will need the credit,” said Clark Troy, a senior analyst based in Chapel Hill, North Carolina, for Aite Group, a research firm. “It’s a step in the right direction in terms of making AIG less dependent on federal aid.”
Chief Executive Officer Robert Benmosche said this month he is in talks with US regulators to return AIG to independence and expects to make “meaningful progress” in repaying the credit line this year. The insurer owed $23.5 billion on the credit line as of August 18, compared with about $27 billion at the end of April, according to Fed data.
AIG may sell bonds for the first time since its 2008 government rescue to help repay its $182.3 billion bailout package.
Accounting charge
Reducing the credit-line by $3.6 billion may trigger a $600 million accounting charge, New York-based AIG said this month in a filing. A similar writedown fuelled AIG’s $8.87 billion net loss in the fourth quarter of 2009. Mark Herr, an AIG spokesman, and Deborah Kilroe of the Federal Reserve Bank of New York declined to comment.
AIG had to tap government aid last year to prop up subsidiaries after the company lost access to credit markets. Plane-leasing unit International Lease Finance Corp borrowed $1.7 billion in March of 2009 and $2 billion in October after AIG drew funds from the credit line.
ILFC has since regained access to outside funding, raising about $4.4 billion this month in secured and unsecured notes. Benmosche has said the Los Angeles-based unit will purchase more planes.
The funds available on the credit line will shrink further after proceeds from the ILFC bond sales are applied to the Fed debts, said the person. Potential bond issuances from the parent company would also scale back the facility, the person said.
