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December 2, 2009updated 13 Apr 2017 8:55am

AIG’s outstanding debt mountain

The answer to the AIG repayment question is that it remains a vast sum, totalling $83.6 billion

By Stafford Thomas

Precisely how much does American International Group (AIG) still have to repay the US government?

It is a question that is the source of much confusion, and the beleaguered insurer has acted to put to an end to speculation with the release of up-to-date Government Accountability Office (GOA) data.

The answer to the AIG repayment question is that it remains a vast sum, totalling $83.6 billion. The largest portion comprises preferred equity capital of $44.8 billion invested in AIG by the US Treasury Department through its Troubled Asset Relief Program (TARP).

This total comprises an initial $41.6 billion invested under the TARP and $3.2 billion of an additional $29.835 billion available to it under the TARP.

The balance of the $83.6 billion comprises $38.6 billion in loans, interest and fees under a revolving $60 billion, five-year credit facility extended to AIG by the Federal Reserve Bank of New York (FRBNY).

This debt is set to fall significantly as the result of an agreement between AIG and the FRBNY, under which AIG will issue to the FRBNY preferred interests in special purpose vehicles holding equity in certain AIG subsidiaries in exchange for a reduction in the outstanding debt under the FRBNY facility. When these transactions close, AIG’s debt to the FRBNY will be reduced by $25 billion.

Repayable debt is only part of the assistance extended to AIG which at present totals $120.7 billion.

The additional sum of $37.1 billion comprises loans extended to two special financing entities created by the FRBNY in the last quarter of 2008, Maiden Lane II and Maiden Lane III.

Maiden Lane II received $19.5 billion to purchase residential mortgage-backed securities held in connection with AIG’s securities lending programme. As at 2 September 2009, this loan had a balance of $16.9 billion.

Maiden Lane III received $24.3 billion to purchase collateralised debt obligations from counterparties to AIG Financial Products (AIGFP). This AIG unit was a major cause of AIG’s financial woes, with exposure to credit default swap contracts of some $440 billion.

As at 2 September 2009, the Maiden Lane III loan had a balance of $20.2 billion.

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