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 which the
beleaguered insurer has acted to put to an end with the release of
up-to-date Government Accountability Office (GOA) data.
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The answer to the AIG repayment question is that it remains a vast
sum, totalling $83.6 billion, the largest portion of which
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.
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By GlobalDataWhen these transactions close, AIG’s debt to the FRBNY will be
reduced by a total of $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) the AIG unit related to a major cause of AIG’s financial
woes, credit default swap contracts to which AIGFP had an exposure
of some $440 billion.
As at 2 September 2009, the Maiden Lane III loan had a balance of
$20.2 billion.
