Could take AIGes

30 September 2010 By Richard Beales Follow @richardbeales1

The deal with the U.S. government makes the company s finances simpler and healthier. That s potentially good for shareholders, starting with the Treasury. But initially the plan mainly just rejigs the government s interests. It doesn t get taxpayers their cash back any sooner.

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American International Group said on Sept. 30 it agreed a plan with the U.S government designed to repay all its obligations to American taxpayers and position AIG as strong, independent, and worthy of investor confidence.

Under the agreement, due for completion by the end of the first quarter of 2011, some $20 billion of senior secured debt owed to the New York Federal Reserve will be repaid using AIG's resources and proceeds from asset sales. Meanwhile, the bulk of the New York Fed's $26 billion preferred stakes in vehicles that hold AIA and Alico slated for an IPO and a sale to MetLife, respectively will in effect be transferred to the Treasury.

In addition, the Treasury's $49 billion of AIG preferred stock will be converted into 1.655 billion common shares, implying a price of around $30 a share, leaving it holding a 92.1 percent interest in the company. Following the implementation of the transactions, the New York Fed will no longer be directly involved in AIG.

Existing common shareholders will also receive up to 75 million warrants with a strike price of $45 a share, 20 percent above the $37.45 price at which AIG's shares closed on Sept. 29.

"The exit strategy announced today dramatically accelerates the timeline for AIG's repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company," Treasury Secretary Tim Geithner said in a statement.

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