AIG, Fed to terminate some debt obligations
AIG and the US govt are working together to relieve the giant insurer of its obligations on about $65 billion in debt.
AIG said a financing entity, funded by the Federal Reserve Bank of New York and the insurer, has purchased $46.1 billion in complex debt securities insured by AIG. As part of the deal, the insurance-type contracts, called credit-default swaps, were terminated.
The New York-based insurer also has agreements to purchase another $7.4 billion of these debt securities, called collaterized debt obligations or CDOs, bring the total to $53.5 billion.
AIG, like other financial companies and insurers, has taken losses on money it put into soured investments including CDOs, or securities backed by pools of mortgages or other assets. CDOs have plummeted in value since the credit crisis erupted a year ago.
Such investments led AIG to the brink of bankruptcy in September, subsequently forcing the government to step in with a $150 billion bailout for the company.
According to a filing with the Securities and Exchange Commission, the financing entity was created last month as part of a broader restructuring of the federal government's bailout of AIG.
The entity now has $15.1 billion in Fed money and $5 billion from AIG, with the Fed saying it will provide up to $30 billion. The money will be used to buy a total of roughly $64.7 billion of the debt securities at their current market price, which is far below their principal value, the filing said.
In premarket trading Wednesday, AIG shares gained 5 cents, or nearly 3 percent, to $1.92.