American International Group Inc. says the New York Stock Exchange has let it issue a large amount of preferred stock to the Federal Reserve Bank of New York without getting shareholder permission.
AIG, New York, also has filed a copy of the credit agreement it has negotiated with the New York Fed with the U.S. Securities and Exchange Commission.
AIG reports in the agreement that it has borrowed a total of $37 billion from the credit line as of Monday, up from a $28 billion total that the New York Fed reported Sept. 19.
The New York Fed is providing a 2-year, $85 billion credit line for AIG. AIG will pay a variable rate of interest equal to the London Interbank Offered Rate for 3-month deposits in dollars plus an “applicable margin” of 8.5 percentage points.
In exchange for the credit line, the New York Fed is getting a new series of convertible participating serial preferred stock that “will hold approximately, but not in excess of, 79.9% of the aggregate shareholder voting power,” AIG says in a notice.
Normally, AIG would have to get shareholder approval before creating that new series of preferred stock, but the AIG board audit committee has decided that the delay necessary to get shareholder approval before issuing the preferred stock “would seriously jeopardize the financial viability of AIG,” AIG says.
The New York Stock Exchange has approved an AIG application seeking an exception from the normal NYSE shareholder approval policy, AIG says.
AIG will send shareholders a notice telling them it plans to issue the preferred stock, and it will issue the stock as soon as it has “received all material approvals of governmental authorities required for the issuance.”
The government will hold the AIG preferred stock in a trust called the AIG Credit Facility Trust.
AIG notes that it took out $14 billion from the New York Fed credit line Sept. 16 and another $14 billion Sept. 17.
Those 2 draws showed up in the New York Fed report that was released Sept. 19.
AIG then took out $6 billion Sept. 18 and $3 billion Sept. 19.
Under the agreement:
- AIG cannot borrow more than $10 billion twice from the credit line in a period of 5 consecutive business days without getting written permission from the New York Fed.
- AIG can make voluntary prepayments, but it needs written approval from the New York if it wants to make more than 2 “repayments each in an aggregate principal amount of more than” $10 billion in any period of 5 consecutive business days.
- “In the case of a serious and unanticipated liquidity need,” AIG can borrow up $3 billion from the credit line simply by calling up the New York Fed before 9 a.m. “Each such telephonic request shall be irrevocable, and shall be confirmed promptly by e-mail to the lender of a written borrowing request,” according to the copy of the credit agreement filed with the SEC.
- If AIG fails to keep up its payments, the interest rate it pays will increase by 2 percentage points.
- The arrangement will be governed by the laws of New York state.
- If the New York Fed came up with a comparable alternative financing structure after the closing date, AIG will switch to the alternative financing structure.
- If the federal government sets up a troubled asset purchase program, AIG can participate in the program.
In related news, AIG has filed information about executive compensation.
One part of the compensation filing covers an executive retention program that affects 130 executives. The executives will get 60% of the cash award in December, and 40% in December 2009. One executive, Jay Wintrob, president of AIG Retirement Services Inc., will be getting an award of $3 million, AIG says.
AIG also is planning to pay $2.5 million in benefits to Robert Sandler, an executive vice president at AIG who is retiring from the company after a change in his position.