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Portfolio > Portfolio Construction

Fed Gives Peek At AIG Support Programs

By Allison Bell

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Two entities formed to help American International Group Inc. unwind complicated financial transactions cut their principal balance levels this fall.

The entities are Maiden Lane II and Maiden Lane III, two Delaware companies that are controlled by the Federal Reserve Bank of New York.

In late 2008, the New York Fed formed Maiden Lane II to help insurance subsidiaries of AIG, New York, get residential mortgage-backed securities out of their securities lending portfolios.

The New York Fed formed Maiden Lane III to help AIG unwind collateralized debt obligation transactions involving AIG’s AIG Financial Products Corp. units.

The government also has set up a revolving credit facility for AIG.

Maiden Lane II

The principal balance at Maiden Lane II fell to $16.8 billion Sept. 30, from $17.7 billion June 30, according to the Federal Reserve System. The original balance was about $19.5 billion.

The fair value of the entity’s investment portfolio has increased to $16.2 billion, from $15.4 billion, because of an increase in the value of Alt-A and subprime RMBS.

Maiden Lane III

The principal balance at Maiden Lane III fell to $19.9 billion Sept. 30, from $22.6 billion June 30.

The value of the Maiden Lane III portfolio increased to $23.5 billion, from $22.5 billion, because of an increase in the fair value of high-grade asset-backed securities CDOs.

Revolving Credit Facility

A revolving credit facility is the corporate equivalent of a credit card.

AIG’s revolving credit balance increased to $44.8 billion Oct. 28, from $38.7 billion Sept. 30, but the New York Fed expects to reduce the balance by $25 billion by the end of the year in exchange for preferred interests in AIG’s American International Assurance Ltd. and American Life Insurance Company special purpose vehicles, Fed officials say.

During the first three quarters of the year, AIG arranged private deals that should raise a total value of $5.6 billion that can be used to repay outstanding borrowings, officials say.

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