American International Group Inc. has closed on two transactions that reduce the amount it owes to the Federal Reserve Bank of New York to $17 billion, from $42 billion.

AIG, New York, (NYSE:AIG) today announced that it has completed previously announced plans to reduce its debt to the New York Fed by $25 billion by giving the New York Fed preferred equity interests in newly formed subsidiaries.

The transactions will help AIG wait until the time is right to sell its American International Assurance Company Ltd. and American Life Insurance Company subsidiaries, AIG says.

AIG is using the AIA and ALICO transactions to cut the balance owed on a New York Fed credit facility.

As a result of the transactions, the total amount available under the facility has been reduced to $35 billion, from $60 billion, AIG says.

After AIG finishes paying off the credit facility debt, the AIG Credit Facility Trust will continue to hold a preferred voting interest in AIG, according to AIG Chairman Robert Benmosche.

The trust now has a 79.8% interest in AIG through the ownership of Series C Preferred Stock.

“We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities, such as the previously announced loss that we expect to recognize in the upcoming quarter related to our announced agreement to sell our Taiwan-based life insurer Nan Shan,” Benmosche says in a statement.

To implement the AIA and ALICO transactions, AIG put the equity of AIA and ALICO in separate special purpose vehicles in exchange for interests in the SPVs.

The New York Fed is getting preferred interests with a $16 billion liquidation preference in the AIA SPV and a $9 billion liquidation preference in the ALICO SPV.

The liquidation preference of the preferred interests represents a percentage of the estimated fair market value of AIA and ALICO.

AIG holds all of the common interests in the SPVs. If the SPVs take in more cash from selling the AIA and ALICO stakes than they must pay to the New York Fed, AIG will get to keep the excess cash.

Until AIG divests a majority of its common interests in AIA and ALICO, AIG will continue to include AIA and ALICO results in its financial statements, the company says.