American International Group Inc. has moved closer to repaying the federal government by completing the sale of American Life Insurance Company to MetLife Inc.
AIG, New York (NYSE:AIG), sold American Life Insurance Company (ALICO) to MetLife, New York (NYSE:MET), for about $16 billion, including $7.2 billion in cash and about $8.8 billion in MetLife stock and other securities. Because of an adjustment provision in the purchase agreement, the final price was about $400 million higher than the companies had previously estimated.
AIG also has raised about $20.5 billion by selling a large stake in American International Assurance Company Ltd. (AIA), Hong Kong, a major Asian life insurer, through an initial public offering (IPO).
AIG now has a total of about $37 billion in cash and securities it can use to pay the U.S. Treasury Department and the Federal Reserve Bank of New York for emergency support supplied during the 2008 financial crisis, when a real estate slump suddenly made mortgages at the heart of arrangements backed by a financial products unit of AIG appear to be toxic.
AIG says it will sell the MetLife securities over time, subject to lock-up provisions and market conditions.
AIG will be using the cash to implement an AIG recapitalization plan unveiled Sept. 30.
To carry out the restructuring, AIG hopes to draw up to $22 billion in Troubled Asset Relief Program (TARP) funds from the Treasury Department to buy the New York Fed’s preferred interests in the special purpose vehicles holding AIA and ALICO. The Treasury Department will get the interests. After the restructuring, the
U.S. Treasury says, it will own the equivalent of 92.1% of AIG’s common stock, or about 1.7 billion shares.
Based on the market closing price AIG recorded Oct. 29, the shares will be worth about $69.5 billion. The Treasury Department notes that it now has only $47.5 billion in cash invested in AIG.
The Treasury Department adds that, based on the current market prices and the value of the assets supporting the New York Fed’s loans to and preferred interests in AIG and the two major AIG special purpose vehicles, Maiden Lane II L.L.C. and Maiden Lane III L.L.C., the U.S. government expects to earn a profit on its loans to and investments in AIG, assuming the restructuring announced Sept. 30 is completed.
AIG is placing proceeds from the ALICO and AIA transactions in an escrow fund with the New York Fed until the closing of the recapitalization plan. The company says it expects the closing to occur by March 31, 2011. AIG owed about $20 billion in principal and interest on the New York Fed credit facility Oct. 27.
Following the announcement of the ALICO deal closing, Standard & Poor’s Financial Services L.L.C., New York, said it had revised its outlook on ALICO to positive from negative. Standard & Poor’s also affirmed its A plus counterparty credit and financial strength ratings on ALICO.
The ratings on MetLife and its operating subsidiaries remain unchanged from S&P’s earlier outlook of negative.
“The ratings on Alico reflect our view of the company’s strong stand-alone credit profile and its role within the [MetLife] organization,” Standard & Poor’s Credit Analyst Shellie Stoddard says in a statement. “Consistent with our criteria for newly acquired entities, we consider Alico to be a strategically important subsidiary to the MetLife group.”
ALICO is likely to play a critical role in MetLife’s pursuit of international growth and a shift in its business mix toward more lower-risk products, Stoddard says.
ALICO has formidable positions in Japan and Eastern Europeans, and its international footprint will complement MetLife’s current international footprint, Stoddard says.