Close Close

Portfolio > Mutual Funds > Bond Funds

First AIG Bond Sale Brings $2 Billion

Your article was successfully shared with the contacts you provided.

Wednesday brought American International Group (AIG) one step closer to paying off its debt to the federal government after a bond sale that brought in $2 billion. It was the first offering since the company’s bailout in 2008; the sale was split between short-term and longer term notes. One quarter of the bonds, or $500 million, are due in 2014 and pay an interest rate of 3.65%; the other $1.5 billion come due in 2020 and carry an interest rate of 6.4%, as was reported by NU Online News Service.

The release of documents by the Fed at the behest of Congress have given details and insights into just how the bailout worked, how much went where, and how much was still owed. Liquidity was vital at the time the rescue was made, with money not only going to the four firms previously disclosed, but also to foreign banks and American subsidiaries. The Troubled Asset Relief Program (TARP) program put $1.5 trillion of liquidity into the markets at a time when it was desperately needed.

AIG originally had been the recipient of bailout money to the tune of $182 billion, with the government owning approximately 80% of the company as a result of its efforts to save it. Initially the beneficiary of a line of credit for $85 billion in September of 2008, AIG saw a restructuring in November of that year that allowed it to sell off assets at a less frantic pace so that it would be better able to pay down its debt. The Treasury received $40 billion in newly issued stock, and the credit line was reduced from $85 billion to $60 billion. Additional adjustments were made as time went on.

One surprise in the newly released documents had to do with the Term Asset-Backed Securities Loan Facility (TALF), which was designed to encourage lending and bring back private investors. Some of those investors, according to a New York Times report, included funds that bought TALF securities, and the documents revealed that AIG owned large stakes in those funds.

The Congressional Budget Office (CBO), according to a report by NU Online News Service, has cut its estimate of the cost of AIG’s bailout from $36 billion, a figure published in March, to $14 billion. The total cost of the TARP is projected to be $25 billion. In March that estimate totaled $109 billion; it was revised downward in August to $66 billion. The government is expected to net a gain when losses are balanced against other transactions that will bring money back to the Treasury.

The Treasury’s estimate of losses incurred by rescuing AIG is lower than that of the CBO, at $5 billion. It reached this estimate after additional restructuring in September of 2010. The CBO says that AIG was a TARP beneficiary both through the extension of a line of credit for $30 billion and through the purchase of $40 billion in preferred stock by the Treasury. The CBO also says that AIG did not pay the quarterly cash dividends due on the investments made by the Treasury.

TARP’s independent auditor, in reviewing the data, showed on a chart that the government only authorized $176.5 billion in aid to AIG that nonetheless at its peak reached $191.4 billion. As of the end of the government’s fiscal year on Sept. 30, the auditor said, the total outstanding balance for various facilities was $123.3 billion.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.