AIG Gobbled Up Maiden Securities

Maiden Lane III originally contained $62 billion in face value of collateralized debt obligations (CDO) backed by mortgage-backed securities of various grades.

The Fed bank has said it has so far sold CDOs from Maiden Lane III with a total face value of roughly $39 billion.

According to a power presentation during the conference call, the average yield of the bonds purchased by AIG was 9.7%.

The securities are being held at both the corporate level and at the Chartis and SunAmerica operating life subsidiaries, AIG officials said.

They were established by the Fed to provide cash to AIG as it worked its way through a financial crisis starting in 2008.

Maiden Lane contained bonds AIG was forced to accept in exchange for cancelling credit default swaps (CDS) the company sold mainly to banks as insurance on the value of so-called “synthetic CDOs” they had purchased.

AIG had provided $30 billion in cash deducted from earnings to back the CDS as its credit ratings dropped. In order to finance the repurchase of the CDOs, the Fed provided $24. 4 billion in cash and AIG borrowed $5 billion.

Under the deal, once the Fed and AIG were paid back, the Fed would get two-thirds of the remaining proceeds, and AIG one-third. AIG would also receive accrued interest on the securities. As of that date, AIG indicated it had received $427 million reflecting its one-third stake in residual proceeds beyond the loan amount.

Last week, analysts John M. Nadel, Dan Farrell, Alex Levine and Nitin Chhabra of Sterne Agee said in an investor’s note that they now estimate that AIG could receive up to $9.3 billion as its share of proceeds of sale of securities held in the Maiden Lane III facility.

Earlier, the analysts had predicted that the total proceeds of the sale of assets from Maiden Lane III to AIG would be in the range of $7.1 billion.