American International Group Inc. (AIG) said it has come to an agreement with the Obama Administration on a plan to repay American taxpayers who bailed out the insurer in 2008.
AIG said it will use proceeds from the sale of assets and a pending initial public offering on its Asian life insurance company to help pay off its debt by the end of the first quarter of next year.
Under the plan, the Federal Reserve Bank of New York would be paid $20 billion. Also, the U.S. Treasury would convert $49.1 billion of preferred stock into 1.66 billion common shares. The Treasury would then sell its stake in AIG on the open market over a period of time.
In addition, AIG will also issue up to 75 million warrants with a strike price of $45 per share to its existing common shareholders.
AIG said it expects to repay the Fed credit facility and complete the issuance of common stock to the U.S. Treasury before the end of the first quarter of 2011.
“This is a pivotal milestone as we deliver on our long-standing promise to repay taxpayers, and we thank the American people for their support,” said Robert H. Benmosche, AIG president and CEO said in a statement. “We are very pleased that this agreement vastly simplifies current government support of AIG, sets forth a clear path for AIG to repay the FRBNY in full, and sets in motion the steps for the U.S. Treasury to exit its ownership of AIG over time.”
Treasury officials welcomed the deal.
“The exit strategy announced today dramatically accelerates the timeline for AIG’s repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company,” said Treasury Secretary Tim Geithner. “While there is a lot of work ahead to execute the terms of this agreement, today we are much closer to seeing a clear path out. AIG’s Board of Directors and new management team deserve credit for the substantial progress they’ve made to lower the company’s risk profile, refocus it around core insurance businesses, and put it in a better position to pay back taxpayers.”
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