AIG Announces Plan to Repay U.S. Government

Key Components Involve Retiring TARP Support, Shares
   NEW YORK- (BUSINESS WIRE) - 9/30/2010 - American International Group Inc. (AIG) announced today that it has entered into an agreement-in-principle with the U.S. Department of the Treasury (U.S. Treasury), the Federal Reserve Bank of New York (FRBNY), and the AIG Credit Facility Trust (the Trust) designed to repay all its obligations to American taxpayers and position AIG as strong, independent, and worthy of investor confidence.
   “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,” AIG President and Chief Executive Officer Robert H. Benmosche said. “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.
   “With this plan, we remain on track to emerge with one of the largest, most diversified property and casualty companies in the world, a leading U.S. life insurance and retirement savings operation, and other businesses that enhance this nucleus. As our results this year underscore, AIG’s core businesses are financially strong, well-managed enterprises that are well-positioned to deliver long-term value to all of our stakeholders. With this plan underway, we can concentrate our full attention on managing our businesses for the benefit of all of our stakeholders,” Mr. Benmosche said.
   The plan involves three key components: 
   1. Repaying and terminating the FRBNY credit facility with AIG: Today, AIG owes the FRBNY approximately $20 billion in senior secured debt under the FRBNY credit facility. Under the plan, AIG expects to repay this entire amount and terminate the FRBNY senior secured credit facility with resources from the parent as well as with proceeds from a variety of asset dispositions underway, including the initial public offering of its Asian life insurance business, American International Assurance Company Ltd. (AIA), and the pending sale of its foreign life insurance company American Life Insurance Company (ALICO) to MetLife, Inc.
   2. Facilitating the orderly exit of the U.S. government’s interests in two special purpose vehicles (SPVs) that hold AIA and ALICO: Today, the FRBNY holds preferred interests in two AIG-related SPVs totaling approximately $26 billion (See “notes to editors” at the end of this press release for additional details). Under the plan, AIG will draw down up to $22 billion of undrawn Series F funds available to the company under the Troubled Asset Relief Program (TARP) to purchase an equal amount of the FRBNY’s preferred interests in the SPVs. AIG will then immediately transfer these preferred interests to the U.S. Treasury as part of its consideration for the Series F preferred shares. AIG also will apply proceeds from future asset monetizations, including the announced sales of the AIG Star Life Insurance Co. and AIG Edison Life Insurance, to retire the remainder of the FRBNY’s SPV preferred interests. When these transactions are completed, AIG expects that it will have repaid the FRBNY in full. To retire the U.S. Treasury’s preferred interests in the SPVs, AIG will apply the proceeds of future asset monetizations, including its remaining equity stake in AIA and the equity securities of MetLife that AIG will own after the sale of ALICO to MetLife closes.
    3. Retiring AIG’s Remaining TARP Support and Series C Preferred Shares. Today, AIG has approximately $49.1 billion of TARP preferred shares outstanding. Under the plan, the U.S. Treasury is expected to receive approximately 1.655 billion shares of AIG common stock in exchange for the $49.1 billion of TARP Series E and Series F preferred shares and the Series C preferred shares currently held by the AIG Credit Facility Trust. In addition, AIG will issue up to 75 million warrants with a strike price of $45.00 per share to existing common shareholders. Upon the exchange, the U.S. Treasury will own 92.1% of the common stock of AIG. The exchange will not be executed until the FRBNY credit facility is repaid in full. After the exchange is completed, it is expected that over time the U.S. Treasury will sell its stake in AIG on the open market.    AIG expects to repay and terminate the FRBNY credit facility and complete the issuance of common stock to the U.S. Treasury before the end of the first quarter of 2011, subject to regulatory approvals and other closing conditions.
  SPVs: On December 1, 2009, AIG contributed the equity of each of AIA and ALICO to separate special purpose vehicles (SPVs) in exchange for interests in the SPVs. Under the terms of these transactions, the FRBNY received preferred interests with a liquidation preference in the AIA SPV of $16 billion and with a liquidation preference in the ALICO SPV of $9 billion. The liquidation preference of the preferred interests represented a percentage of the estimated fair market value of AIA and ALICO. Until AIG divests a majority of its common interests in AIA and ALICO, those entities will continue to be consolidated in AIG’s financial statements.
    Sale of ALICO to METLIFE: On March 8, 2010, AIG announced a definitive agreement for the sale of ALICO, one of the world’s largest and most diversified international life insurance companies, to MetLife, Inc. for approximately $15.5 billion, including $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. This transaction is expected to close in the fourth quarter of 2010.
   Intent to IPO AIA: On August 6, 2010, AIG disclosed that it intends to conduct an initial public offering of AIA, by seeking a listing of AIA on the Hong Kong Stock Exchange, subject to regulatory approvals and market conditions.
   Sale of AIG STAR and AIG Edison: On September 30, 2010, AIG announced that it has entered into a definitive agreement to sell its Japan-based life insurance subsidiaries, AIG Star Life Insurance and AIG Edison Life Insurance, to Prudential Financial Inc., for a total purchase price of $4.8 billion, comprising $4.2 billion in cash and $0.6 billion in the assumption of third-party debt. AIG will continue to grow its general insurance business in Japan.