According to a report from Thomson Reuters,
American International Group Inc.
) recently vended off senior unsecured notes worth $750 million.
The notes were issued through reopening of a similar $750 million
offering that was completed on May 24, 2012, thereby increasing the
size of debt issuance to $1.5 billion.
These long-term unsecured notes of $750 million were issued at a
price of $101.942 and dated to mature on June 1, 2022. These
callable 10-year fixed rate notes are projected to have a spread of
300 basis points (bps) over the US Treasuries, bearing a coupon
rate of 4.875% and yield rate of 4.628%.
Interest on the notes will be payable semi-annually, in equal
installments, commencing on December 1, 2012. Further, AIG
Goldman Sachs Group Inc.
) as the joint book-running managers for the sale.
Earlier, in May this year, AIG had also issued another set of
10-year unsecured notes worth $750 million at an issue price of
$99.077, scheduled to mature on June 1, 2022. Additionally, these
notes were projected to have a spread of 325 bps over the US
Treasuries, bearing a coupon rate of 4.875% and yield rate of
4.993%. Meanwhile, Barclays Capital of
), BNP Paribas, Citigroup and RBC acted as the joint book-running
managers for the sale.
Besides, both the set of unsecured notes carry a rating of
"Baa1," "A-" and "BBB" from Moody's Investor Service of
), Standards & Poor's (S&P) and Fitch, respectively. These
ratings cast a stable outlook on AIG's debt.
AIG expects to utilize the proceeds from the notes sold for
enhancing its operating leverage and for refinancing a debt that is
due to mature in 2013. Meanwhile, all the prime three rating
agencies remain confident about the strong market positions of
AIG's core operations, i.e. Chartis and SunAmerica Financial Group,
coupled with the company's capital flexibility and credit profile.
Moreover, AIG is making consistent efforts to repay the government
bailout loan, reducing it by about 83% till date.
AIG's strategic asset divestments have also relieved it off the
redundant operations, while also aiding the company to focus on its
core property and casualty businesses. The company also enjoys a
modest cash position with a pro-forma debt and financial leverage
of about 14% and 20%, respectively, based on the steady balance
sheet deleveraging over the past 12-18 months.
Going ahead, AIG may warrant a rating upgrade if it is able to
maintain its total financial leverage below 30% and pre-tax
interest coverage in high single digits, while simultaneously
improving its credit curve and earnings potential from Chartis and
Moreover, AIG's fixed charge coverage improved to 6x at the end
of first quarter of 2012 from 3.0x at 2011-end. The rating agencies
are quite optimistic about the company's core earnings and
underwriting profitability for the rest of 2012.
Nevertheless, the rating agencies have raised concerns regarding
AIG's ability to reduce the volatility in reserves of non-life
operations, which could in turn hamper underwriting profitability
and earnings of the company. Additionally, any deterioration in the
financial leverage could severely hit the credit profile and
capital flexibility of the company. Hence, AIG requires keeping up
a healthy credit and cash position despite the ongoing balance
sheet deleveraging and debt repayments.
Overall, we believe that barring the macro-economic factors and
interest rate volatility, AIG has the potential to liberate itself
from the clutches of the government, while also being able to
maintain a strong and competitive business profile in future.
Currently, AIG carries a Zacks Rank #1 implying a short-term Strong
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