American International Group Inc.
) concluded the last week with the announcement of a 4-year credit
facility worth $4.0 billion. Through this credit facility, the
company attempts to restructure its capital for long-term
Accordingly, AIG made certain alterations, whereby two of its
credit facilities refinanced in October last year have been
replaced with the latest $4.0 billion of credit. This modification
has been made to provide greater flexibility to its finances,
whereby funds from the credit facility can be accessed by both AIG
and its subsidiaries, whenever required.
In October 2011, AIG had sanctioned two new bank credit
facilities amounting $4.5 billion. While one of the credit
facilities is worth $3.0 billion granted by banks for four years,
the other one is worth $1.5 billion for a 364-day period. The
4-year facility also included a Letter of Credit (LoC) with a
sub-limit of $1.5 billion.
Last year, the $4.5 billion credit facilities had replaced the
credit facilities announced in December 2010. These bank credit
facilities comprised of $3.182 billion credit facility and a $1.3
billion 364-day LoC for Chartis. The $3.182 billion credit facility
was equally divided between a 3-year facility and a 364-day
Meanwhile, the latest 4-year, $4.0 billion credit facility
includes LoC with a sub-limit of $2.0 billion, higher than the
prior limit of $1.5 billion. Additionally, about 34 banks have
participated in this credit facility arrangement. Further, AIG
appointed J.P. Morgan Securities LLC of
JP Morgan Chase & Co.
) and Citigroup Global Markets Inc. of
) as the lead arrangers on both facilities.
The new credit facilities have been acquired and replaced with
the older ones in an effort to gain more capital flexibility along
with more favourable terms and conditions. While the company is
vigorously shedding the US Treasury's stake in its board, AIG is
also seeking better tools to gain financial elasticity for
Last month, the Treasury further reduced its stake in AIG to
15.9% from the prior 53.4%, by selling 553.8million shares in the
open market, at $32.50, a share for $18.0 billion, of which 153.8
million shares were bought back by the company for $5.0 billion.
The Treasury also raised an additional $2.7 billion by selling 83.1
million extra shares to the underwriters.
Overall, the Treasury has been able to earn about $197.4 billion
from the $182.3 billion invested in AIG as a bailout loan in
September 2008. Meanwhile, the remaining 15.9% stake is yet to
generate additional profits. The improved capital, operating and
financial outlook also bodes well for the ratings agencies.
However, fresh regulatory challenges from the Federal Reserve upon
the complete dilution of the Treasury's stake are one of
significant risks that lie in the future.
Hence, we maintain a long-term Neutral outlook on AIG with Zacks
Rank #2, which implies a short-term Buy rating and indicates a
slight upward pressure on the stock in the near term.
AMER INTL GRP (AIG): Free Stock Analysis Report
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