Yesterday,
American International Group Inc.
(
AIG
) announced the sale of unsecured senior notes worth $250 million.
The proceeds of these notes are expected to be utilized for
enhancing the operational performance of the company.
Accordingly, the $250 million three-year fixed-rate notes are
issued at a price of $99.908, bearing a coupon rate of 2.375% and
yield of 2.407%. The notes are dated to mature on August 25, 2015.
The notes are callable and projected to have a spread of 200 basis
points (bps) over the US Treasuries. Interest on the notes will be
paid semi-annually, in equal installments.
Meanwhile, AIG appointed
Morgan Stanley
(
MS
),
JP Morgan Chase & Co.
(
JPM
) and
Citigroup Inc.
(
C
) as the joint book-running managers for the sale. The
above-mentioned set of fixed-rate notes carry a rating of "Baa2"
and "BBB+" from Moody's Investor Service of
Moody's Corp.
(
MCO
) and Standards & Poor's (S&P), respectively.
Earlier this month, Moody's had affirmed the senior unsecured
debt of AIG at "Baa1" rating, while the insurance financial
strength (IFS) of AIG's businesses - Chartis and SunAmerica were
confirmed at "A1" and "A2", respectively. The assertion came after
the company posted healthy second-quarter 2012 financial results,
which was followed by buying back shares worth $2.0 billion from
the US Treasury, thereby reducing the latter's stake to 53% from
the prior 61%. The consistent repayment of the government's bailout
loan also appears to leave ample scope for raising debt for
business operations.
AIG is enjoying a sustainable financial leverage and pre-tax
interest coverage along with a strong operating cash flow. The
company also has excess liquidity in its Direct Investment book
(DIB), a runoff portfolio, which includes the interest of Maiden
Lane III. Hence, the company need not use its cash and other fund
sources apportioned for operations currently.
Conversely, these fund sources enhance the company's capital
flexibility. Going foreward, the simultaneous improvement in the
company's credit curve and earnings potential from Chartis and
SunAmerica should provide the required buoyancy for long-term
growth.
Additionally, AIG is likely to reduce its financial leverage and
augment its pre-tax interest coverage through consistent debt
reduction and improvement in core operations in the next 12-18
months.
Overall, we believe amidst 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 the future.
Currently, AIG carries a Zacks Rank #2, which implies a short-term
Buy rating although the long-term recommendation remains
Neutral.
AMER INTL GRP (AIG): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
MOODYS CORP (MCO): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
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