American International Group, Inc.
) has announced the redemption of its entire outstanding balance
of 7.7% Series A-5 junior subordinated debentures due 2047. The
company has set Mar 18 as the redemption date, on which it will
repay the principal amount along with any accrued and unpaid
interest to debenture holders of record as of Mar 15.
AIG has outstanding 7.7% junior subordinated debentures worth
$1.1 billion as of Mar 7, 2013. They are held in book-entry form
through the Depositary Trust Corporation, which will redeem them
according to its procedure. The debenture holders will receive
the payment once the process is over and need not take any action
to receive it as all the debentures are being redeemed.
The transaction is aimed at achieving AIG's capital management
targets. The redemption is expected to reduce the high-interest
rate debt, thereby improving the interest coverage ratio.
Reducing its interest expense by debt repayment is a priority for
the company at present.
Thereafter, AIG might reinstate its dividend policy, which was
suspended in 2008 due to the financial crisis faces by the
company. However, the reinstatement depends on a Federal Review
of its capital position. The company also intends to start
repurchasing shares once its financial position becomes strong
AIG is steadily trying to enhance its financial flexibility.
Last month, the company announced its intention to repurchase
bonds worth $1.25 billion from the open market, through a tender
offer. AIG plans to redeem some of its junior subordinated
debentures worth about $650 million and another set of bonds with
principal amount totaling $275 million. One more set of sterling
and Euros denominated debentures, valued at about $325 million,
are also set for buyback.
AIG carries a Zacks Rank #3 (Hold). Other multi-line insurance
companies worth considering are
CNO Financial Group Inc.
). All these companies carry a Zacks Rank #1 (Strong Buy).
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