AIG holds all of the common interests in AIA and ALICO at present

American International Group (AIG) has closed two transactions with the Federal Reserve Bank of New York (FRBNY) that have reduced the debt AIG owes the FRBNY by $25 billion in exchange for the FRBNY’s acquisition of preferred equity interests in certain newly formed subsidiaries.

AIG’s outstanding principal balance under the FRBNY credit facility is approximately $17 billion, down from approximately $42 billion, including the $25 billion debt reduction and excluding interest and fees. As a result of these transactions, the total amount available under the facility has been reduced from $60 billion to $35 billion.

The transactions advance AIG’s goal of positioning two of the company’s life insurance franchises, American International Assurance Company, Limited (AIA) and American Life Insurance Company (ALICO), for initial public offerings or third party sale.

The AIA and ALICO transactions involve AIG contributing the equity of each of AIA and ALICO to separate special purpose vehicles (SPVs) in exchange for interests in the SPVs. As per the terms of the transactions, the FRBNY will receive 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.

AIG holds all of the common interests in the AIA and ALICO SPVs and will benefit from the fair market value of AIA and ALICO in excess of the value of the preferred interests as the SPVs monetize their stakes in these companies in the future.