AIG sold its interests in a pool of $39.3 billion face amount of RMBS to Maiden Lane II
American International Group (AIG) has announced that its US life insurance companies have sold to Maiden Lane II (ML II), a newly formed Delaware LLC in which the Federal Reserve Bank of New York is the sole member, its interests in a pool of $39.3 billion face amount of residential mortgage-backed securities held by its agent, AIG Securities Lending, in connection with AIG’s US securities lending programme.
Federal Reserve Bank of New York (FRBNY) has extended a senior loan to Maiden Lane II to enable the purchase of the residential mortgage-backed securities (RMBS) for an initial purchase price of $19.8 billion. The loan has a six-year term, subject to extension by FRBNY. It is secured by the
$39.3 billion face amount of RMBS and bears interest at one-month London interbank offered rate (LIBOR) plus 1%.
The life insurance companies applied for the initial consideration from the sale of the RMBS, along with available cash and $5.1 billion provided by
American International Group in the form of capital contributions to the life insurance companies, to settle outstanding securities lending transactions under AIG’s US securities lending programme.
Included in the terminations were AIG’s securities lending transactions with FRBNY under the securities lending agreement announced in October. As a result of these transactions, AIG’s October securities lending agreement with FRBNY and AIG’s US securities lending programme have been terminated.
To the extent there are sufficient net cash proceeds available to ML II from the RMBS after the senior loan from FRBNY is repaid in full, the life insurance companies will be entitled to receive a portion of the deferred contingent purchase price from ML II of up to $1 billion plus interest at one-month LIBOR plus 3%.
After this fixed amount of deferred contingent purchase price has been paid, the life insurance companies will be entitled to receive one-sixth of any remaining net proceeds from the RMBS as additional deferred consideration for the sale of the RMBS.
Edward Liddy, chairman and CEO of AIG, said: AIG’s highest priority is the full repayment of the federal loan facility with interest. The creation and launch of this financing entity will eliminate the liquidity issues associated with AIG’s US securities lending programme which will facilitate our repayment plan. Although we have more work ahead of us, this is an important step forward. We appreciate the support of the FRBNY in implementing this transaction.