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18 Sep 2008
Moody's maintains present ratings on AIG and subsidiaries
New York, September 18, 2008 -- Moody's Investors Service is maintaining its present ratings on American
International Group, Inc. (NYSE: AIG -- senior
unsecured debt at A2, short-term debt at Prime-1,
on review for possible downgrade) and on AIG's subsidiaries following
the announcement that the Federal Reserve Board (the Fed) has authorized
the Federal Reserve Bank of New York to provide an $85 billion
two-year secured revolving credit facility to the company.
The Fed said in a press release that the credit facility is designed to
assist AIG in meeting its obligations as they come due. The Fed
also noted that a disorderly failure of AIG could have added to already
significant levels of financial market fragility. AIG's recent
liquidity strains stem mainly from investment and derivative portfolios
that are exposed to the troubled US housing market.
The Fed credit agreement has not yet been made public but the Fed press
release says that the facility is collateralized by all assets of AIG
and of its primary non-regulated subsidiaries. These assets
include the stock of substantially all of the regulated subsidiaries.
The US government will also receive a 79.9 percent equity interest
in AIG and has the right to veto the payment of dividends to common and
The credit facility significantly enhances AIG's short-term
liquidity profile, in Moody's view, providing the company
with greater flexibility to sell certain of its businesses in an orderly
manner. The rating agency expects that AIG will move expeditiously
in this regard to generate cash, limit its borrowings under the
facility, and simplify its business mix.
Moody's continuing review of the ratings on AIG and its subsidiaries
will focus on AIG's evolving liquidity profile, the extent
to which AIG borrows under the Fed facility, the execution of asset
sales, and the performance of the businesses that AIG continues
to own. Moody's will also consider AIG's ability to
contain and reduce risk in its mortgage exposed investment and derivative
portfolios. With regard to various hybrid securities issued by
AIG and its subsidiaries, the rating agency will consider the potential
for deferral of periodic payments as a way for the company to conserve
capital. It is possible that Moody's could widen the notching
between ratings of senior unsecured debt and hybrid securities to reflect
the increased risk of such deferrals.
In reviewing the insurance financial strength ratings of operating subsidiaries,
Moody's will focus on their operating performance during this period
of stress as well as the potential for sale or spin-off.
The review will also consider the rating profiles of likely acquirers
to the extent that businesses are identified for sale.
Despite the substantial liquidity benefit provided by the credit facility,
Moody's believes that it would be difficult for AIG to access long-term
capital at present, given the unsettled state of financial markets
and uncertainty surrounding AIG's strategic plans. Moreover,
borrowings under the facility, priced at LIBOR plus 850 basis points
according to the Fed press release, will increase AIG's fixed
charge burden to the extent that the facility is drawn. The rating
agency also noted that while long-term creditors will benefit from
the improved prospect of orderly asset sales, such creditors will
be effectively subordinated to the Fed facility, while it remains
outstanding, by virtue of its broad collateral package.
AIG's core insurance operations are fundamentally solid, in
Moody's view, but are subject to substantial reputational
risk as a result of the recent market turmoil. Moody's notes
that AIG's management team is working vigorously to demonstrate
that its insurance subsidiaries have sufficient liquidity and capital
to support existing and new business. It will take time to determine
the extent to which recent events may have weakened the companies'
standing in the market.
Moody's has withdrawn its provisional ratings from AIG's multi-purpose
shelf registrations, as these arrangements became fully utilized
through AIG's capital issuance in May 2008.
The last rating action on AIG took place on September 15, 2008,
when Moody's downgraded the parent company's ratings (senior
unsecured debt to A2 from Aa3), took various rating actions on AIG's
subsidiaries, and placed nearly all of these ratings on review for
AIG, based in New York City, is a major international insurance
and financial services organization, with operations in more than
130 countries and jurisdictions. The company is engaged through
subsidiaries in General Insurance, Life Insurance & Retirement
Services, Financial Services and Asset Management. AIG reported
total revenues of $19.9 billion and a net loss of $5.4
billion for the second quarter of 2008. Shareholders' equity was
$78.1 billion as of June 30, 2008.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to punctually pay senior policyholder claims and
obligations. For more information, please visit our website
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service
No Related Data.
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