Chicago — The greater press is reporting that American International Group Inc. (AIG) says it purchased an additional $16 billion in collateralized debt obligations (CDO) insured through credit-default swap contracts in an effort to reduce its exposure to insurance guarantees written against the instruments.

The collateralized debt obligations—bonds backed by various slices of debt such as mortgage-backed securities—allow AIG to cancel an equivalent amount of swaps contracts that its finance subsidiary had written on those securities, relieving some of the financial pressure that had led the government to step in to help the company in September.

Hit hard by the ongoing credit crisis, the government initially rescued AIG in mid-September, when the insurer faced possible bankruptcy, by lending it as much as $85 billion at high interest rates. But since that time, the government twice amended the deal—initially, increasing the possible loan to nearly $123 billion and, in mid-November, to a new package valued at about $150 billion.

Sources: CNNMoney.com, Associated Press

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