Looking to dig out of its financial hole, New York-based American International Group Inc. (AIG) says it has entered into an agreement with the Federal Reserve Bank of New York (FRBNY) to spin-off two of its more valuable franchises. AIG contends the move will enable it to reduce the $40 billion the company owes the FRNBY by $25 billion, while positioning the franchises for future prosperity.

Under the deal, AIG will create separate special purpose vehicles (SPVs) for its American International Assurance Company Ltd. (AIA) and American Life Insurance Co. (ALICO) and give the FRBNY preferred interests in the AIA SPV of $16 billion and in the ALICO SPV of $9 billion.

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