American International Group Inc. (AIG) raised approximately $36.71 billion, $27.71 billion of which was in cash proceeds through its sale of one insurance subsidiary, American Life Insurance Co. (ALICO) and the initial public offering of a second, AIA Group Ltd. (AIA).
AIG expects to use the cash proceeds from these transactions to repay the credit facility extended to AIG by the Federal Reserve Bank of New York (FRBNY) and to make payments on other interests owned by the government, under terms of the agreement in principle announced by AIG as part of its recapitalization plan on Sept. 30, 2010.
AIG closed the sale of ALICO to MetLife Inc. for approximately $16.2 billion, including approximately $7.2 billion in cash and the remainder in MetLife securities. The $7.2 billion cash portion of the consideration includes an upward purchase price adjustment of approximately $400 million pursuant to the terms of the purchase agreement between MetLife and AIG.
On October 22 and 29, respectively, AIG disclosed in regulatory filings that the gross proceeds from the initial public offer of AIA were $17.8 billion and the exercise of the overallotment option for this offering increased the gross proceeds to $20.51 billion.
The MetLife securities will be sold over time, subject to certain lock-up provisions and market conditions, to provide additional funds to repay the government.
“We promised the American taxpayers we would repay them and the initial public offering of AIA last week and the completion of the ALICO transaction move us closer to delivering on our promise,” says Robert Benmosche, AIG president and CEO. “These transactions will generate sufficient cash to allow AIG to pay off the FRBNY credit facility, marking a major milestone in our commitment to repay the American taxpayers.”
Proceeds from the transactions are being placed in an escrow fund with the FRBNY until the closing of the recapitalization plan, expected no later than the first quarter of 2011.
As of October 27, 2010, the principal and interest owed to the FRBNY on the credit facility was approximately $20 billion.
“As we said on September 30, AIG will restructure itself around its core property casualty and life and retirement services businesses, which are performing well, and will provide our company with a strong foundation to build value for all stakeholders going forward, Benmosche says.
After AIG satisfies its debt to the Fed, it must still repay the Treasury's nearly $50 billion investment in the company, the Washington Post reports.
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Corrected November 1, 2010 at 10:55AM: yes