AIG Recapitalization Summary and Breakeven

Some snippets (and a summary) from AIG's recap transactions:

Repayment of FRBNY Credit Agreement:

At the Closing, AIG will repay to the FRBNY in cash all amounts owing under the Credit Agreement, and the Credit Agreement will be terminated. As of the date hereof, the total repayment amount under the Credit Agreement is approximately $20 billion. The funds for repayment are to come from net cash proceeds from the initial public offering of American International Assurance Company, Limited and the sale of American Life Insurance Company, which are expected to occur in the fourth quarter of 2010, and from additional funds from operations, financings and asset sales. 

Summary:  Okay, here AIG will repay the FRBNY credit agreement ($20B) by asset sales and cash from the business. Here's how:

 Repurchase and exchange of the SPV Preferred Interest:


At the Closing, AIG will draw down all amounts remaining available to be funded under the Department of the Treasury Commitment pursuant to the Securities Purchase Agreement, dated as of April 17, 2009 (the “SPA”), between AIG and the Treasury Department relating to AIG’s Series F Fixed Rate Non-Cumulative Perpetual Preferred Stock less up to $2 billion to be allocated to a new series of AIG’s preferred stock designated as the “Series G Cumulative Mandatory Convertible Preferred Stock” as described below. As of the date hereof, the total available funding under the Department of the Treasury Commitment is approximately $22.3 billion. AIG will use the Series F Closing Drawdown Amount to repurchase a portion of the FRBNY’s preferred interests in the SPVs corresponding to the Series F Closing Drawdown Amount and transfer the Transferred SPV Preferred Interests to the Treasury Department as part of the consideration for the Series F Preferred Stock.

Summary:  AIG draws down the $22.3B Treasury Securities purchase agreement (where the govt buys series F preferred stock from AIG) and buys FRBNY's interest in AILCO and AIA.  Interest in AILCO and AIA is then transferred to the Treasury.  This is how they fund the repayment of FRBNY credit agreement.

Now it gets fun, the exchanges of all outstanding preferred stock held by Treasury.

Series F preferred ($7B book value + $22B to be drawn):  they draw down Series F, buy the SPVs from the FRBNY and transfer AILCO and AIA to Treasury to repay the series F and exchange the remaining for 167MM shares of AIG..  Given the sales prices of AILCO ($15B) and what can be raised for AIA, I will call this paid.

Series G preferred (estimate $2B value):  Series G is created as part of the Series F drawdown up to $2B. This will be used to pay the FRBNY for any remaining interests it has in AIA and AILCO. Whatever is left at March 2012 will be converted to common stock.


Series C preferred ($23B book value):  At the closing, the Series C preferred stock will be exchanged for 562.9MM shares of AIG.

Series E preferred ($41B book value):  At the closing, the Series E preferred will be exchanged for 924.5MM shares of AIG.


The Treasury Department will then hold approximately 1.655 billion shares of AIG common stock, representing pro forma ownership of approximately 92.1 percent of the AIG common stock that will be outstanding as of the Closing.

Bottom line:  estimated $66B owed to Treasury, 16.55B shares held by Treasury = Treasury breakeven of approximately $38.  Share currently trade at $38.57.  Good luck.




Conditions to Close:

The parties will seek to promptly enter into definitive documentation to implement the Recapitalization and the other agreements described in the Summary of Terms. Among other closing conditions, it will be a condition to the Closing that AIG have sufficient cash proceeds available to fully repay all amounts owed under the Credit Agreement and that the FRBNY will not hold SPV Preferred Interests with an aggregate liquidation preference in excess of $6 billion immediately after the Closing. Additionally, AIG and certain of its key subsidiaries must have credit rating profiles, taking into account the Recapitalization, that are reasonably acceptable to the parties, and AIG must have in place at the Closing third-party financing commitments that are reasonably acceptable to AIG, the Treasury Department and the FRBNY.