AIG and the government have reached an accord that will pave the way to disentangle the enormous insurer from the U.S. taxpayer, AIG said today. If all goes well, the Treasury Department can begin selling its stake in AIG to the private sector by the first quarter of 2011.
As expected, the plan involves a conversion of the government’s preferred stake in AIG into common shares, temporarily raising taxpayer ownership of the company to 92 percent from its current level of 80 percent. Then, providing AIG meets certain requirements, the government would progressively sell off its stake in AIG to private investors.
First, though, AIG has to pay back a $20 billion credit facility from the New York Federal Reserve. The company plans to do that by selling assets and raising money through an initial public offering of AIA, its Asian life insurance unit. It also needs to get the New York Fed to divest from two special-purpose vehicles related to AIG. AIG plans to draw down Series F funds made available to it by the Treasury under TARP, then buy the $26 billion stake in the special-purpose vehicles back from the New York Fed. After that, AIG will give those shares back to Treasury in exchange for the Series F funds it took to kick off the transaction. Hey, no one said this would be a cakewalk.
That said, things are looking good on the fundraising front for AIG. The company announced today that it has reached a deal to sell its Star and Edison Life companies to Prudential Financial in a $4.8 billion cash-and-debt deal. The offloading of the Japanese companies will go toward the repayment plan.