The U.S. will cut the original $85 billion loan that saved the New York-based insurer in September to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by AIG.
Yves Smith does a full blown analysis in the cafe.
The Federal Reserve announcement:
The U.S. Treasury on Monday announced that it will purchase $40 billion of newly issued AIG preferred shares under the Troubled Asset Relief Program. This purchase will allow the Federal Reserve to reduce from $85 billion to $60 billion the total amount available under the credit facility established by the Federal Reserve Bank of New York (New York Fed) on September 16, 2008.
Certain other terms of the existing New York Fed credit facility, established on September 16, will be modified to help achieve the objectives described above. In particular, the interest rate on the facility will be reduced to three-month Libor plus 300 basis points from the current rate of three-month Libor plus 850 basis points, and the fee on undrawn funds will be reduced to 75 basis points from the current rate of 850 basis points. The length of the facility will be extended from two years to five years. The other material terms of the facility remain unchanged. The facility will continue to be secured by a lien on many of the assets of AIG and of its subsidiaries.
Sources: Federal Reserve Board and Treasury Department announce restructuring of financial support to AIG Federal Reserve, November 10, 2008 http://www.federalreserve.gov/newsevents/press/other/20081110a.htm
AIG, U.S. May Expand Bailout to $150 Billion, Cut Interest Rate Hugh Son Bloomberg, November 10, 2008 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAlWe7pNn734
U.S. Throws New Lifeline to AIG, Scrapping Original Rescue Deal MATTHEW KARNITSCHNIG, LIAM PLEVEN and SERENA NG WSJ, November 10, 2008 http://online.wsj.com/article/SB122627437470412029.html
A.I.G. May Get More in Bailout ANDREW ROSS SORKIN and MARY WILLIAMS WALSH NYT, November 9, 2008 http://www.nytimes.com/2008/11/10/business/economy/10aig.html
Originally published at The Big Picture and reproduced here with the author’s permission.