• Preferred Equity: Treasury exchanges its existing $40 billion cumulative perpetual preferred shares for new preferred shares with revised terms that more closely resemble common equity. The goal is to “improve the quality of AIG’s equity and its financial leverage.”
• Dividends are non-cumulative; AIG’s can redeem the preferred stock only with the “proceeds from the issuance of equity capital.”
• Equity Capital Commitment: Treasury is creating a new equity capital facility, allowing AIG to draw up to $30 billion as needed in exchange for non-cumulative preferred stock. The goal is strengthening AIG’s capital levels and improve its leverage.
• Federal Reserve Revolving Credit Facility: The Federal Reserve will take several (undefined) actions relating to the $60 billion AIG Revolving Credit Facility (established in September 2008);
• Repayment by Preferred Stock Interests: Two special purpose vehicles are created to hold all of the outstanding common stock of American Life Insurance Company (ALICO) and American International Assurance Company Ltd. (AIA). AIG retains control of ALICO and AIA.
• The New York Fed’s preferred stock valuation — up to approximately $26 billion — will be a percentage of the fair market value of ALICO and AIA based on valuations acceptable to the New York Fed. The Revolving Credit Facility will be reduced in exchange for preferred interests in two life insurance holding company subsidiaries of AIG.
• Securitization of Life Insurance Cash Flows: The New York Fed is authorized to make new loans under section 13(3) of the Federal Reserve Act of up to an aggregate amount of approximately $8.5 billion to special purpose vehicles (SPVs) established by domestic life insurance subsidiaries of AIG. The SPVs would repay the loans from the net cash flows they receive.
• Restructuring of Other Terms: The total amount available under the Facility will be reduced from $60 billion to no less than $25 billion. The interest rate currently three-month LIBOR plus 300 basis points, will be modified by removing the existing floor (3.5 percent) on the LIBOR rate.
• Issuance of Preferred Stock: AIG has agreed to issue on March 4, 2009, shares of convertible preferred stock representing an approximately 77.9% equity interest in AIG to an independent trust for the sole benefit of the United States Treasury.
Meanwhile, in Europe, the Banking Sector is down 10% today . . .
Source: U.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan Board of Governors of the Federal Reserve System U.S. Department of the Treasury 6:00 a.m. EDT March 2, 2009 http://www.federalreserve.gov/newsevents/press/other/20090302a.htm
Originally published at The Big Picture blog and reproduced here with the author’s permission.