The U.S. Treasury Department and the Federal Reserve Board announce a restructuring of the government’s assistance to AIG in order to stabilize this systemically important company in a manner that best protects the U.S. taxpayer.
The government’s restructuring is designed to enhance the company’s capital and liquidity in order to facilitate the orderly completion of the company’s global divestiture program.
As significantly, the restructuring components of the government’s assistance begin to separate the major non-core businesses of AIG, as well as strengthen the company’s finances. The long-term solution for the company, its customers, the U.S. taxpayer, and the financial system is the orderly restructuring and refocusing of the firm. This will take time and possibly further government support, if markets do not stabilize and improve.
The steps provide tangible evidence of the U.S. government’s commitment to the orderly restructuring of AIG over time in the face of continuing market dislocations and economic deterioration. Orderly restructuring is essential to AIG’s repayment of the support it has received from U.S. taxpayers and to preserving financial stability. The U.S. government is committed to continuing to work with AIG to maintain its ability to meet its obligations as they come due.
Key steps of the restructuring plan include:
-Preferred Equity:
The U.S. Treasury will exchange its existing $40 billion cumulative perpetual preferred shares for new preferred shares with revised terms that more closely resemble common equity and thus improve the quality of AIG’s equity and its financial leverage. The new terms will provide for non-cumulative dividends and limit AIG’s ability to redeem the preferred stock except with the proceeds from the issuance of equity capital.
-Equity Capital CommitmentThe Treasury Department will create a new equity capital facility, which allows AIG to draw down up to $30 billion as needed over time in exchange for non-cumulative preferred stock to the U.S. Treasury.
– Federal Reserve Revolving Credit FacilityThe Federal Reserve will take several actions relating to the $60 billion Revolving Credit Facility for AIG established by the Federal Reserve Bank of New York (New York Fed) in September 2008.
AIG must be in compliance with the executive compensation and corporate governance requirements of Section 111 of the Emergency Economic Stabilization Act, including the most stringent limitations on executive compensation as required under the newest amendments to the Emergency Economic Stabilization Act.
Additionally, AIG must continue to maintain and enforce newly adopted restrictions put in place by the new management on corporate expenses and lobbying as well as corporate governance requirements.
L.D.