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Fed Bails Out AIG with $85B

NEW YORK CITY-The sinking reinsurer is handing over collateral of its own stock for $85 billion to shore up its mounting debt.

By Ryan Clark | Updated on September 16, 2008

NEW YORK CITY-The Federal Government in conjunction with the state of New York is giving American International Group an $85-billion secured revolving credit loan to help buttress the reinsurer from its mounting debt. AIG had accrued a debt of $75 billion and the government had already refused to bailout similarly sinking Lehman Bros.–now in bankruptcy and partially purchased by Barclays. However, after meeting Tuesday with the Fed and the State of New York, the details were worked out for the loan.

“A disorderly failure of AIG could add to already significant levels of financial market fragility,” the Fed said in a prepared statement. The Fed will receive a 79.9% stake in the company as collateral for the loan and the loan can be repaid with an asset sale.

AIG said in a statement,”We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis.” The company anticipates that the sale of their assets will sufficiently enable the reinsurer to pay off the Federal loan.

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