Federal Reserve Gives AIG $85 Billion Loan

The Federal Reserve Board, with the full support of the Treasury Department, has authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.

This two-year, $85 billion secured revolving credit facility will ensure the company can meet its liquidity needs, says AIG.

‘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's board of directors says. ‘We expect that the proceeds of these sales will be sufficient to repay the loan in full and enable AIG's businesses to continue as substantial participants in their respective markets. In return for providing this essential support, American taxpayers will receive a substantial majority ownership interest in AIG.’

According to the Federal Reserve, a disorderly failure of AIG would add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.

The loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy. Interest will accrue on the outstanding balance at a rate of three-month LIBOR plus 850 basis points.

Sources: Federal Reserve, AIG


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