It’s a start, but AIG still needs lots of handholding

June 25, 2009

As part of the government plans to overhaul AIG’s massive bailout package (announced in March), the company said Thursday it would give the government stakes in two of its most cherished assets – American Life Insurance Company, Alico, and American International Assuarance, AIA, – in return for paying down a good portion of its loan with the central bank.

In its press release, the company was sure to say that this is “a major step toward repaying taxpayers,” which is always important to flag to help offset the anger surrounding the bonus snafu and Ben Bernanke’s public blasting of the company.  And reducing outstanding debt on the credit facility to $15 billion from $40 billion gives some comfort that little by little, the government’s AIG entanglement is getting a little less, well, twisted.

But let’s not get too excited. After all, there’s still that $15 billion balance to deal with, and stakes in two companies that policymakers would be happier handing over to the private sector.

So far, it’s been a hard slog to sell the assets. When the Fed first swooped in to rescue AIG in September, the thinking was the $85 billion loan with stiff financing terms was a stop-gap measure to get the troubled insurer through a very rough patch. After all, the company had good assets to sell and it would use proceeds to pay back the goverment.

Nine months later and they’re still at it. AIG has said that it plans to take ALICO and AIA, now in their special purpose vehicles, public but with the disclaimer that the timing of such IPOs will depend on market conditions.

But before they get to that, the special purpose vehicles and the debt paydown need to close – something not expected until the second half of the year, most likely late in the third quarter at the earliest.

The New York Fed loan is also only part of the AIG bailout package. There’s also the toxic mortgage-backed securities and collateralized debt obligations that the Fed stored away in the vehicles known as Maiden Lane II and Maiden Lane III. They stand at around $36 billion.

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