American International Group was forced to seek federal help Sept. 15 to avoid bankruptcy because it became caught up in a vicious cycle of rating downgrades, Standard & Poor's said in a research paper.

After downgrades, purchasers of AIG's short-term commercial paper, which is used by companies use to finance their day-to-day cash needs, were beginning to decline to roll over AIG's loans causing a credit crunch, said S&P.

The firm's analysts said at the same time banks were beginning to stop the company from drawing on the backup credit lines that purchasers of commercial paper require before they will do business with a counterparty.

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