American International Group Inc. announced yesterday it has completed the sale of $39.3 billion in residential mortgage backed securities (RMBS) for $19.9 billion to the Federal Reserve Bank of New York.

The action was part of an AIG restructuring of its government financing that was announced Nov. 10.

As the company explained the transaction, AIG's U.S. life insurance companies sold the RMBS to Maiden Lane II LLC (ML II), a newly formed Delaware LLC in which the Federal Reserve Bank of New York (FRBNY) is the sole member.

The RMBS were held by the life companies' agent, AIG Securities Lending Corp.

When its liquidity crisis developed, AIG obtained $150 billion from the government in exchange for giving taxpayers a 79.9 percent interest in the conglomerate.

Edward M. Liddy, AIG chairman and chief executive officer, said, "AIG's highest priority is the full repayment of the federal loan facility with interest. The creation and launch of this financing entity will eliminate the liquidity issues associated with AIG's U.S. securities lending program, which will facilitate our repayment plan."

He continued, "Although we have more work ahead of us, this is an important step forward. We appreciate the support of the Federal Reserve Bank of New York in implementing this transaction."

FRBNY extended a senior loan to ML II to enable the purchase of the RMBS for an initial purchase price of $19.8 billion. The loan has a six-year term, subject to extension by FRBNY. It is secured by the $39.3 billion face amount of RMBS and bears interest at one-month LIBOR plus 1.0 percent.

The purchase price may be increased as a result of the payment of the deferred contingent purchase price, AIG said.

AIG life insurance companies applied the initial $19.8 from the RMBS sale with available cash and $5.1 billion in AIG capital to settle outstanding securities lending transactions under AIG's U.S. securities lending program.

Included in the terminations were AIG's securities lending transactions with FRBNY under the securities lending agreement announced in October--totaling approximately $20.5 billion at Dec. 12.

As a result of these transactions, AIG's October securities lending agreement with FRBNY and AIG's U.S. securities lending program have been terminated.

This article was revised and updated 1:50 p.m.

Special Reports /

AIG Completes RMBS Sale To Fed For $19.9 Billion

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