American International Group Inc., the Federal Reserve Bank of New York and the U.S. Treasury department have officially signed a deal to repay the government for sustaining the massive company.

In a filing with the U.S. Securities and Exchange Commission, AIG said it and its loaners have entered a “definite agreement” meant to recapitalize the once near-bankrupt insurance giant.

In a statement, AIG said the definite agreement “marks an important step forward in our progress toward completely repaying taxpayers. We remain committed to executing the steps and meeting all conditions in the agreement as soon as possible.”

As had been previously announced, AIG will use proceeds from the sale of its American Life Insurance Company (ALICO) and proceeds from an initial public offering of its unit, AIA Group Ltd. in Hong Kong, to repay a line of credit to the FRBNY.

As part of the agreement, the Treasury's stake in AIG will increase to about 92 percent from 80 percent, clearing the way for it to offer stock to the public. The Treasury said it expects a profit on its investments in AIG.

AIG said the net cash gained from the ALICO transaction and AIA offering is $27 billion. It owes the FRBNY credit facility about $20 billion.

The New York-based company then plans to use about $22 billion it has access to under the Treasury's Troubled Asset Relief Program to purchase an equal amount of interests in each special purpose vehicle held by the FRBNY. The interests will be given to the Treasury as part of the plan to allow the Treasury to convert its preferred shares into 1.66 billion shares of common stock to sell stock to the public.

At yesterday's closing price of AIG shares, the Treasury's ownership in the company would be about $70 billion.

The agreement filed late Wednesday “is a milestone in the government's long-stated efforts to exit our investments in private companies as soon as practical while protecting taxpayers,” said Tim Massad, the Treasury's acting assistant secretary for financial stability, in a statement. He said taxpayers “stand a good chance of making a profit.”

The Treasury also has the right to participate in public offerings of stock from AIG and to prevent AIG from selling any equity securities, according to the filing. AIG can raise as much as $3 billion in a share sale, under the deal terms. Recently the insurer sold $2 billion in bonds.

Once the deal is complete, AIG said shareholders will get 10-year warrants to buy up to 75 million shares of AIG common stock at $45 per share.

Special Reports /

SEC Filing Marks Definite Deal Between AIG, U.S. Government

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