American International Group said it expected to close on its recapitalization plan last Friday, Jan. 14, and that it will issue about 75 million warrants to shareholders later this week.

On Jan. 19, the 10-year warrants, good through Jan. 19, 2021, will be given to shareholders, who will get 0.53 warrants for each share of AIG owned by Jan. 13. They will allow shareholders the opportunity to buy common stock at $45 per share.

AIG's plan to complete its recapitalization plan A share of AIG stock closed Jan. 12 at $58.20.

The issuance of warrants was subject to the condition that the insurer, The U.S. Department of the Treasury and the Federal Reserve Bank of New York agree, as of the close of business on Jan. 12, that the recapitalization plan would close on Jan. 14. (See "Closing The Deal," for specifics of the recapitalization plan.)

In saying the company was "grateful" for taxpayer support given to AIG in 2008, Robert H. Benmosche, president and chief executive officer, said in a statement that AIG "will be able to deliver on our promise to the American people to repay the extraordinary assistance they provided to AIG." He said AIG is "convinced" taxpayers "will realize a profit on their investment in our company."

Shortly after the announcement that conditions were met to issue the warrants, Moody's Investors Service downgraded the insurance financial strength of AIG's core operations and its senior unsecured debt but changed the outlook from negative to stable.

Moody's insurance financial strength for AIG's property and casualty company, Chartis, went from "Aa3" to "A1," and the New York-based rating agency downgraded SunAmerica Financial Group to "A2" from "A1." Furthermore, the debt rating was dropped to "Baa1" from "A3."

As AIG looks to get out from under the massive bailout given to it, Moody's said "that while the core insurance operations have stabilized over the past year, they have not yet improved sufficiently to justify the previous ratings in the absence of continued government support." The support as a funding source had previously given an uptick to AIG's ratings.

Moody's said "the incremental risk associated with noncore businesses, while reduced, remains a negative credit consideration that will no longer be mitigated by government support."

The Treasury will hold a greater stake in the company as part of the recapitalization plan, but the government "may seek to sell down its stake quickly, assuming favorable market conditions," Moody's said.

AIG has applied to list the warrants under the stock symbol "AIG WS" on the New York Stock Exchange and will begin trading on a "when issued" basis Jan. 13.

AIG has also announced transactions to access the bank and debt markets. Just prior to the end of 2010 AIG said it entered into $4.3 billion in loan agreements with 36 banks—a sign it can raise money from private investors.

Early in December, after more than two years away from the debt markets, AIG returned and raised $2 billion in bonds, and it established a $500 million contingency letter of credit in the middle of the month.

Mr. Benmosche said, "AIG is positioned as strong and worthy of investor confidence."

Separately last week, AIG announced an agreement to sell its 97.57 percent interest in Taiwan life insurer Nan Shan Life Insurance Company, Ltd. for nearly $2.2 billion in cash to a consortium led by a Taiwan-based conglomerate.

Special Reports /

AIG Plan To Issue Warrants Moves Forward

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