Based on its recent results, AIG should be able to pay back most of the billions it owes the government, according to Moody's Investors Service.
The securities rating firm said it believes AIG "can generate sufficient value to fully repay the government's senior secured loan and to repay much or all of its preferred equity stake, giving the government incentive to continue supporting AIG and its various creditors."
AIG in third-quarter results reported that its total balance outstanding from a Federal Reserve Bank of New York facility is $41 billion. This includes $35.8 billion of net borrowings and $5.2 billion of accrued compounding interest and fees, with availability of $24.2 billion.
The company said as of Sept. 30, it had drawn down $3.2 billion, including $2.1 billion from $29.8 billion available under a Series F Preferred Stock Department of its Treasury Commitment.
AIG's total balance outstanding from the Federal Reserve Commercial Paper Funding Facility was listed as $9.6 billion among AIG Funding Inc., Curzon Finance LLC and Nightingale Finance LLC.
Asset sales to repay the government, AIG said, are expected to generate $5.6 billion after taxes and talks are underway with potential buyers of other businesses.
Moody's said it is maintaining AIG's long-term issuer rating of "A" (Good), its "Prime-1″ short-term issuer rating and negative outlook.
AIG said third-quarter net income was $455 million compared with a $24.5 billion loss for that period in 2008.
AIG results showed "continued stabilization of the core insurance operations despite challenging market conditions," and "the firm has made tangible progress on its restructuring plan," Moody's said.
Moody's noted that since the August appointment of Robert Benmosche as AIG's chief executive officer, the company has slowed the pace of its asset sales restructuring activities "to focus on rebuilding the values of some businesses that had previously been slated for sale."
In August, AIG set a management team in place for the combined Domestic Life and Retirement Services group, "effectively ending the effort to sell this business," said Moody's. Last month it stopped trying to sell AIG Star Life and AIG Edison Life, its two Japanese life insurance companies, and announced plans to hold them for the foreseeable future.
"We believe the slower approach in restructuring could help AIG to generate more favorable values from its business portfolio than would be the case under rushed asset sales," Moody's commented.
The rating firm cautioned that a material decline in the realizable values of AIG's assets could reduce the government's incentive to support other creditors. Accordingly, it said AIG's ratings could be lowered "if we perceive a decline in realizable values."
The loss-plagued AIG Financial Products Corp., Moody's mentioned, has materially reduced the size and risk of its business "on favorable terms over the past few quarters." Moody's expects "further steady progress in this regard, assuming that capital markets remain reasonably liquid, although some of AIGFP's exposures may still take considerable time to unwind."
Other non-core operations, such as International Lease Finance Corporation, American General Finance and United Guaranty, also may rely on AIG's capital and liquidity support for a prolonged period, Moody's said.
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