AIG Selling Majority Interest in AGF

In a joint statement, The New York-based insurer said that it will sell 80 percent interest in AGF to Fortress Investment Group, LLC, and retain a 20 percent interest. Financial terms of the transaction were not disclosed. The sale is expected to close by the end of the first quarter of 2011 and is subject to regulatory approvals.

In a filing with the Securities and Exchange Commission, AIG said it expects to recognize a pre-tax loss of approximately $1.9 billion in the 2010 third quarter as a result of the sale under the accounting criteria "held-for-sale."

Founded in 1920, AGF provides loans, retail financing and other credit-related products to more than a million families across the United States, Puerto Rico, the Virgin Islands and the United Kingdom. The company specializes in providing financing solutions for consumers. These solutions include bill consolidation loans, home equity loans, personal loans, home improvement loans and loans to help consumers manage unexpected expenses.

"This transaction marks another important step in our ongoing restructuring process as we seek to monetize non-core assets and pay back U.S. taxpayers," said Robert H. Benmosche, AIG's president and chief executive officer, in a statement. "In Fortress, we have found an excellent partner for this terrific franchise. We believe in AGF's solid business model, which is why we are retaining a 20 percent stake in the business as part of this transaction."

Wesley R. Edens, co-chairman and founder of Fortress, said, "AGF is an exceptional franchise with a strong management team and a leading platform for serving the financing needs of consumers nationwide. We believe that AGF is well-positioned for significant growth in an underserved market."

AGF has assets of approximately $20 billion and liabilities of approximately $18 billion that includes $17 billion debt. The business will be deconsolidated from AIG's financial statements.

Founded in 1998, New York-based Fortress is a global investment manager with approximately $41.7 billion in assets under management as of June 30 of this year. It offers alternative and traditional investment products for institutional and private investors.

Reacting to news of the deal, Fitch Ratings placed AGF on Rating Watch Negative because it believes AIG and Fortress will engage in "some type of business reorganization" that would include restructuring the firm's capital structure.

AGF is believed to have enough capital to give companies at least two years to review the capital structure before making a move.

Fitch went on to say that AGF's business was negatively affected by the economic crisis with the decline in the U.S. mortgage market and rise in unemployment. Its loan portfolio is "predominately" secured by real estate and modest improvement is expected "in a challenging economic environment," Fitch said.

Moody's Investors Service downgraded the corporate family and senior unsecured ratings of AGF from "B3" to "B2" citing less support from the parent company.

In a statement, Mark Wasden, Moody's senior analyst, noted uncertainty surrounding AGF's future and the need for more information before any additional ratings action is taken.

Mark E. Ruquet is an Associate Editor with National Underwriter, part of Summit Business Media's P&C Group, which includes Florida Underwriter.