NU Online News Service, May 16, 1:01 p.m. EDT
Moody's gives a thumbs-up to the proposed sale of 300 million shares of American International Group stock, saying the company has the right pieces in place to improve its operating return, but notes earnings volatility ahead as it faces a number of challenges.
In a Weekly Credit Outlook report, Bruce Ballentine, vice president-senior credit officer, says the public offering of 100 million shares by the company and 200 million shares by the U.S. Treasury is credit positive for AIG, potentially generating $3 billion in proceeds for the company, based on last Friday's closing share price.
The company says it plans to use $550 million of net proceeds to pay part of a litigation settlement announced in March.
The sale would also go toward reducing the government's stake in AIG. Ballentine says the Treasury's stake in AIG would be reduced from 92 percent to 77 percent, as the sale would terminate $2 billion of stock the government accumulated as part of its backstop of the company.
Over the long term, Moody's says AIG has said it plans to increase its operating return on equity to 10 percent by 2015 from six percent in 2010, and growing operating earnings at a yearly rate in the mid-teens through 2015.
The report says Moody's believes AIG has the "funding sources and management depth to make significant progress towards these goals."
However, Moody's warns earnings could be affected negatively by restructuring, the weak economic improvement, and on-going soft market.
It is expected that AIG will maintain "sound capitalization" in its operating units as it maintains "healthy liquidity."
Volatility may affect quarterly results, Moody's continued, with the reorganization at Chartis (AIG's property and casualty business), natural catastrophes, investments in the company, and the divestiture and unwinding of non-core businesses.
Reports indicate interest among investors in the AIG stock offering, at least in half the offering, according to one report.
By mid-day, AIG was trading at $31.13 a share, up 71 cents from Friday.
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