Ratings Agencies React Positively to Latest AIG Stock Sale

Two ratings agencies offered positive assessments of American International Group after the U.S. Treasury's sell-down to a minority stake in the company, with Moody's Investor's Service calling the development “another credit-positive milestone” and Fitch Ratings stating that recent actions have rejuvenated AIG.

In its Weekly Credit Outlook, Moody's says of the Treasury's offering that reduced its ownership stake in AIG to around 16 percent from 53 percent, “The ongoing repayment and termination of government support is credit positive for AIG because it enhances the company's brand and its ability to find itself in the capital markets. 

Demonstrating the strengthening of the brand through the reduction of government support and gradual improvement in core operations, Moody's pointed to AIG's decision to rebrand its property and casualty arm, Chartis, as AIG, and its life insurer, SunAmerica Financial Group, as AIG Life.

For its part, Fitch upgraded AIG's issuer default rating to BBB+ from BBB and affirmed AIG's insurer financial strength rating of A based on Treasury's actions and also on the company reducing its overall financial leverage “through reduced reliance on debt by sharply decreasing the credit-default swap contracts exposure of AIG Financial Products Corp.

“We believe the insurer and its subsidiaries continue to demonstrate strong competitive positions in [P&C] and life insurance markets,” Fitch says.

Moody's points out some potential negatives for AIG. For one, the ratings agency mentions the company's drawdown of cash and short-term investments to help fund its $5 billion share repurchase. “To the extent that AIG draws from its parental liquidity pool to fund share buybacks or similar parent actions, it is credit negative,” says the Moody's analysis, written by Bruce Ballentine, vice president and senior credit officer at Moody's. “The parent company maintains cash and short-term investments, plus contingent liquidity facilities, to address the potential needs of its operating units under stress scenarios.”

Both Fitch and Moody's also note that with the Treasury's ownership stake dropping below 50 percent, the company will likely be regulated by the Federal Reserve. 

Moody's says this is credit positive due to AIG's “broad array of businesses and global reach.” 

Fitch says, “While this will likely add to compliance costs and efforts, we believe that AIG will be able to meet compliance and Federal Reserve capital requirements.”