Risk & Compliance

Treasury Snaps Up $40b of AIG Equity

TARP deal from the original $700b in bailout money brings the U.S. 4 million preferred shares and a warrant for common.
Stephen TaubNovember 26, 2008

American International Group Inc. received $40 billion from the Department of the Treasury under the Troubled Assets Relief Program.

As part of the deal to help keep the insurer afloat, Treasury purchased four million shares of AIG Series D preferred stock and a warrant to purchase a number of AIG common shares equal to 2 percent of outstanding AIG common. The company said proceeds will go to reducing outstanding borrowings under the original credit agreement extended in September to AIG by the Federal Reserve Bank of New York.

The maximum capacity of that credit agreement will be reduced from $85 billion to $60 billion.

The dividend yield on the preferred will be 10 percent annually. The warrant has a term of 10 years, and is exercisable for up to 53,798,766 shares of common stock. The securities are not registered.

The $40 billion of TARP funds came from the government’s initial $700 billion bailout plan. The government earlier this month provided AIG with a $150 billion assistance package on top of the original $85 billion arrangement.