AIG Seeks Alternatives To Government Loan

Beleaguered insurer American International Group Inc. is looking to alter its $150 billion government loan while it continues to look for buyers for some of its operations, according to published reports.

Under a proposed plan, the government's primary loan to AIG totaling $60 billion would be repaid with a combination of debt, equity, cash and stakes in operating businesses, according to a report in The Wall Street Journal. The Journal, citing anonymous sources familiar with the discussions, said the sides have been working to revamp the loan since December.

The report comes a day after CNBC reported that the New York-based insurer will soon report a $60 billion loss.

AIG spokeswoman Christina Pretto declined to provide specifics about potential losses or changes to the company's government loans, but did acknowledge the company is reviewing alternatives with the government ahead of releasing its fourth-quarter results.

"We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges," Pretto said Tuesday. "We will provide a complete update when we report financial results in the near future."

It is expected AIG will report fourth-quarter results in the coming week.

The Federal Reserve Bank of New York, which is handling the government loan, declined to comment. The Treasury Department did not return requests for comment.

"They are continuing to report larger and larger losses, but whether they are continuing to lose money is another question," said Morningstar analyst Bill Bergman. "It's possible the losses that already have been incurred are significantly larger than even than the numbers that are being rumored to be reported."

The company reported a third-quarter net loss of almost $25 billion in November.

At the same time, the U.S. government restructured previous loans provided to AIG, giving the company about $150 billion in total as part of a rescue package to help the company remain in business amid the worsening credit crisis. That package replaced earlier loans after it became apparent the insurer needed more funds.

On the brink of failure in September, AIG was initially bailed out when the government offered it an $85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and Merrill Lynch & Co. get sold to Bank of America Corp. Less than a month later, the insurance giant received additional loans from the Federal Reserve, followed by the $150 billion package in November.

The loans, which gave the government about an 80 percent stake in AIG, were meant to buy the insurer more time to sell businesses and repay the government.

However, the deepening financial crisis has made it more difficult to find buyers for some of AIG's largest businesses and has likely left he insurer with a huge full-year loss.

"It's future is still highly uncertain in light of the majority ownership by the U.S. government," Friedman, Billings, Ramsey & Co. analyst Bijan Moazami wrote in a note to investors Friday.

Moazami dropped coverage of AIG, saying the company's predicament is so uncertain that "analysis of AIG is no longer relevant."

Problems at AIG did not come from its traditional insurance operations, but instead from its financial services units, and primarily its business insuring mortgage-backed securities and other risky debt against default.

AIG has been in the process of selling assets in an effort to raise more cash to help cover the government loans. Its latest sales might include a deal for its life insurance unit, called American Life Insurance Co. AIG is entertaining bids from MetLife Inc. and Axa SA for American Life, which operates in more than 50 countries, according to a Bloomberg report.

MetLife made a preliminary offer of $11.2 billion for American Life Insurance Co., but the price might drop to $8 billion because of declining financial conditions at the unit, according to the report. Terms of the Axa bid were not disclosed, but the offer excludes the division's largest market, Japan, according to the report that cited anonymous sources.

MetLife and Axa declined to comment Tuesday.

The sale of the life insurance operations would continue to help AIG as it tries to repay its loans from the government. As of Feb. 13, AIG had already sold interests in nine businesses.

However, Bergman warned: "A loss of confidence is something that has spread throughout AIG, including in its operating subsidiaries, so it's a little harder to sell them than it would have otherwise been."

The loan alterations being discussed with the government could include the U.S. taking control of some of AIG's assets instead of waiting for them to be sold off to repay the loans in cash, according to the Journal report.

AIG and the government are working on a revised plan in hopes of avoiding a potentially costly ratings downgrade for AIG, according to the Journal. If AIG's credit ratings were to fall, it would trigger massive payments to its trading partners, putting its fiscal position in an even more precarious position. A ratings downgrade might occur if AIG posts a fourth-quarter loss of $60 billion as some have predicted.

The initial problems at AIG in September were due in part to a ratings downgrade that triggered similar payments.

Shares of AIG fell 14 cents, or 25.8 percent, to 39 cents, in midday trading.