AIG sells $2b of debt in insurer’s first offering since US rescue
NEW YORK: American International Group Inc., the insurer rescued by the U.S. government, sold $2 billion of bonds in its first offering since the bailout in 2008.
AIG issued $500 million of 3.65 percent notes due January 2014 that yield 295 basis points more than similarmaturity Treasuries, and $1.5 billion of 6.4 percent debt due December 2020 at a spread of 362.5 basis points, according to data compiled by Bloomberg.
"The markets have increased confidence in AIG's ability to service debt on an ongoing basis, and, by extension, in its feasibility as a sustainable enterprise," said Clark Troy, a senior analyst based in Chapel Hill, North Carolina, for Aite Group, a research firm.
Chief Executive Officer Robert Benmosche tapped the corporate bond market after announcing on Sept. 30 a plan to pay back taxpayers and regain the firm's independence. AIG, based in New York, expects to repay a Federal Reserve credit line with proceeds from asset sales and convert the Treasury Department's $49.1 billion stake into common stock by the end of March for sales on the open market.
Orders for the bonds "showed the pent-up demand for the AIG name," said Anne Daley, managing director at Barclays Capital in New York, which helped underwrite the sale. "We're getting close to the end of the year, and we felt there was a compelling opportunity to get the size in and out of the market in one day, so we decided to move forward."
While the cost to protect AIG bonds from default has declined this year, it rose in November. Corporate bond issuance has tumbled amid concern that Ireland's debt woes will spread across Europe and slow the global economy.
"There's a lot of angst right now in the marketplace, so I think anyone would've been better served to come a couple weeks ago," said Lon Erickson, a money manager who helps oversee $9 billion of fixedincome assets for Thornburg Investment Management Inc. in Santa Fe, New Mexico.
The insurer sold the debt at spreads wider than companies with similar credit ratings. Investors holding debt graded A demand an average spread of 120 basis points on notes due in one to three years and 174 basis points for bonds due in seven to 10 years, according to Bank of America Merrill Lynch index data.
Proceeds from the offering will be used for general corporate purposes, AIG said yesterday in a regulatory filing. The senior unsecured notes were rated A3 by Moody's Investors Service. They may be rated Aby Standard & Poor's, Bloomberg data show.
"We're pleased with the market's reception to our offering," Mark Herr, a spokesman for AIG, said in an e-mailed statement.
The insurer must earn standalone investment-grade ratings to execute its repayment plan, which hinges on selling bonds and stock to private investors as the government withdraws support. AIG will get a $2 billion Treasury backstop for emergency funding until March 2012 or the insurer sells at least $2 billion in equity. Five-year creditdefault swaps tied to AIG climbed 13.8 basis points to 259 basis points yesterday, the highest in nine weeks, according to data provider CMA. While the contracts, which typically fall as investor confidence improves, have declined from 581 on Dec. 31, they've risen from 211 at the end of October, CMA data show. MetLife Inc. paid $16.2 billion for Alico on Nov. 1. Fortress Investment Group LLC said yesterday it had acquired 80 percent of AIG's consumercredit unit, American General Finance Inc. -Bloomberg