AIG sells $2b of debt in in­surer’s first of­fer­ing since US res­cue

The Pak Banker - - Company& -

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

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