Copyright 2010 SNL Financial LCAll Rights Reserved SNL Insurance Weekly Property & Casualty Edition
August 9, 2010
New York Fed mulling prepayment status of AIG facility
The Federal Reserve Bank of New York has been considering whether prior payments made by AIG to repay a Fed credit facility from asset sales should be treated as mandatory prepayments.
The Federal Reserve Bank of New York has been considering whether prior payments made by American International Group Inc. to repay a Fed credit facility from asset sales should be treated as mandatory prepayments, according to AIG’s Form 10-Q filed Aug. 6
If the New York Fed takes this position, at June 30, this would reduce the amount available to be borrowed under the credit facility by approximately $3.6 billion. This would trigger accelerated amortization of the prepaid commitment fee asset of approximately $600 million, according to the filing.
Under the terms of the facility, net proceeds from dispositions, after taxes and transaction expenses, to the extent such proceeds do not represent capital of AIG’s insurance subsidiaries required for regulatory or ratings purposes, must go toward mandatory prepayments unless otherwise agreed. As a result of restructuring activities with respect to Nan Shan Life Insurance Co. Ltd.’s immediate parent in the second quarter, the net proceeds from the expected sale of Nan Shan will no longer be required for rating or regulatory purposes with respect to AIG’s insurance units. Therefore, AIG expects that a mandatory prepayment from net proceeds will be required upon closing.
In conjunction with this anticipated prepayment, an allocation to interest expense of $82 million for the six-month period ended June 30, including periodic amortization of the prepaid commitment fee asset, was included in income/loss from discontinued operations.
August 13, 2010