AIG Gets Revamped Bailout Package

Updated from 6:30 a.m. EST

American International Group (AIG Quote) confirmed Monday the U.S. government has given the insurer a new bailout package that includes the purchase of $40 billion of newly issued AIG perpetual preferred shares and warrants under the Troubled Asset Relief Program.

The purchase will allow the Federal Reserve to reduce to $60 billion from $85 billion the total amount available under the credit facility established by the Federal Reserve Bank of New York in mid-September, the Fed and the Treasury said in a statement Monday.

The Fed said the interest rate on the facility will be reduced and the length of the facility will be extended to five years from two years.

"Today's actions send a strong signal to our policyholders, business partners and counterparties that AIG is on the road to recovery. Our comprehensive plan addresses the liquidity issues that threatened AIG, and gives us the financial flexibility to complete our restructuring process successfully for the benefit of all of our constituencies," said Edward Liddy, chairman and CEO, said Monday in a separate press release.

Neel Kashkari, the Treasury official spearheading the TARP, said Monday that "action was necessary to maintain the stability of our financial system."

"In return, AIG must comply with stringent limitations on executive compensation for its top executives, golden parachutes, its bonus pool, corporate expenses, and lobbying," Kashkari said in a statement. "We recognize that the financial system remains fragile and we continue to stand ready to prevent systemic failures. We worked with the Congress to ensure the TARP included sufficient flexibility to do just this."