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American International Group (AIG - Get Report) confirmed widespread reports on Monday by reporting a huge quarterly loss and saying the government will provide additional aid to keep the insurance giant solvent.
The Treasury Department has created a new $30 billion equity capital facility in exchange for non-cumulative preferred stock in AIG, in addition to the $150 billion it has already lent the insurer. The Treasury and the
Federal Reserve also outlined a massive restructuring plan for AIG's existing debt, easing up on terms and accepting payment in the form of preferred stakes in relatively healthy subsidiaries.
The new plan was unveiled as AIG reports a record fourth-quarter loss of $61.7 billion, or $22.95 a share. Those results compare with a loss of $5.3 billion, or $2.08 a share, a year earlier, and drastically fell short of estimates. Analysts surveyed by Thomson Reuters, on average, forecast a loss estimate of 37 cents a share on revenue of $24.82 billion.
Despite the dour report, and a broad market decline, AIG shares surged nearly 24% during Monday trading. The stock closed flat at 42 cents. A year ago, it traded near $47.
Following the loss and restructuring announcements, Moody's and Fitch affirmed ratings for some types of AIG debt and said that the plan provides some stability. However, Moody's issued a "negative" outlook, citing potential loss of customers, distributors and employees, as well as uncertainty regarding ownership and capital structure.
Moody's confirmed AIG's senior debt at "A3," and the financial-strength rating on the core property and casualty business that AIG plans to retain. However, it downgraded subordinated debt to "Ba2" from "Baa1." Fitch affirmed "A" ratings for long-term issuer default rating and senior-unsecured debt, as well as an "AA-" financial strength rating for insurance subsidiaries. However, it downgraded junior subordinated debt and trust-preferred securities to "BB" from "A-", with several remaining on "rating watch."