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American International Group

(AIG) - Get Free Report

said late Tuesday it signed a definitive agreement with the Federal Reserve Bank of New York for a two-year, $85 billion revolving credit facility.

Under the terms of the agreement, interest will accrue at a rate based on three-month LIBOR plus 8.50%, and the giant insurer also will have to pay commitment fees.

AIG is required to pay back the loan from, among other things, the proceeds of certain asset sales and issues of new debt or equity.

"AIG made an exhaustive effort to address its liquidity needs through private sector financing, but was unable to do so in the current environment. This facility was the company's best alternative," said AIG Chairman and CEO Edward Liddy in a statement. "We are pleased to have finalized the terms of the facility, and are already developing a plan to sell assets, repay the facility and emerge as a smaller but profitable company. Importantly, AIG's insurance subsidiaries remain strong, liquid and well-capitalized."

If the loan isn't repaid, the U.S. government has the right to take a stake of almost 80% in the company.