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Bailed out insurer American International Group Inc. (Stock Quote: AIG) is paying Uncle Sam back – sort of. The insurance company announced Monday that it repaid $3.9 billion in loans received from the federal government and taxpayers. This is the largest cash payment AIG has been able to make since receiving its initial bailout in 2008.

The payment was made possible after AIG's aircraft leasing unit, sold $4.4 billion in debt to private investors. The bulk of the proceeds from that sale was used to pay off part of the Federal Reserve's credit line three years ahead of schedule.

According to Reuters, AIG’s outstanding balance, excluding fees and interest, is now at a little more than $15 billion. Interest added up to another $6 billion as of June 30.

But don't go patting AIG on the back just yet. After all, the company has, in total, received $182.5 billion in government aid over the past two years, some of which it might not be obligated to return.

"Four billion dollars out of $182 billion is a little more than 2%," John Bambenek, a public policy consultant from Illinois, tells MainStreet. "That's barely a one month payment if that were a credit card. [AIG will] pay because they want the government out of their business, but a good portion of that aid package does not need to be paid back."

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According to the Associated Press, as of June 30, excluding the new payment, AIG's outstanding balance owed to the government stood at about $101 billion. The total includes debt as well as preferred shares of stock in AIG held by the Treasury Department.

As previously reported, AIG essentially underwrote many of the mortgage-backed securities that tanked during the financial meltdown. The fear was that if AIG defaulted, the financial system would totally collapse. Eventually, the federal government intervened by creating a credit facility, essentially a line of credit issued by the Federal Reserve, for the struggling company.

In addition to the credit line, the Fed also owns $25 billion in preferred interest in two of AIG's foreign life insurance units. The U.S. Treasury holds an additional $49 billion in preferred shares. While AIG did pledge to pay the Fed back completely back in May, repayment of the $49 billion loan from the Treasury Department remained in doubt.

At a hearing of the Congressional Oversight Panel, James Millstein, chief restructuring officer of the Treasury Department, said the return on the department's investments “will largely depend on the performance of the then-remaining businesses in the AIG portfolio after it completes its asset sales and how they are valued in the stock market.”

The good news for the Treasury Department is that AIG's shares rose 0.3% to $35.45 during afternoon trading on the New York Stock Exchange.
For more information on AIG's potential turnaround, check out TheStreet's article "AIG Moves Closer to Independence."

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