AIG Readies for Recapitalization

NEW YORK ( TheStreet) -- American International Group ( AIG) Wednesday moved a step closer to completing its massive recapitalization at the end of this week.

The insurance giant said a condition calling for the entities involved in its recapitalization -- AIG itself, Treasury Department, the Federal Reserve Bank of New York, and the AIG Credit Facility Trust -- to each determine the recapitalization would close on Jan. 14 had been satisfied, clearing the way for its previously disclosed plans to distribute a dividend of 75 million warrants.

The warrants will be issued on Jan. 19 to common shareholders of record on Jan. 13, assuming the recapitalization closes as planned on Jan. 14. The warrants, with a face value of $2.50 each, allow for the purchase of AIG common shares at $45 each.

"With today's announcement, we anticipate we will be able to deliver on our promise to the American people to repay the extraordinary assistance they provied to AIG during the financial crisis of 2008," said Robert Benmosche, the president and CEO of AIG, in a statement. "We remain grateful for their support of AIG, and we remain convinced that the American people will realize a profit on their investment."

AIG also detailed its expectations for Friday's recapitalization. The company plans to repay $21 billion in senior secured debt and terminate its credit facility with the Federal Reserve Bank of New York. It expects to record a charge of $3.6 billion in the first quarter of fiscal 2011 related to this transaction. After a number of other transactions involving special purpose vehicles holding certain AIG assets, the company expects the Federal Reserve Bank of New York would be "fully repaid."

In addition, the company is retiring its outstanding preferred shares currently held by the Treasury. It expects to swap 1.655 billion common shares for $49.1 billion worth of TARP-related preferred stock. Upon completion of the swap, the Treasury will own 92% of AIG's common stock, along with new Series G preferred stock that the company would be able to tap to fund general corporate purposes.

The Treasury would then be expected to pare down its stake of AIG common shares "over time" with the usual "subject to market conditions" caveat.

"AIG is positioned as strong and worthy of investor confidence, with one of the largest, most diversified property and casualty companies in the world, a leading U.S. life insurance and retirement savings operation, and other businesses that are well-positioned to deliver long-term growth to our shareholders," Benmosche added.

AIG shares closed Wednesday's regular session at $58.40, down 1.1%. The stock has more than doubled in the past year, running to a new 52-week peak of $62.87 on Jan. 7. Further appreciation, however, faces headwinds from the dilution resulting from the issuance of the warrants and the recapitalization, along with the selling pressure as the government eventually pares its stake.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.
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