After failing to find any willing private investment partners, American International Group will definitively accept an $85 billion bridge loan from the Federal Reserve Bank of New York, according to MarketWatch.
According to the company’s chairman and CEO Edward Liddy, the firm had made an “exhaustive effort to address its liquidity needs through private-sector financing.” The effort was deemed futile and the company agreed to take the Fed’s conditional offer. The loan’s conditions are believed to include granting the Fed an 80 percent share of the company, but these conditions have not been officially released.
A shareholder committee was established over the weekend to find a way to resolve AIG’s financial woes without government intervention. A meeting was held on Monday and members were hopeful that a deal could be negotiated. The shareholders were worried that the Fed’s seizure would completely devalue their already beleagured shares. They hoped that restructuring AIG via non-governmental means would provide a better choice, but their efforts were thwarted by a collective lack of interest by private investors.
AIG will theoretically use the $85 billion it receives form the Fed to restructure its operations and emerge as a profitable and more streamlined company. The loan is supposed to be repaid by the sale of AIG assets. AIG will sell one of its business ventures and use that money to repay the Fed’s loan. The insurance and investment giant has reportedly already borrowed $28 billion of the Fed’s loan as of September 17, 2008 – the first day that the money was made available.
If AIG proves incapable of selling its assets, the government could be left holding the bill. Furthermore, if indeed the government has purchased an overwhelming majority share of the company, it may be left controlling one of the world's largest companies at a time when it’s least profitable.
Source Market Watch:
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"AIG made an exhaustive effort to address its liquidity needs through private-sector financing but was unable to do so in the current environment," chairman and chief executive Edward M. Liddy said in a statement late on Tuesday.
… AIG said it is required to repay the facility from, among other things, funds from asset sales and from issuance of debt or equity. |