AIG plans sale of business units to repay debt

updated 5:06 p.m. ET Oct. 3, 2008

CHARLOTTE, N.C. - The insurer American International Group Inc. said Friday it plans to sell off a number of business units to pay off its massive government loan.

But the plans now leaves investors wondering how much AIG will be able to raise from the sales.

On the brink of failure last month, AIG was bailed out when the government offered it an $85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and the sale of Merrill Lynch & Co. to Bank of America Corp. In return for the loan, the government received warrants to purchase up to 79.9 percent of AIG.

Shortly after the deal, newly appointed Chairman and Chief Executive Edward Liddy said he planned to quickly raise funds through asset sales, but hoped to hold on to as many of AIG’s insurance operations as possible.

AIG, one of the world’s biggest insurers, Friday didn’t specifically disclose all the assets it would sell or the expected prices from the sales. However, the New York-based insurer said it plans to retain its U.S. property and casualty and foreign general insurance businesses, and also plans to retain an ownership interest in its foreign life insurance operations.

Liddy, former CEO of Allstate Corp., said AIG has been contacted by “numerous” parties regarding possible sales of businesses, and AIG will try to sell its operations to “brand-name” buyers who have strong ratings and balance sheets.

Even though the company didn’t disclose many specifics, Liddy did say he was hopeful that the two-year, $85 billion government loan would be enough to provide AIG “the flexibility we need to work our way out of this situation.”

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“Our goal is to emerge from this process in a timely fashion as a smaller but more nimble company that is solidly profitable and has attractive, long-term growth prospects,” Liddy said in his first call with investors and analysts. “I think what the Federal Reserve has provided us has been very generous and we are going to do everything we cannot to have to go back to them.”

Problems at AIG did not come from its traditional insurance subsidiaries, but instead from its financial services operations, and primarily its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn’t make good on its promise to pay back soured debt, investors feared the consequences would pose a threat to the U.S. financial system, which led to the government bailout.

AIG’s traditional insurance subsidiaries have widely been viewed as safe.

As of Sept. 30, AIG had drawn $61 billion on the credit facility, of which about $54 billion has gone toward its securities lending and AIG’s financial products area. The rest of the money has been for other liquidity needs amid an “unprecedented” freezing of credit markets, Liddy said.

While the sale of some of AIG’s businesses will be used to pay off the outstanding government loan, additional funds will be used to help address the company’s capital structure, Liddy said.

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