AIG 2011 Annual Report Download - page 317

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Junior Subordinated Debt
During 2007 and 2008, AIG issued an aggregate of $12.5 billion of junior subordinated debentures denominated
in U.S. dollars, British Pounds and Euros in eight series of securities. In connection with each series of junior
subordinated debentures, AIG entered into a Replacement Capital Covenant (RCC) for the benefit of the holders
of AIG’s 6.25 percent senior notes due 2036. The RCCs provide that AIG will not repay, redeem, or purchase the
applicable series of junior subordinated debentures on or before a specified date, unless AIG has received
qualifying proceeds from the sale of replacement capital securities.
In November 2011, AIG exchanged specified series of its outstanding Junior Subordinated Debentures for newly
issued senior notes pursuant to an exchange offer. In particular, AIG exchanged (i) $312 million aggregate
principal amount of its outstanding Series A-1 Junior Subordinated Debentures for $256 million aggregate
principal amount of its new 6.820 percent Dollar notes due November 15, 2037, (ii) £812 million ($1.26 billion at
the December 31, 2011 exchange rate) aggregate principal amount of its outstanding Series A-2 and
Series A-8 Junior Subordinated Debentures for £662 million ($1.03 billion at the December 31, 2011 exchange
rate) aggregate principal amount of its new 6.765 percent Sterling notes due November 15, 2017 and
(iii) A591 million ($766 million at the December 31, 2011 exchange rate) aggregate principal amount of its
outstanding Series A-3 Junior Subordinated Debentures for A421 million ($545 million at the December 31, 2011
exchange rate) aggregate principal amount of its new 6.797 percent Euro notes due November 15, 2017.
The exchange resulted in a pre-tax gain on extinguishment of debt of approximately $484 million, which is
reflected in Net loss on extinguishment of debt in the Consolidated Statement of Operations and a deferred gain
of $65 million reflected in Other long-term debt in the Consolidated Balance Sheet, which will be amortized as a
reduction to future interest expense.
In May 2008, as adjusted for the one-for-twenty reverse split of AIG’s Common Stock effective June 30, 2009,
AIG raised a total of approximately $20 billion through the sale of (i) 9,835,526 shares of AIG Common Stock, in
a public offering at a price per share of $760; (ii) 78.4 million Equity Units in a public offering at a price per unit
of $75; and (iii) $6.9 billion in unregistered offerings of junior subordinated debentures in three series. In
November 2010, AIG exchanged 49,474,600 of its Equity Units for 4,881,667 shares of AIG Common Stock plus
$162 million in cash. Each Equity Unit was exchanged for 0.09867 shares of AIG Common Stock plus $3.2702 in
cash. The stock and cash received by the Equity Unit holders was the result of netting payments from two
separate transactions, a repurchase of the subordinated debentures and a cancellation of the stock purchase
contracts. AIG recognized a loss of $104 million as a result of the exchange. Following the completion of the
exchange offer, a total of 28,925,400 Equity Units remained outstanding. In 2011, AIG remarketed the three series
of debentures included in the Equity Units. AIG purchased and retired all of the Series B-1, B-2 and B-3
Debentures representing $2.2 billion in aggregate principal and as a result, no Series B-1, B-2 or B-3 Debentures
remain outstanding. An additional loss of $47 million was recognized from the remarketing activities.
SAFG, Inc. Notes and Bonds Payable
At December 31, 2011, SAFG, Inc. (formerly American General Corporation) notes and bonds payable
aggregating $298 million were outstanding with maturity dates ranging from 2025 to 2029 at interest rates from
6.625 percent to 7.50 percent. AIG guarantees the notes and bonds of SAFG, Inc.
Liabilities Connected To Trust Preferred Stock
In connection with its acquisition of SAFG, Inc. in 2001, AIG entered into arrangements with SAFG, Inc. with
respect to outstanding SAFG, Inc. capital securities. In 1996, SAFG, Inc. issued capital securities through a trust
to institutional investors and funded the trust with SAFG, Inc. junior subordinated debentures issued to the trust.
SAFG, Inc. guaranteed payments to the holders of capital securities only to the extent (i) the trust received
payments on the debentures and (ii) these payments were available for the trust to pay to holders of capital
AIG 2011 Form 10-K 303