AIG 2011 Annual Report Download - page 348

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the execution of its orderly asset disposition plan, as well as the repayment of the FRBNY
Credit Facility, AIG transferred two of its wholly-owned businesses, AIA and ALICO, to two newly created SPVs
in exchange for all the common and preferred interests of those SPVs. On December 1, 2009, AIG transferred the
preferred interests in the SPVs to the FRBNY in consideration for a $25 billion reduction of the outstanding loan
balance and of the maximum amount of credit available under the FRBNY Credit Facility and amended the terms
of the FRBNY Credit Facility. As part of the closing of the Recapitalization, the remaining preferred interests,
with an aggregate liquidation preference of approximately $20.3 billion at January 14, 2011, were purchased from
the FRBNY by AIG and transferred to the Department of the Treasury as part of the consideration for the
exchange of the Series F Preferred Stock. Under the terms of the SPVs’ limited liability company agreements, the
SPVs generally may not distribute funds to AIG until the liquidation preferences and preferred returns on the
preferred interests have been repaid in full and concurrent distributions have been made on certain participating
returns attributable to the preferred interests.
The common interests, which were retained by AIG, entitle AIG to 100 percent of the voting power of the
SPVs. The voting power allows AIG to elect the boards of managers of the SPVs, who oversee the management
and operation of the SPVs. Primarily due to the substantive participation rights of the preferred interests, the
SPVs were determined to be variable interest entities. As the primary beneficiary of the SPVs, AIG consolidates
the SPVs.
The rights originally held by the FRBNY through its ownership of the SPV Preferred Interests are now held by
the Department of the Treasury. In connection with the Recapitalization, AIG agreed to cause the proceeds of
certain asset dispositions to be used to pay down the remaining SPV Preferred Interests.
For the years ended December 31, 2010 and 2009, the Noncontrolling interests balance declined by $2.2 billion
and $4.4 billion. In 2009, this decline reflected the deconsolidation of Transatlantic in the second quarter of 2009
following the public offering of 29.9 million shares of Transatlantic common stock, after which AIG retained
13.9 percent of Transatlantic common stock outstanding. AIG also restructured certain relationships within the
Institutional Asset Management business in 2009, resulting in the deconsolidation of a subsidiary and a related
decline in goodwill of $476 million and noncontrolling interests of $1.9 billion for the year ended December 31,
2009, due to the deconsolidation of certain entities.
As a result of the closing of the Recapitalization on January 14, 2011, the SPV Preferred Interests held by the
Department of the Treasury are not considered permanent equity on AIG’s Consolidated Balance Sheet, and were
classified as redeemable non-controlling interests. As part of the Recapitalization, AIG used approximately
$6.1 billion of the cash proceeds from the sale of ALICO to pay down a portion of the liquidation preference of
the SPV Preferred Interests. The liquidation preference of the SPV Preferred Interests was further reduced by
approximately $12.4 billion using proceeds from the sale of AIG Star, AIG Edison, Nan Shan, and MetLife
securities received in the sale of ALICO. During the first quarter of 2011, the remaining liquidation preference of
the Preferred Interests in the ALICO SPV was paid in full. See Note 16(d) herein for a discussion of indemnity
payments made to MetLife pursuant to the terms of the ALICO stock purchase agreement.
334 AIG 2011 Form 10-K
NONCONTROLLING INTERESTS