AIG 2006 Annual Report Download - page 122

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
Both tranches have interest rate adjustments if the call option with the SEC allowing AGF immediate access to the U.S. public
is not exercised. If the call option is not exercised, the new debt markets. At December 31, 2006, AGF had the corporate
interest rate will be a floating quarterly reset rate based on the authority to issue up to $13.4 billion of debt securities under its
initial credit spread plus the highest of (i) 3-month LIBOR, shelf registration statements.
(ii) 10-year constant maturity treasury and (iii) 30-year constant In January 2007, AGF issued junior subordinated debentures in
maturity treasury. an aggregate principal amount of $350 million that mature in
The proceeds of ILFC’s debt financing are primarily used to January 2067. The debentures underlie a series of trust preferred
purchase flight equipment, including progress payments during the securities sold by a trust sponsored by AGF in a Rule 144A/
construction phase. The primary sources for the repayment of this Regulation S offering. AGF can redeem the debentures at par
debt and the interest expense thereon are the cash flow from beginning in January 2017 and until that time will pay a fixed rate
operations, proceeds from the sale of flight equipment and the of interest. If AGF does not redeem the debentures in January
rollover and refinancing of the prior debt. AIG does not guarantee 2017, the interest rate changes to a floating rate, which will reset
the debt obligations of ILFC. See also Operating Review — based on 3-month LIBOR.
Financial Services Operations and Liquidity herein. AGF’s funding sources include a medium term note program,
private placement debt, retail note issuances, securitizations of
finance receivables that AGF accounts for as on-balance-sheet
AGF
secured financings and bank financings. In addition, AGF has
AGF fulfills its short-term cash requirements through the issuance become an established issuer of long-term debt in the interna-
of commercial paper. The issuance of commercial paper is subject tional capital markets.
to the approval of AGF’s Board of Directors and is not guaranteed In addition to debt refinancing activities, proceeds from the
by AIG. AGF maintains committed syndicated revolving credit collection of finance receivables may be used to pay the principal
facilities which, as of December 31, 2006, aggregated to and interest on AGF’s debt. AIG does not guarantee any of the
$4.25 billion and which are summarized below under Revolving debt obligations of AGF. See also Operating Review — Financial
Credit Facilities. The facilities can be used for general corporate Services Operations and Liquidity herein.
purposes and to provide backup for AGF’s commercial paper
programs. AIGCFG
AGF issued $3.62 billion during 2006 and $5.51 billion during
2005 of notes and bonds ranging in maturities from two to AIGCFG has a variety of funding mechanisms for its various
25 years. As of December 31, 2006, notes and bonds aggregat- markets, including: retail and wholesale deposits; short-term and
ing $19.59 billion were outstanding with maturity dates ranging long-term bank loans and intercompany subordinated debt. AIG
from 2007 to 2031 at interest rates ranging from 1.94 percent to Credit Card Company (Taiwan), a consumer finance business in
8.45 percent. To the extent deemed appropriate, AGF may enter Taiwan, has issued commercial paper for the funding of its own
into swap transactions to manage its effective borrowing with operations. AIG does not guarantee any borrowings for AIGCFG
respect to these notes and bonds. As a well-known seasoned businesses, including this commercial paper.
issuer, AGF has filed an automatic shelf registration statement
72 AIG 2006 Form 10-K