AIG 2006 Annual Report Download - page 188

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
Commission (SEC) allowing ILFC immediate access to the U.S.
9. Debt Outstanding
public debt markets. During 2006, $1.9 billion of debt securities
Continued
were issued under this registration statement and $3.52 billion
AIGFP economically hedges its notes and bonds. AIG were issued under a prior registration statement. In addition, ILFC
guarantees all of AIGFP’s debt. has a Euro medium term note program for $7.0 billion, under
(iii) Hybrid financial instrument liabilities: AIGFP’s notes and bonds which $4.28 billion in notes were sold through December 31,
include structured debt instruments whose payment terms are 2006. The foreign exchange adjustment for the foreign currency
linked to one or more financial or other indices (such as an equity denominated debt was $733 million at December 31, 2006 and
index or commodity index or another measure that is not $197 million at December 31, 2005. ILFC has substantially
considered to be clearly and closely related to the debt eliminated the currency exposure arising from foreign currency
instrument). These notes contain embedded derivatives that denominated notes by economically hedging the portion of the
otherwise would be required to be accounted for separately under note exposure not already offset by Euro-denominated operating
FAS 133. Upon AIG’s early adoption of FAS 155, AIGFP elected lease payments, although such hedges did not qualify for hedge
the fair value option for these notes. The notes that are accounting treatment under FAS 133.
accounted for using the fair value option are reported separately In December 2005, ILFC issued two tranches of junior
under hybrid financial instrument liabilities at fair value. subordinated debt totaling $1.0 billion to underlie trust preferred
securities issued by a trust sponsored by ILFC. Both tranches
(d) AGC Borrowings: As of December 31, 2006, AGC notes mature on December 21, 2065, but each tranche has a different
aggregating $797 million were outstanding with maturity dates call option. The $600 million tranche has a call date of
ranging from 2010 to 2029 at interest rates of up to December 21, 2010 and the $400 million tranche has a call date
7.50 percent. AIG guarantees the notes and bonds of AGC. of December 21, 2015. The note with the 2010 call date has a
fixed interest rate of 5.90 percent for the first five years. The note
(e) Liabilities Connected to Trust Preferred Stock: AGC
with the 2015 call date has a fixed interest rate of 6.25 percent
issued Junior Subordinated Debentures (liabilities) to certain
for the first ten years. Both tranches have interest rate
trusts established by AGC, which represent the sole assets of the
adjustments if the call option is not exercised. The new interest
trusts. The trusts have no independent operations. The trusts
rate is a floating quarterly reset rate based on the initial credit
issued mandatory redeemable preferred stock to investors. The
spread plus the highest of (i) 3 month LIBOR, (ii) 10-year constant
interest terms and payment dates of the liabilities correspond to
maturity treasury and (iii) 30-year constant maturity treasury.
those of the preferred stock. AGC’s obligations with respect to the
liabilities and related agreements, when taken together, constitute (ii) Export credit facility: ILFC had a $4.3 billion Export Credit
a full and unconditional guarantee by AGC of payments due on the Facility (ECA) for use in connection with the purchase of
preferred securities. AIG guarantees the obligations of AGC with approximately 75 aircraft delivered through 2001. This facility was
respect to these liabilities and related agreements. The liabilities guaranteed by various European Export Credit Agencies. The
are redeemable, under certain conditions, at the option of AGC on interest rate varies from 5.75 percent to 5.90 percent on these
a proportionate basis. amortizing ten-year borrowings depending on the delivery date of
As of December 31, 2006, the preferred stock outstanding the aircraft. At December 31, 2006, ILFC had $1.0 billion
consisted of $300 million liquidation value of 8.5 percent outstanding under this facility. The debt is collateralized by a
preferred stock issued by American General Capital II in June pledge of the shares of a subsidiary of ILFC, which holds title to
2000, $500 million liquidation value of 8.125 percent preferred the aircraft financed under the facility.
stock issued by American General Institutional Capital B in March In May 2004, ILFC entered into a similarly structured ECA for
1997, and $500 million liquidation value of 7.57 percent up to a maximum of $2.64 billion for Airbus aircraft to be
preferred stock issued by American General Institutional Capital A delivered through May 31, 2005. The facility was subsequently
in December 1996. increased to $3.64 billion and extended to include aircraft to be
delivered through May 31, 2007. The facility becomes available
(f) ILFC Borrowings:
as the various European Export Credit Agencies provide their
(i) Notes and Bonds issued by ILFC: As of December 31, 2006, guarantees for aircraft based on a six-month forward-looking
notes aggregating $22.8 billion were outstanding, consisting of calendar, and the interest rate is determined through a bid
$12.8 billion of term notes, $9.0 billion of medium-term notes process. At December 31, 2006, ILFC had $1.7 billion
with maturities ranging from 2007 to 2013 and interest rates outstanding under this facility.
ranging from 3.32 percent to 6.62 percent and $1.0 billion of
(iii) Bank Financings: From time to time, ILFC enters into various
junior subordinated debt as discussed below. Notes aggregating
bank financings. As of December 31, 2006, the total funded
$5.1 billion are at floating interest rates and the remainder are at
amount was $1.2 billion. The financings mature through 2012.
fixed rates. To the extent deemed appropriate, ILFC may enter into
AIG does not guarantee any of the debt obligations of ILFC.
swap transactions to manage its effective borrowing rates with
respect to these notes. (g) AGF Borrowings: As of December 31, 2006, notes and
As a well-known seasoned issuer, ILFC has filed an automatic bonds aggregating $19.59 billion were outstanding with maturity
shelf registration statement with the Securities and Exchange dates ranging from 2007 to 2031 at interest rates ranging from
138 AIG 2006 Form 10-K