AIG 2007 Annual Report Download - page 145

American International Group, Inc. and Subsidiaries
corporate purposes. The aggregate amount outstanding includes obligations of AIGFP under AIGFP’s notes and bonds and GIA
$1.1 billion loss resulting from foreign exchange translation into borrowings. See Liquidity herein and Note 8 to Consolidated
U.S. dollars, of which $332 million loss relates to notes issued by Financial Statements.
AIG for general corporate purposes and $726 million loss relates AIGFP has a Euro medium-term note program under which an
to notes issued to fund the MIP. AIG has economically hedged the aggregate nominal amount of up to $20.0 billion of notes may be
currency exposure arising from its foreign currency denominated outstanding at any one time. As of December 31, 2007,
notes. $6.2 billion of notes were outstanding under the program. The
During 2007, AIG issued in Rule 144A offerings an aggregate notes issued under this program are guaranteed by AIG and are
of $3.0 billion principal amount of senior notes, of which included in AIGFP’s notes and bonds payable in the table of total
$650 million was used to fund the MIP and $2.3 billion was used borrowings.
for AIG’s general corporate purposes.
AIG maintains a shelf registration statement in Japan, providing AIG Funding
for the issuance of up to Japanese Yen 300 billion principal AIG Funding, Inc. (AIG Funding) issues commercial paper that is
amount of senior notes, of which the equivalent of $450 million guaranteed by AIG in order to help fulfill the short-term cash
was outstanding as of December 31, 2007 and was used for requirements of AIG and its subsidiaries. The issuance of AIG
AIG’s general corporate purposes. AIG also maintains an Austra- Funding’s commercial paper, including the guarantee by AIG, is
lian dollar debt program under which senior notes with an subject to the approval of AIG’s Board of Directors or the Finance
aggregate principal amount of up to 5 billion Australian dollars Committee of the Board if it exceeds certain pre-approved limits.
may be outstanding at any one time. Although as of Decem- As backup for the commercial paper program and for other
ber 31, 2007 there were no outstanding notes under the general corporate purposes, AIG and AIG Funding maintain
Australian program, AIG intends to use the program opportunisti- revolving credit facilities, which, as of December 31, 2007, had
cally to fund the MIP or for AIG’s general corporate purposes. an aggregate of $9.3 billion available to be drawn and which are
During 2007, AIG issued an aggregate of $5.6 billion of junior summarized below under Revolving Credit Facilities.
subordinated debentures in five series of securities. Substantially
all of the proceeds from these sales, net of expenses, are being ILFC
used to repurchase shares of AIG’s common stock. In connection
with each series of junior subordinated debentures, AIG entered ILFC fulfills its short-term cash requirements through operating
into a Replacement Capital Covenant (RCC) for the benefit of the cash flows and the issuance of commercial paper. The issuance
holders of AIG’s 6.25 percent senior notes due 2036. The RCCs of commercial paper is subject to the approval of ILFC’s Board of
provide that AIG will not repay, redeem, or purchase the Directors and is not guaranteed by AIG. ILFC maintains syndicated
applicable series of junior subordinated debentures on or before a revolving credit facilities which, as of December 31, 2007, totaled
specified date, unless AIG has received qualifying proceeds from $6.5 billion and which are summarized below under Revolving
the sale of replacement capital securities. Credit Facilities. These facilities are used as back up for ILFC’s
In October 2007, AIG borrowed a total of $500 million on an maturing debt and other obligations.
unsecured basis pursuant to a loan agreement with a third-party As a well-known seasoned issuer, ILFC has filed an automatic
bank. The entire amount of the loan remained outstanding at shelf registration statement with the SEC allowing ILFC immediate
December 31, 2007 and matures in October 2008. access to the U.S. public debt markets. At December 31, 2007,
AIG began applying hedge accounting for certain AIG parent $4.7 billion of debt securities had been issued under this
transactions in the first quarter of 2007. registration statement and $5.9 billion had been issued under a
prior registration statement. In addition, ILFC has a Euro medium-
AIGFP term note program for $7.0 billion, under which $3.8 billion in
notes were outstanding at December 31, 2007. Notes issued
AIGFP uses the proceeds from the issuance of notes and bonds under the Euro medium-term note program are included in ILFC
and GIA borrowings, as well as the issuance of Series AIGFP notes and bonds payable in the preceding table of borrowings.
notes by AIG, to invest in a diversified portfolio of securities and The cumulative foreign exchange adjustment loss for the foreign
derivative transactions. The borrowings may also be temporarily currency denominated debt resulting from the effect of hedging
invested in securities purchased under agreements to resell. activities that did not qualify for hedge accounting treatment under
AIGFP’s notes and bonds include structured debt instruments FAS 133 was $969 million at December 31, 2007 and $733 mil-
whose payment terms are linked to one or more financial or other lion at December 31, 2006. ILFC has substantially eliminated the
indices (such as an equity index or commodity index or another currency exposure arising from foreign currency denominated
measure that is not considered to be clearly and closely related to notes by economically hedging the portion of the note exposure
the debt instrument). These notes contain embedded derivatives not already offset by Euro-denominated operating lease payments.
that otherwise would be required to be accounted for separately ILFC had a $4.3 billion Export Credit Facility for use in
under FAS 133. Upon AIG’s early adoption of FAS 155, AIGFP connection with the purchase of approximately 75 aircraft deliv-
elected the fair value option for these notes. The notes that are ered through 2001. This facility was guaranteed by various
accounted for using the fair value option are reported separately European Export Credit Agencies. The interest rate varies from
under hybrid financial instrument liabilities. AIG guarantees the
AIG 2007 Form 10-K 91