AIG 2007 Annual Report Download - page 226

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
$969 million at December 31, 2007 and $733 million at Decem-
11. Debt Outstanding
ber 31, 2006. ILFC has substantially eliminated the currency
Continued
exposure arising from foreign currency denominated notes by
would be required to be accounted for separately under FAS 133. economically hedging the portion of the note exposure not already
Upon AIG’s early adoption of FAS 155, AIGFP elected the fair offset by Euro-denominated operating lease payments.
value option for these notes. The notes that are accounted for
using the fair value option are reported separately under hybrid (ii) Junior subordinated debt: In December 2005, ILFC issued two
financial instrument liabilities at fair value. tranches of junior subordinated debt totaling $1.0 billion to underlie
trust preferred securities issued by a trust sponsored by ILFC. Both
(d) AIGLH Borrowings: At December 31, 2007, AIGLH notes tranches mature on December 21, 2065, but each tranche has a
aggregating $797 million were outstanding with maturity dates different call option. The $600 million tranche has a call date of
ranging from 2010 to 2029 at interest rates from 6.625 percent December 21, 2010 and the $400 million tranche has a call date
to 7.50 percent. AIG guarantees the notes and bonds of AIGLH. of December 21, 2015. The note with the 2010 call date has a
(e) Liabilities Connected to Trust Preferred Stock: AIGLH fixed interest rate of 5.90 percent for the first five years. The note
issued Junior Subordinated Debentures (liabilities) to certain with the 2015 call date has a fixed interest rate of 6.25 percent for
trusts established by AIGLH, which represent the sole assets of the first ten years. Both tranches have interest rate adjustments if
the trusts. The trusts have no independent operations. The trusts the call option is not exercised. The new interest rate is a floating
issued mandatory redeemable preferred stock to investors. The quarterly reset rate based on the initial credit spread plus the
interest terms and payment dates of the liabilities correspond to highest of (i) 3 month LIBOR, (ii) 10-year constant maturity treasury
those of the preferred stock. AIGLH’s obligations with respect to and (iii) 30-year constant maturity treasury.
the liabilities and related agreements, when taken together, (iii) Export credit facility: ILFC had a $4.3 billion Export Credit
constitute a full and unconditional guarantee by AIGLH of Facility (ECA) for use in connection with the purchase of
payments due on the preferred securities. AIG guarantees the approximately 75 aircraft delivered through 2001. This facility was
obligations of AIGLH with respect to these liabilities and related guaranteed by various European Export Credit Agencies. The
agreements. The liabilities are redeemable, under certain condi- interest rate varies from 5.75 percent to 5.90 percent on these
tions, at the option of AIGLH on a proportionate basis. amortizing ten-year borrowings depending on the delivery date of
At December 31, 2007, the preferred stock outstanding the aircraft. At December 31, 2007, ILFC had $664 million
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 $2.6 billion for Airbus aircraft to be delivered
preferred stock issued by American General Institutional Capital A through May 31, 2005. The facility was subsequently increased to
in December 1996. $3.6 billion and extended to include aircraft to be delivered
(f) ILFC Borrowings: through May 31, 2008. The facility becomes available as the
various European Export Credit Agencies provide their guarantees
(i) Notes and Bonds issued by ILFC: At December 31, 2007,
for aircraft based on a six-month forward-looking calendar, and the
notes aggregating $23.1 billion were outstanding, consisting of
interest rate is determined through a bid process. At Decem-
$10.8 billion of term notes, $11.3 billion of medium-term notes
ber 31, 2007, ILFC had $1.9 billion outstanding under this facility.
with maturities ranging from 2008 to 2014 and interest rates
ranging from 2.75 percent to 5.75 percent and $1.0 billion of (iv) Bank Financings: From time to time, ILFC enters into various
junior subordinated debt as discussed below. Notes aggregating bank financings. At December 31, 2007, the total funded amount
$5.3 billion are at floating interest rates and the remainder are at was $1.1 billion. The financings mature through 2012. AIG does
fixed rates. To the extent deemed appropriate, ILFC may enter into not guarantee any of the debt obligations of ILFC.
swap transactions to manage its effective borrowing rates with
(g) AGF Borrowings:
respect to these notes.
As a well-known seasoned issuer, ILFC has filed an automatic (i) Notes and bonds issued by AGF: At December 31, 2007,
shelf registration statement with the SEC allowing ILFC immediate notes and bonds aggregating $22.4 billion were outstanding with
access to the U.S. public debt markets. At December 31, 2007, maturity dates ranging from 2008 to 2031 at interest rates
$4.7 billion of debt securities had been issued under this registration ranging from 1.94 percent to 8.45 percent. To the extent deemed
statement and $5.9 billion had been issued under a prior registration appropriate, AGF may enter into swap transactions to manage its
statement. In addition, ILFC has a Euro medium term note program effective borrowing rates with respect to these notes.
for $7.0 billion, under which $3.8 billion in notes were outstanding at As a well-known seasoned issuer, AGF has filed an automatic
December 31, 2007. Notes issued under the Euro medium-term note shelf registration statement with the SEC allowing AGF immediate
program are included in ILFC notes and bonds payable in the access to the U.S. public debt markets.
preceding table of borrowings. The cumulative foreign exchange AGF uses the proceeds from the issuance of notes and bonds
adjustment loss for the foreign currency denominated debt was for the funding of its finance receivables.
172 AIG 2007 Form 10-K