AIG 2008 Annual Report Download - page 11

any outstanding loans under that facility and to terminate it. The intercompany facility was terminated effective
September 22, 2008.
Fed Credit Agreement
By early Tuesday afternoon on September 16, 2008, it was clear that AIG had no viable private sector solution
to its liquidity issues. At this point, AIG received the terms of a secured lending agreement that the NY Fed was
prepared to provide. AIG estimated that it had an immediate need for cash in excess of its available liquid resources.
That night, AIG’s Board of Directors approved borrowing from the NY Fed based on a term sheet that set forth the
terms of the secured credit agreement and related equity participation. Over the next six days, AIG elected Edward
M. Liddy Director, Chairman and CEO, replacing Robert Willumstad in those positions, and negotiated a definitive
credit agreement with the NY Fed and borrowed, on a secured basis, approximately $37 billion from the NY Fed
before formally entering into the Credit Agreement, dated as of September 22, 2008 (as amended, the Fed Credit
Agreement) between AIG and the NY Fed, which established the credit facility (Fed Facility).
On September 22, 2008, AIG entered into the Fed Credit Agreement in the form of a two-year secured loan and
a Guarantee and Pledge Agreement (the Pledge Agreement) with the NY Fed. See Note 13 to the Consolidated
Financial Statements for more information regarding the terms of and borrowings under the Fed Credit Agreement
and subsequent amendments thereto.
AIG’s Strategy for Stabilization and Repayment of the Fed Facility
In October 2008, AIG announced a restructuring of its operations, which contemplated retaining its
U.S. property and casualty and foreign general insurance businesses and a continuing ownership interest in
certain of its foreign life insurance operations while exploring disposition opportunities for its remaining busi-
nesses. Proceeds from sales of these assets are contractually required to be applied as mandatory prepayments
pursuant to the terms of the Fed Credit Agreement. Also in October 2008, AIGFP began unwinding its businesses
and portfolios. AIGFP is now entering into new derivative transactions only to maintain its current portfolio, reduce
risk and hedge the currency and interest rate risks associated with its affiliated businesses. As part of its orderly
wind-down, AIGFP is also opportunistically terminating contracts. Due to the long-term duration of AIGFP’s
derivative contracts and the complexity of AIGFP’s portfolio, AIG expects that an orderly wind-down of AIGFP
will take a substantial period of time.
On November 9, 2008, AIG, the NY Fed and the United States Department of the Treasury announced a set of
transactions that were implemented during the fourth quarter of 2008 pursuant to which, among other actions, AIG
issued $40 billion of fixed-rate cumulative perpetual serial preferred stock (Series D Preferred Stock) to the United
States Department of the Treasury, terminated $62 billion of credit default swaps written by AIGFP and resolved
and terminated its U.S. securities lending program.
On March 2, 2009, AIG, the NY Fed and the United States Department of the Treasury announced agreements
in principle to modify the terms of the Fed Credit Agreement and the Series D Preferred Stock and to provide a
$30 billion equity capital commitment facility. The parties also announced their intention to take a number of other
actions intended to strengthen AIG’s capital position, enhance its liquidity, reduce its borrowing costs and facilitate
AIG’s asset disposition program.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity
and Note 23 to the Consolidated Financial Statements for a further discussion of this strategy.
AIG 2008 Form 10-K 5
American International Group, Inc., and Subsidiaries