AIG 2008 Annual Report Download - page 328

Modification to Series D Preferred Stock
On March 2, 2009, AIG and the United States Department of the Treasury announced their agreement in
principle to enter into a transaction pursuant to which the United States Department of the Treasury would modify
the terms of the Series D Preferred Stock. The modification will be effected by an exchange of 100 percent of the
outstanding shares of Series D Preferred Stock for newly issued perpetual serial preferred stock (Series E Preferred
Stock), with a liquidation preference equal to the issuance-date liquidation preference of the Series D Preferred
Stock surrendered plus accumulated but unpaid dividends thereon. The terms of the Series E Preferred Stock will be
the same as for the Series D Preferred Stock except that the dividends will not be cumulative. The Series D Preferred
Stock bore cumulative dividends.
The dividend rate on both the cumulative Series D Preferred Stock and the non-cumulative Series E Preferred
Stock is 10 percent per annum. Concurrent with the exchange of the shares of Series D Preferred Stock for the
Series E Preferred Stock, AIG will enter into a replacement capital covenant in favor of the holders of a series of
AIG debt, pursuant to which AIG will agree that prior to the third anniversary of the issuance of the Series E
Preferred Stock AIG will not repay, redeem or purchase, and no subsidiary of AIG will purchase, all or any part of
the Series E Preferred Stock except with the proceeds obtained from the issuance by AIG or any subsidiary of AIG
of certain capital securities. AIG will make a statement of intent substantially similar to the replacement capital
covenant with respect to subsequent years. The Series D Preferred Stock was not subject to a replacement capital
covenant.
Equity Capital Commitment Facility
On March 2, 2009, AIG and the United States Department of the Treasury announced an agreement in
principle to provide a 5-year equity capital commitment facility of $30 billion. AIG may use the facility to sell to the
United States Department of the Treasury fixed-rate, non-cumulative perpetual serial preferred stock (Series F
Preferred Stock). The facility will be available to AIG so long as AIG is not the debtor in a pending case under
Title 11, United States Code, and the Trust (or any successor entity established for the benefit of the United States
Treasury) “beneficially owns” more than 50 percent of the aggregate voting power of AIG’s voting securities at the
time of such drawdown.
The terms of the Series F Preferred Stock will be substantially similar to the Series E Preferred Stock, except
that the Series F Preferred Stock will not be subject to a replacement capital covenant or the statement of intent.
In connection with the equity capital commitment facility, the United States Department of the Treasury will
also receive warrants exercisable for a number of shares of common stock of AIG equal to 1 percent of AIG’s then
outstanding common stock and, upon issuance of the warrants, the dividends payable on, and the voting power of,
the Series C Preferred Stock will be reduced by the number of shares subject to the warrant.
Repayment of Fed Facility with Subsidiary Preferred Equity
On March 2, 2009, AIG and the NY Fed announced their intent to enter into a transaction pursuant to which
AIG will transfer to the NY Fed preferred equity interests in newly-formed special purpose vehicles (SPVs), in
settlement of a portion of the outstanding balance of the Fed Facility. Each SPV will have (directly or indirectly) as
its only asset 100 percent of the common stock of an AIG operating subsidiary (AIA in one case and ALICO in the
other). AIG expects to own the common interests of each SPV. In exchange for the preferred equity interests
received by the NY Fed, there would be a concurrent substantial reduction in the outstanding balance and maximum
available amount to be borrowed on the Fed Facility.
Securitizations
On March 2, 2009, AIG and the NY Fed announced their intent to enter into a transaction pursuant to which
AIG will issue to the NY Fed senior certificates in one or more newly-formed SPVs backed by inforce blocks of life
insurance policies in settlement of a portion of the outstanding balance of the Fed Facility. The amount of the Fed
322 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)