AIG 2008 Annual Report Download - page 47

Arrangements with the Federal Reserve Bank of New York and the United States Department of the
Treasury
Fed Credit Agreement
Because of these immediate liquidity requirements, AIG’s Board of Directors determined that the only viable
alternative was to accept an arrangement offered by the NY Fed, and on September 16, 2008, 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, negotiated a definitive credit agreement with the NY Fed and borrowed, on a secured
basis, approximately $37 billion from the NY Fed, enabling AIG to meet its liquidity requirements before formally
entering into a credit agreement with the NY Fed.
On September 22, 2008, AIG entered into the Fed Credit Agreement in the form of a two-year secured loan and
the Pledge Agreement with the NY Fed. On November 9, 2008, AIG and the NY Fed agreed to amend the Fed Credit
Agreement to reduce the total commitment under the Fed Facility to $60 billion following the issuance of the
Series D Preferred Stock (described below), extend the term of the Fed Facility to 5 years and reduce the related
interest and fees payable under the Fed Facility. See Note 13 to the Consolidated Financial Statements for
information regarding the terms of and borrowings under the Fed Credit Agreement.
Series D Preferred Stock Issuance
On November 25, 2008, AIG entered into a Securities Purchase Agreement (the Series D Preferred Stock
Purchase Agreement) with the United States Department of the Treasury pursuant to which, among other things,
AIG issued and sold to the United States Department of the Treasury, as part of the Troubled Asset Relief Program
(TARP) and the Systemically Significant Failing Institutions Program, $40 billion of Series D Preferred Stock, and
a warrant to purchase 53,798,766 shares of common stock (the Warrant). The proceeds from the sale of the Series D
Preferred Stock and the Warrant were used to repay borrowings under the Fed Facility. See Note 15 to the
Consolidated Financial Statements for further information on the Series D Preferred Stock and the Warrant.
Termination of $62 billion of CDS
On November 25, 2008, AIG entered into a Master Investment and Credit Agreement (the ML III Agreement)
with the NY Fed, Maiden Lane III LLC (ML III), and The Bank of New York Mellon, which established
arrangements, through ML III, to fund the purchase of the multi-sector CDOs underlying or related to certain credit
default swaps and other similar derivative instruments (CDS) written by AIG Financial Products Corp. in
connection with the termination of such CDS transactions. Concurrently, AIG Financial Products Corp.’s counter-
parties to such CDS transactions agreed to terminate those CDS transactions relating to the multi-sector CDOs
purchased from them by ML III. Through December 31, 2008, ML III had purchased from counterparties a total of
$62.1 billion in par amount of CDO securities, and the associated credit default swaps had been terminated.
Approximately $12.2 billion notional amount of AIG Financial Products Corp.’s CDS transactions referencing
super senior multi-sector CDOs remained outstanding as of February 18, 2009. See Note 5 to the Consolidated
Financial Statements for further information on the transactions with ML III.
Resolution of U.S. Securities Lending Program
On December 12, 2008, AIG, certain of AIG’s wholly owned U.S. life insurance subsidiaries, and AIG
Securities Lending Corp. (the AIG Agent), another AIG subsidiary, entered into an Asset Purchase Agreement (the
ML II Agreement) with Maiden Lane II LLC (ML II), a Delaware limited liability company whose sole member is
the NY Fed.
Pursuant to the ML II Agreement, the life insurance subsidiaries sold to ML II all of their undivided interests in
a pool of $39.3 billion face amount of RMBS held by the AIG Agent as agent of the life insurance subsidiaries in
connection with AIG’s U.S. securities lending program. In exchange for the RMBS, the life insurance subsidiaries
received an initial purchase price of approximately $19.8 billion plus the right to receive deferred contingent
portions of the total purchase price of $1 billion plus participation in the residual, each of which is subordinated to
the repayment of the NY Fed loan to ML II. These life insurance subsidiaries applied the net cash proceeds of sale of
AIG 2008 Form 10-K 41
American International Group, Inc., and Subsidiaries