AIG 2009 Annual Report Download - page 299

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Liabilities Connected to Trust Preferred Stock
In connection with its acquisition of AIGLH in 2001, AIG entered into arrangements with AIGLH with respect to
outstanding AIGLH capital securities. In 1996, AIGLH through a trust issued capital securities to institutional
investors and funded the trust with AIGLH junior subordinated debentures issued to the trust. AIGLH guaranteed
payments to the holders of capital securities only to the extent (i) the trust received payments on the debentures and
(ii) these payments were available for the trust to pay to holders of capital securities. In 2001, AIG guaranteed the
same payments to the holders of capital securities. Like the AIGLH guarantee, the AIG guarantee only applies to any
payments actually made to the trust in respect of the debentures. If no payments are made on the debentures, AIG is
not required to make any payments to the trust. AIG also guaranteed the debentures pursuant to a guarantee that is
expressly subordinated to certain AIGLH senior debt securities. Under AIG’s guarantee, AIG is not required to make
any payments in respect of the debentures if such payment would be prohibited by the subordination provisions of the
debentures. As a result, AIG will never be required to make a payment under its guarantee of the debentures for so
long as AIGLH is prohibited from making a payment on the debentures.
At December 31, 2009, the preferred stock outstanding consisted of $300 million liquidation value of 8.5 percent
preferred stock issued by American General Capital II in June 2000, $500 million liquidation value of 8.125 percent
preferred stock issued by American General Institutional Capital B in March 1997, and $500 million liquidation value
of 7.57 percent preferred stock issued by American General Institutional Capital A in December 1996.
ILFC
(i) Notes and bonds payable: At December 31, 2009, notes aggregating $16.9 billion were outstanding, consisting of
$5.4 billion of term notes and $11.5 billion of medium-term notes with maturities ranging from 2010 to 2015 and
interest rates ranging from 0.48 percent to 7.95 percent and $1.0 billion of junior subordinated debt as discussed
below. Notes aggregating $3.9 billion are at floating interest rates and the remainder are at fixed rates. ILFC enters
into swap transactions to manage its effective borrowing rates with respect to these notes.
On October 13, 2009, ILFC entered into two term loan agreements (the Term Loans) with AIG Funding comprised
of a new $2.0 billion credit agreement and a $1.7 billion amended and restated credit agreement. Both Term Loans
mature on September 13, 2013 and currently bear interest at 3-month LIBOR plus 6.025%. The Term Loans are due
in full at maturity with no scheduled amortization. On December 4, 2009, the new $2.0 billion credit agreement was
increased to $2.2 billion. The funds for the Term Loans were provided to AIG Funding through the FRBNY Credit
Facility. In order to receive the FRBNY’s consent to the Term Loans, ILFC entered into agreements to guarantee the
repayment of AIG’s obligations under the FRBNY Credit Agreement up to an amount equal to the aggregate
outstanding balance of the Term Loans.
ILFC currently has limited access to its traditional sources of financing, and has limited access to long-term
financing through the public debt markets. ILFC had the capacity under its present facilities and indentures to enter
into secured financing of approximately $4.7 billion (or more through subsidiaries that qualify as non-restricted
subsidiaries under ILFC’s indentures, subject to the receipt of any required consents under the FRBNY Credit
Facility and under its bank facilities and terms loans). However, as a result of the Term Loans, ILFC’s available
capacity under its present facilities and indentures to enter into secured financing was approximately $800 million at
February 17, 2010.
As a well-known seasoned issuer, ILFC has an effective shelf registration statement with the SEC. At December 31,
2009, no debt securities had been issued under this registration statement. In addition, ILFC has a Euro medium-term
note program for $7.0 billion, under which $1.9 billion in notes were outstanding at December 31, 2009. Notes issued
under the Euro medium-term note program are included in ILFC notes and bonds payable in the preceding table of
borrowings. ILFC has substantially eliminated the currency exposure arising from foreign currency denominated notes
by hedging the note exposure through swaps.
(ii) Junior subordinated debt: In December 2005, ILFC issued two tranches of junior subordinated debt totaling
$1.0 billion to underlie trust preferred securities issued by a trust sponsored by ILFC. The $600 million tranche has a
291 AIG 2009 Form 10-K