AIG 2009 Annual Report Download - page 56

American International Group, Inc., and Subsidiaries
AIGFP Wind-down
AIGFP is engaged in a multi-step process of unwinding its businesses and portfolios. In connection with that
process, certain assets were sold. The proceeds from these sales have been used to fund AIGFP’s wind-down and are
not included in the amounts described above under Sales of Businesses and Specific Asset Dispositions. The FRBNY
waived the requirement under the FRBNY Credit Agreement that the proceeds of these specific sales be applied as a
mandatory prepayment under the FRBNY Credit Facility, which would have resulted in a permanent reduction of the
FRBNY’s commitment to lend to AIG. Instead, the FRBNY has given AIGFP permission to retain the proceeds of
these completed sales, and has required that such proceeds received from certain future sales be used to voluntarily
prepay the FRBNY Credit Facility, with the amounts prepaid available for future reborrowing subject to the terms of
the FRBNY Credit Facility. AIGFP is also opportunistically terminating contracts. AIGFP is entering into new
derivative transactions only to hedge its current portfolio, reduce risk and hedge the currency, interest rate and other
market risks associated with AIG’s affiliated businesses. 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. The cost of executing the wind-down will depend on many factors, many of which are not
within AIG’s control, including market conditions, AIGFP’s access to markets via market counterparties, the
availability of liquidity and the potential implications of further rating downgrades.
On August 11, 2009, AIGFP completed sales of its energy and infrastructure investment assets, realizing aggregate
net proceeds of $619 million and $1.3 billion in 2009 and 2008, respectively.
Liquidity of Parent and Subsidiaries
AIG (Parent)
The following table presents AIG parent’s sources of liquidity:
As of
(In millions) December 31, 2009 February 17, 2010
Available borrowing under the FRBNY Credit Facility $17,100 $14,000
Cash and short-term investments 528 287
Available capacity under the Department of the Treasury Commitment 24,491 22,292*
Total $42,119 $36,579
* Reflects AIG’s February 2010 request to draw down $2.2 billion under the Department of the Treasury Commitment principally to improve the risk-
based capital ratios of its General Insurance subsidiaries by redeeming securities of affiliates held by those subsidiaries.
AIG believes that it has sufficient liquidity at the parent level to meet its obligations through at least the next twelve
months. However, no assurance can be given that AIG’s cash needs will not exceed projected amounts. The inability
of AGF or ILFC to raise sufficient liquidity to meet their obligations without support from AIG, additional collateral
calls, deterioration in investment portfolios affecting statutory surplus, higher surrenders of annuities and other
policies, further downgrades in AIG’s credit ratings, catastrophic losses or reserve strengthening, or a further
deterioration in the super senior credit default swap portfolio may result in significant additional cash needs, or loss of
some sources of liquidity, or both. Regulatory and other legal restrictions could limit AIG’s ability to transfer funds
freely, either to or from its subsidiaries. (See Item 1A. Risk Factors above.)
Since the fourth quarter of 2008, AIG has not accessed its traditional sources of long-term or short-term financing
through the public debt markets. While no assurance can be given that AIG will be able to access these markets again,
AIG has continued to periodically evaluate its ability to access the capital markets.
Historically AIG depended on dividends, distributions, and other payments from subsidiaries to fund payments on
its obligations. In light of AIG’s current financial situation, certain of its regulated subsidiaries are restricted from
making dividend payments, or advancing funds, to AIG. As a result, AIG has been dependent on the FRBNY and the
Department of the Treasury as its primary sources of liquidity. Primary uses of cash flow are for debt service and
subsidiary funding. In 2009, AIG parent collected $2.2 billion in dividends and other payments from subsidiaries
(primarily from insurance company subsidiaries), and retired $1.4 billion of debt, excluding MIP and Series AIGFP
debt. Excluding MIP and Series AIGFP debt, AIG parent made interest payments totaling $1.8 billion, and made
AIG 2009 Form 10-K 48