AIG 2010 Annual Report Download - page 76

American International Group, Inc., and Subsidiaries
AIG Parent
AIG issues debt securities from time to time to meet its financing needs and those of certain of its subsidiaries,
including general borrowing to support AIG’s capital structure and corporate needs, borrowing supported by assets
intended to provide spread-based income and borrowing specific to certain AIG subsidiaries to support the
operations of those subsidiaries. Liquidity sources of AIG and its respective subsidiaries are utilized to fund
repayment of these obligations, including any additional funding requirements where cash flows from assets
supporting borrowing obligations are not sufficient.
In the fourth quarter of 2010, AIG raised approximately $2.5 billion in senior debt and contingent liquidity.
AIG issued an aggregate of $2 billion in senior unsecured notes, comprised of $500 million in three-year notes
and $1.5 billion in ten-year notes. In addition, AIG established a $500 million contingent liquidity facility in the
name of Stone Street Trust in December 2010. Under this facility, AIG has the unconditional right, prior to
December 15, 2015, to issue up to $500 million in senior debt to the Stone Street Trust, at its discretion, based on
a put option agreement between AIG and the Stone Street Trust. The senior debt, if issued, will mature on
December 15, 2015.
As of December 31, 2010, notes and bonds, including AIG Parent, MIP and Series AIGFP matched notes and
bonds payable, aggregating $26.5 billion were outstanding with maturity dates ranging from 2011 to 2052. To the
extent considered appropriate, AIG may enter into swap transactions to manage its effective borrowing rates with
respect to these notes and bonds.
In November 2010, AIG exchanged 49,474,600 of its Equity Units for 4,881,667 shares of AIG Common Stock
plus $162 million in cash. Each Equity Unit was exchanged for 0.09867 shares of AIG Common Stock plus $3.2702
in cash. The stock and cash received by the Equity Unit holders was the result of netting payments from two
separate transactions, a repurchase of the subordinated debentures and a cancellation of the stock purchase
contracts.
Following the completion of the exchange offer, a total of 28,925,400 Equity Units remained outstanding. In
addition, the remaining debentures continue to be subject to remarketing. In January 2011, AIG remarketed the
first of three series of the remaining debentures included in the Equity Units. AIG purchased and retired all of
the Series B-1 Debentures representing $723 million aggregate principal amount of the Series B-1 Debentures and
as a result, no Series B-1 Debentures remain outstanding. The remarketing of the remaining debentures included
in the Equity Units will occur later in 2011.
SunAmerica Financial Group, Inc. (SAFG, Inc.; formerly AIG Life Holdings (US), Inc.)
In connection with its acquisition of SAFG, Inc. in 2001, AIG entered into arrangements with SAFG, Inc. with
respect to outstanding SAFG, Inc. capital securities. In 1996, SAFG, Inc. issued capital securities through a trust
to institutional investors and funded the trust with SAFG, Inc. junior subordinated debentures issued to the trust.
SAFG, Inc. 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 SAFG, Inc.
guarantee, the AIG guarantee applies only 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 SAFG, Inc.
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 SAFG, Inc. is
prohibited from making a payment on the debentures.
ILFC
During 2010, ILFC borrowed $327 million to refinance five aircraft and finance five new aircraft under its
Export Credit Agency (ECA) Facility described below, borrowed $5.2 billion through secured financing
60 AIG 2010 Form 10-K