AIG, Treasury Sign Recap Agreement

NEW YORK CITY-AIG said in a regulatory filing Wednesday afternoon it had agreed to retire its line of credit with the Federal Reserve Bank of New York, on which it owed about $21 billion. The insurance giant, which received federal bailouts totaling more than $175 billion in 2008, will use proceeds from the sale of subsidiary American Life Insurance Co. and an IPO on AIA Group Ltd., to repay the line. Both are overseas operations; the ALICO sale closed early last month.

Additionally, the recapitalization agreement signed by AIG, the New York Fed, the Treasury Department and the trustees of the AIG Credit Facility Trust calls for a public offering of stock currently held by the Treasury. The sale would take place in the first half of 2011 and would seek to raise a minimum of $15 billion. It would be the first of several such offerings.

The Treasury would have the right to set all terms and conditions of any AIG stock offering until its share of the stock falls below 33%, according to AIG’s SEC filing Wednesday. Until that 33% threshold is reached, the federal government would also be able to order AIG to hold up to two stock offerings per year. For its part, AIG would be able to sell up to $3 billion in new shares, and possibly an additional $4 billion if approved by the Treasury.

In a statement, AIG says its signing of the “definitive” recap agreement with the federal government “marks an important step forward in our progress toward completely repaying taxpayers. We remain committed to executing the steps and meeting all conditions in the agreement as soon as possible.”

Tim Massad, the Treasury’s acting assistant secretary for financial stability, says in a statement that the AIG with agreement represents “a milestone in the government’s long-stated efforts to exit our investments in private companies as soon as practical while protecting taxpayers. When all is said and done, we believe taxpayers will recover every dollar invested in AIG and stand a good chance of making a profit.”

Earlier this week, the Treasury sold off its remaining shares of Citigroup, disposing of 2.4 billion shares at $4.35 each. The nation’s third largest bank had received a $45-billion bailout at the height of the capital markets crisis.