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NEW YORK CITY-As it posted the largest quarterly loss ever recorded by a US corporation, AIG on Monday received another infusion of federal money via the Treasury Department’s plan to create a $30-billion, five-year equity capital facility for the beleaguered insurer. The company also announced it would create a holding company for several of its insurance businesses while continuing to work on selling off others.

The standby capital facility is one of a number of measures being implemented by AIG, Treasury and the Federal Reserve to help stabilize the company. In a joint statement, Treasury and the Fed on Monday announced a restructuring of the government’s aid to AIG. These actions mark the fourth time the government has stepped in to prop up the ailing insurer since the initial bailout last September.

Among other steps, Treasury will swap its $40 billion of cumulative perpetual preferred shares for new preferred shares with terms that more closely resemble common stock. The Fed has reduced the $60-billion revolving credit facility established for AIG last September in exchange for preferred interests in two special purpose vehicles created to hold all of the outstanding common stock of American Life Insurance Co. and American International Assurance Co., two life insurance holding company subsidiaries of AIG.

AIG will retain control of ALICO and AIA, although the New York Fed will have “certain governance rights to protect its interests,” according to the Fed/Treasury joint statement. The valuation for the New York Fed’s preferred stock interests, which could range up to $26 billion, will be a percentage of the fair market value of ALICO and AIA based on valuations acceptable to the New York Fed, according to the statement. The Fed is authorized to make loans of up to $8.5 billion to the SPVs; proceeds from the loans would be used to pay down the revolving credit facility.

“The long-term solution for the company, its customers, the US taxpayer and the financial system is the orderly restructuring and refocusing of the firm,” according to the Fed/Treasury statement. “This will take time and possibly further government support, if markets do not stabilize and improve.”

The statement makes it clear that AIG is considered too big to fail. “Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high,” according to the joint statement. “AIG provides insurance protection to more than 100,000 entities, including small businesses, municipalities, 401(k) plans, and Fortune 500 companies who together employ over 100 million Americans.” However, the release also states that “public ownership of financial institutions is not a policy goal. To the extent public ownership is an outcome of Treasury actions, as it has been with AIG, it will work to replace government resources with those from the private sector to create a more focused, restructured and viable economic entity as rapidly as possible.”

For its part, AIG is forming a general insurance holding company, including its commercial insurance group, foreign general unit and other property and casualty operations. It will be called AIU Holdings, Inc., with a board of directors, management team and brand distinct from AIG, according to a release.

“The establishment of AIU Holdings will assist AIG in preparing for the potential sale of a minority stake in the business, which ultimately may include a public offering of shares, depending on market conditions,” the release states.

In announcing its Q4 2008 financial results, AIG blames continuing credit market deterioration, particularly in CMBS, as well as “a number of restructuring and market disruption-related charges and other significant accounting charges related to taxes and intangible assets.” The company posted a loss of $61.7 billion for the quarter, surpassing the $44.9-billion hit AOL Time Warner took in Q4 2002.

In a statement, Edward Liddy, AIG chairman and CEO, says the company has made “meaningful progress in addressing liquidity issues” and has announced several divestitures. “However, the economy and capital markets remain in turmoil and we are taking additional steps to preserve the value of our businesses and maximize the ultimate proceeds for the benefit of all stakeholders, including taxpayers.”

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