Despite the failure of American International Group (AIG) to sell its Asian life-insurance unit American International Assurance (“AIA”) to Prudential plc (PUK), the rating and outlook for AIG were not affected.
Rating service agency Moody’s Corp. (MCO) has affirmed its long-term issuer rating of “A3″ and short-term issuer rating of “Prime-1″ for the company. The lackluster global economy along with troubled capital markets may heighten execution risk in streamlining its operations. Moody’s, therefore, remains negative in its rating outlook.
Standard & Poor (“S&P”) has maintained its “A-” rating with a negative outlook. S&P expects the support from the government to continue for AIG and thus maintains its rating. However, the rating agency believes the collapse of the AIG−Prudential deal will delay AIG’s restructuring plan. Further, S&P is apprehensive that the AIA sale will now not only take longer than what AIG had previously anticipated, but there remains increased execution risk given unstable market conditions.
The AIA takeover collapsed as Prudential wanted to lower the deal value to $30 billion from $35.5 billion, but AIG refused to settle for the discounted price.
AIG was selling its Asian insurance business to partly pay back the bailout money of $132 billion to the federal reserve, which rescued the bank from collapsing in 2008. While AIG may seek other potential buyers for its AIA Group, the company might also get back to its earlier plan of a public offering in Asia to divest the Asian unit.
Overall, we believe that the company’s continued focus on strengthening its businesses, restructuring its activities, closing the pending transactions and developing plans to address its highly leveraged balance sheet will serve as positive catalysts for AIG to settle for a fair deal value for AIA. However, the negative rating outlook could mar AIG’s initiatives.
Read the full analyst report on “AIG”
Read the full analyst report on “PUK”
Read the full analyst report on “MCO”
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