Yesterday, American International Group Inc. (AIG) vended off senior unsecured floating-rate notes worth $2.0 billion in a two-part offering.
Accordingly, one part of senior unsecured notes is valued at $1.2 billion. These notes were issued at a price of $99.448 and dated to mature on September 15, 2014.
These callable three-year fixed rate notes are projected to have a spread of 412.5 basis points (bps) over the US Treasuries, bearing a coupon rate of 4.25% and yield rate of 4.448%. Interest on the notes will be payable semi-annually, in equal instalments, commencing on March 15, 2012.
Besides, the second tranche of senior unsecured notes is worth $800 million. These notes were issued at a price of $98.943 and dated to mature on September 15, 2016.
These callable five-year fixed rate notes are projected to have a spread of 425 bps over the US Treasuries, bearing a coupon rate of 4.875% and yield rate of 5.117%. Interest on the notes will be payable semi-annually, in equal instalments, commencing on March 15, 2012.
Both the set of unsecured notes carry a rating of “Baa1”, “A-” and “BBB” from Moody’s Investor Service of Moody’s Corp. (MCO), Standards & Poor’s (S&P) and Fitch, respectively. Further, AIG appointed Citigroup Inc. (C), U.S. Bancorp (USB), Morgan Stanley (MS) and Credit Suisse AG (CS) as the joint book-running managers for the sale.
AIG expects to utilize the proceeds from the sale of notes to refinance its existing debt used to finance investments, which primarily include mortgage- and asset-backed securities, as indicated by a filing from the Securities and Exchange Commission (SEC).
According to the SEC filing, currently AIG has about $4.1 billion notes scheduled to mature in 2012. The proceeds from these bonds were used to fund the matched investment program, which is now in the process of termination.
However, on the brighter side, the notes sale indicates AIG’s ability to access debt markets. In November last year, AIG entered the debt market after two years since the company was bailed out in 2008, as it disposed of $2.0 billion of notes in two parts.
The access to debt markets was restricted for AIG given its already colossal government bailout loan. This has also been validated by Fitch Ratings, who has assigned a “BBB” rating on AIG’s debt and credit.
Furthermore, in May this year, AIG’s aircraft leasing unit, International Lease Finance Corp. (ILFC) issued notes worth $2.25 billion in a two-part offering. Overall, AIG has been working for the past several quarters to sell its unnecessary businesses in an effort to repay the bailout money.
Last month, the company reduced its government loan amount by $2 billion from the proceeds of the sale of its Nan Shan life insurance unit in Taiwan. As a result of this payment, AIG’s loan has shrunk to about $51 billion from $182.3 billion in 2008.
AIG is on its way to reduce the Treasury’s stake from the current 77%, which was further reduced from 92% when AIG raised $8.7 billion from a stock offering in May this year. Further, divestiture of assets is also crucial for gaining capital flexibility and focusing on its core life and property-casualty business.
We believe that AIG is poised to accentuate its operating and capital leverage upon dilution of the government stake. However, the risk of execution continues to chase considering the company’s credit default swap portfolio and administrative disturbances within AIG. Several non-recurring charges, associated with the intense restructuring, are also expected to mar the desired upside in the upcoming quarters.
