8-KMaterial AgreementsExhibits & Filings

AMERICAN INTERNATIONAL GROUP, INC. 8-K Report, Material Agreement (Dec 2, 2008)

Filed December 2, 2008For Securities:AIG

Summary

This 8-K filing details a significant agreement entered into by American International Group, Inc. (AIG) on November 25, 2008, with the Federal Reserve Bank of New York (NY Fed) and Maiden Lane III LLC (ML III). The core of this agreement is a financing arrangement designed to facilitate the termination of credit default swaps (CDS) written by AIG Financial Products Corp. (AIGFP) and the purchase of the underlying multi-sector collateralized debt obligations (Multi-Sector CDOs). The NY Fed is providing a senior loan facility of up to $30.0 billion to ML III, which will acquire these CDOs. AIG has contributed $5.0 billion as an equity interest in ML III, which is subordinated to the NY Fed's loan and carries the risk of losses on the CDO portfolio up to the amount of its investment.

Key Highlights

  • 1AIG, through a new entity ML III, has entered into a Master Investment and Credit Agreement with the NY Fed to address significant CDS exposure.
  • 2The NY Fed is providing up to $30.0 billion in financing through a senior loan to ML III, which will purchase Multi-Sector CDOs.
  • 3AIG has invested $5.0 billion in ML III as equity, which is subordinated and subject to potential losses on the purchased CDOs.
  • 4Approximately $53.5 billion notional amount of CDS are being terminated, with $46.1 billion settled as of November 25, 2008.
  • 5The transaction aims to de-risk AIGFP's balance sheet by removing a substantial portion of its CDS obligations.
  • 6The NY Fed will be the controlling party of ML III as long as any amounts are owed to it.
  • 7A Shortfall Agreement is in place to manage any discrepancies between the notional value of CDS and the market value of the underlying CDOs, though no payment was initially required from AIGFP.

Frequently Asked Questions

The primary purpose is to facilitate the termination of credit default swaps (CDS) written by AIG Financial Products Corp. (AIGFP) by establishing financing for the purchase of the underlying multi-sector collateralized debt obligations (Multi-Sector CDOs) through a specially created entity, Maiden Lane III LLC (ML III).

The Federal Reserve Bank of New York (NY Fed) is providing up to $30.0 billion through a senior loan facility to ML III. AIG has contributed $5.0 billion as equity in ML III.

AIG's exposure is limited to its $5.0 billion equity investment in ML III, which is junior to the NY Fed's loan and could be fully lost. AIG does not have control over ML III; the NY Fed is the controlling party as long as it has amounts owed to it.

The agreement covers approximately $53.5 billion in notional amount of CDS. Of this, $46.1 billion has already been settled, with the termination of related CDS and purchase of underlying CDOs occurring on November 25, 2008.