Reply #35: U.S. government increases AIG bailout to $150 bln [View All]

[UpInArms]

http://www.reuters.com/article/bondsNews/idUSLA32278220081110?sp=true

WASHINGTON/NEW YORK, Nov 10 (Reuters) - The U.S. Federal Reserve hiked its support for insurer American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) to about $150 billion on Monday after an initial bailout attempt failed to stem massive losses.

Under the new plan, the government is putting $150 billion at AIG's disposal, $27 billion more than it extended previously. But the new package will leave the government exposed to billions of dollars of potential losses.

AIG shares rose 24 percent to $2.62 in premarket trade after the new rescue plan was disclosed.

The restructured bailout was announced as AIG posted a $24.47 billion third-quarter loss, the largest in the company's 89-year history, hurt by massive losses on investments and billions of dollars of insurance claims from hurricanes that battered the U.S. Gulf Coast earlier this year.

The Fed will buy $40 billion of AIG preferred shares through the U.S. Treasury's Troubled Asset Relief Program (TARP), lend it $60 billion under a credit facility, and provide $50 billion to buy distressed securities and backstop AIG's securities lending portfolio.

The new plan is nearly double the government's initial $85 billion rescue plan for AIG, forged on Sept. 16. The government said its equity stake in the insurer would still be about 80 percent.

The preferred shares will carry a dividend of about 10 percent. The U.S. will charge a lower interest rate on its loan to AIG.

AIG, once the world's largest insurer by market value, received the $85 billion bailout financing from the government in September after counterparties and rating downgrades forced the company to post large amounts of collateral for credit derivatives positions. Last month, $37.8 billion in additional federal funds were put at its disposal under a securities lending agreement. The new plan replaces both of those facilities.

On Monday, the Fed lowered the interest rate on AIG's credit facility to three-months LIBOR plus 3 percentage points from the current LIBOR plus 8.5 percentage points, and extended the term of the loan to five years from two years.

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