AIG plans sale of business units to repay debt

CHARLOTTE, N.C. - The insurer American International Group Inc. said Friday it plans to sell off a number of business units to pay off its massive government loan.

But the plans now leaves investors wondering how much AIG will be able to raise from the sales.

On the brink of failure last month, AIG was bailed out when the government offered it an $85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and the sale of Merrill Lynch & Co. to Bank of America Corp. In return for the loan, the government received warrants to purchase up to 79.9 percent of AIG.

Shortly after the deal, newly appointed Chairman and Chief Executive Edward Liddy said he planned to quickly raise funds through asset sales, but hoped to hold on to as many of AIG’s insurance operations as possible.

AIG, one of the world’s biggest insurers, Friday didn’t specifically disclose all the assets it would sell or the expected prices from the sales. However, the New York-based insurer said it plans to retain its U.S. property and casualty and foreign general insurance businesses, and also plans to retain an ownership interest in its foreign life insurance operations.

Liddy, former CEO of Allstate Corp., said AIG has been contacted by “numerous” parties regarding possible sales of businesses, and AIG will try to sell its operations to “brand-name” buyers who have strong ratings and balance sheets.

Even though the company didn’t disclose many specifics, Liddy did say he was hopeful that the two-year, $85 billion government loan would be enough to provide AIG “the flexibility we need to work our way out of this situation.”

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“Our goal is to emerge from this process in a timely fashion as a smaller but more nimble company that is solidly profitable and has attractive, long-term growth prospects,” Liddy said in his first call with investors and analysts. “I think what the Federal Reserve has provided us has been very generous and we are going to do everything we cannot to have to go back to them.”

Problems at AIG did not come from its traditional insurance subsidiaries, but instead from its financial services operations, and primarily its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn’t make good on its promise to pay back soured debt, investors feared the consequences would pose a threat to the U.S. financial system, which led to the government bailout.

AIG’s traditional insurance subsidiaries have widely been viewed as safe.

As of Sept. 30, AIG had drawn $61 billion on the credit facility, of which about $54 billion has gone toward its securities lending and AIG’s financial products area. The rest of the money has been for other liquidity needs amid an “unprecedented” freezing of credit markets, Liddy said.

While the sale of some of AIG’s businesses will be used to pay off the outstanding government loan, additional funds will be used to help address the company’s capital structure, Liddy said.

Some analysts, however, questioned how much AIG will get from any sales.

“We are giving AIG credit that it can use its Fed-supported liquidity to pursue a measured and deliberate asset sale program,” said CreditSights analyst Rob Haines in an interview. “That said, it’s not like they can wait to get the best price, six or seven months for now. They don’t have unlimited time.”

Liddy, who replaced Robert Willumstad, added he didn’t expect a fire sale, and buyers would have to assume the debt of AIG businesses they acquired.

So far, AIG has announced only one deal, a sale of its 50 percent interest in London City Airport to its partner in the venture, Global Infrastructure Partners. It bought the stake as a joint venture with the private-equity fund in 2006 for a total price estimated around $1.4 billion. The companies didn’t disclose the terms of the deal.

“It’s a tough environment right now, but it’s kind of a once in a generation opportunity to pick up very desirable business units,” Haines said.

The company said it would focus on its property, casualty and foreign general insurance units, and was working on alternatives for its financial products business and its securities lending program.

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Those plans include some businesses outside the U.S., primarily parts of American Life Insurance Co., which operates as a life insurer in more than 55 nations and regions.

Liddy added he wouldn’t be surprised to see sovereign wealth funds providing resources to acquire some AIG businesses.

One unit that analysts have said could be sold is International Lease Finance Corp., which leases out more than 900 aircraft with asset values topping $44 billion at the end of the second quarter. Another unit that could possibly be sold is consumer-focused lender American General Finance Corp.

Other businesses AIG operates include life, commercial auto and accident and health insurers.

Last week, during an interview with CNBC, billionaire investor Warren Buffett said his firm, Berkshire Hathaway Inc., would be interested in acquiring a couple of AIG’s assets depending on what the company was willing to sell.

Berkshire Hathaway spokeswoman Jackie Wilson said Friday that no one was immediately available to discuss the AIG asset sale. Buffett is out of town, she said.

The Blackstone Group and JPMorgan Chase & Co. are working with AIG on the sale of its assets.

AIG shares fell 14 cents, or 3.5 percent, to $3.86.

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