The U.S. Treasury Department and the Federal Reserve Board are restructuring the bailout of insurance giant American International Group Inc., plowing more government money into the troubled firm, the organizations announced Monday.

AIG said Monday it lost US$61.7 billion in the fourth quarter, the biggest quarterly loss in U.S. corporate history.

New York-based AIG said it lost US$22.95 per share in the last three months of 2008. It lost US$5.3 billion, or US$2.08 per share, in the quarter a year ago.

Under the plan, the Treasury will exchange its existing US$40 billion cumulative perpetual preferred shares for new preferred shares with revised terms that more closely resemble common equity to improve the quality of AIG’s equity and its financial leverage. It will also create a new equity capital facility, which allows AIG to draw down up to US$30 billion as needed over time in exchange for non-cumulative preferred stock.

Additionally, the Fed is revising the terms of the US$60 billion revolving credit facility for AIG that was established by the Federal Reserve Bank of New York in September 2008. The credit facility will be reduced to no less than US$25 billion in exchange for preferred interests in two special purpose vehicles created to hold all of the outstanding common stock of American Life Insurance Co. and American International Assurance Co. Ltd., two life insurance holding company subsidiaries of AIG. AIG will retain control of ALICO and AIA, though the New York Fed will have certain governance rights. The New York Fed is also authorized to make new loans up to US$8.5 billion to the SPVs established by domestic life insurance subsidiaries of AIG. And, it is removing the existing floor on the interest rate aid by AIG under the credit facility.

The Fed and Treasury said that this latest restructuring effort is designed to enhance the company’s capital and liquidity in order to facilitate the orderly completion of the company’s global divestiture program. “The company continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year and continued turbulence in the markets generally. The additional resources will help stabilize the company, and in doing so help to stabilize the financial system,” they said.

They also noted that the restructuring begins to separate the major non-core businesses of AIG, as well as strengthen the company’s finances. “The long-term solution for the company, its customers, the U.S. taxpayer, and the financial system is the orderly restructuring and refocusing of the firm. This will take time and possibly further government support, if markets do not stabilize and improve,” they added.

IE