Deal with New York Fed slashes AIG debt by more than half

Bailed-out insurer American Investment Group today said it has signed a deal with the New York Federal Reserve that slashes its debt under a credit facility to $17 billion, reducing it by more than half.

The deal is a big boost to American International Group Inc's (AIG) efforts to repay loans on a massive taxpayer bailout and takes it closer to hiving off two life insurance units which would see its position further strengthened.

The firm said that as of 1 December, the outstanding principal balance it owes to the New York Fed, from loans received as part of the 208 bailout stands at $17 billion as against an outstanding balance of about $45 billion last week, including interest and fees.

The debt reduction comes as a part of a deal first proposed last March to give the New York Fed a preferred stake in two of AIG's largest life insurance units, a debt for equity swap deal. The two insurance units in which the New York Fed gets a preferred stake are American Life Indusrance Co (Alico) and American International Assurance (AIA).

AIG chief executive Bob Benmosche said, in a press release, that the debt reduction "sends a clear message to taxpayers: AIG continues to make good on its commitment to pay the American people back."

Benmosche also said that with the early debt cancellation would see the company take a $5.7 billion charge to income in the fourth quarter.