In the wake of American International Group, Inc.’s (“AIG”) request for a $40 billion bridge loan from the Federal Reserve, New York Governor David Patterson has announced that AIG has been granted “special permission to access $20 billion of capital in its subsidiaries to free up liquidity.” This will enable, in essence, AIG to make a bridge loan to itself. AIG is attempting to raise capital due to three quarters of losses totaling approximately $18.5 billion and the threat of a downgrade in its credit rating. A credit rating downgrade could lead to additional collateral calls from debt investors, further impairing the company’s liquidity. By shifting funds from its subsidiaries to the parent company, it is expected AIG will be able to access enough cash for its day-to-day operations and avoid a downgrade.
In his announcement, Governor Patterson specifically pointed out, “This is not a government bailout. No taxpayer dollars are involved.” The Governor went on to state, “Hopefully we’ve cleared the way for the federal government and anyone else who could be of assistance here.” It has been reported that New York Insurance Superintendent Eric Dinallo is acting as the lead regulator in search of a solution to AIG’s financial problems, and “is appealing to the federal government on AIG's behalf to provide it additional access to capital.”