by Calculated Risk on 6/26/2009 10:22:00 AM

From the WaPo: N.Y. Fed to Trim AIG Debt, Receive $25 Billion Stake in Two Subsidiaries

American International Group announced yesterday that it has reached a deal to reduce its debt to the Federal Reserve Bank of New York by $25 billion.

[AIG] said that it would give the New York Fed preferred stakes in ... Asian-based American International Assurance, or AIA, and American Life Insurance Co., or Alico, which operates in more than 50 countries.

Under the agreement, AIG will split off AIA and Alico into separate company-owned entities called "special purpose vehicles," or SPVs. The New York Fed will receive preferred shares now valued at $25 billion -- $16 billion in AIA and $9 billion in Alico -- and in exchange will forgive an equal amount of AIG debt.

The Fed is now in the insurance business ...