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Monday, November 10, 2008

Fed and Treasury announce restructuring of AIG financial support

by Calculated Risk on 11/10/2008 09:33:00 AM

From the Fed:

The Federal Reserve Board and the U.S. Treasury on Monday announced the restructuring of the government's financial support to the American International Group (AIG) in order to keep the company strong and facilitate its ability to complete its restructuring process successfully. These new measures establish a more durable capital structure, resolve liquidity issues, facilitate AIG's execution of its plan to sell certain of its businesses in an orderly manner, promote market stability, and protect the interests of the U.S. government and taxpayers.

Equity Purchase
The U.S. Treasury on Monday announced that it will purchase $40 billion of newly issued AIG preferred shares under the Troubled Asset Relief Program. This purchase will allow the Federal Reserve to reduce from $85 billion to $60 billion the total amount available under the credit facility established by the Federal Reserve Bank of New York (New York Fed) on September 16, 2008.
Plus some new credit facilities from the Fed.
In one new facility, the New York Fed will lend up to $22.5 billion to a newly formed limited liability company (LLC) to fund the LLC’s purchase of residential mortgage-backed securities from AIG's U.S. securities lending collateral portfolio. ... As a result, the $37.8 billion securities lending facility established by the New York Fed on October 8, 2008, will be repaid and terminated.
In the second new facility, the New York Fed will lend up to $30 billion to a newly formed LLC to fund the LLC's purchase of multi-sector collateralized debt obligations (CDOs) on which AIG Financial Products has written credit default swap (CDS) contracts.