New York: Bailed-out insurer American International Group returned to the debt market on Tuesday after more than a two-year absence, offering a large premium to attract investors as it works to shed government support.
AIG sold $500 million in January 2014 and $1.5 billion in December 2020 senior unsecured notes, with the 2014s offered at 295 basis points over comparable Treasuries and the 2020s at 362.5 basis points over Treasuries.
AIG had said earlier this month it wanted to sell debt in the fourth quarter and stock in the first quarter of 2011, with chief executive Robert Benmosche calling a total capital raise of $3.5 billion a “modest goal.” The company is expected to stick to those targets after Tuesday’s offering.
It is the first debt sale for the company since August 2008, when it sold more than $3 billion in 10-year paper. Those bonds are currently being quoted at 300 basis points over 10-year Treasury bonds.
By comparison, insurer Prudential Financial sold a 10-year bond on 15 Nov. at 185 basis points over Treasuries despite having a lower credit rating than AIG.
Some investors said they passed on the offering because AIG still faces serious restructuring challenges.
“There’s just too much hair on this credit—a lot of uncertainty about what they’ll look like when all is said and done,” said one buyside source, while another cited ample execution risk from the company’s credit default swap portfolio, pending asset sales and management shake-ups.
On the other hand, some noted the deal offered an attractive yield in a difficult market, particularly for a company with a strong credit rating.
AIG said in a filing with securities regulators it would use the proceeds of the new offering for general corporate purposes, with the consent of the Federal Reserve Bank of New York.
The company is in the middle of a recapitalization deal, expected to close in the first quarter, that will pay off the New York Fed and leave the Treasury Department with a 92.1% stake in AIG.
Even after that deal, AIG will still owe about $100 billion to the government from a bailout that at one point peaked at just more than $182 billion.
AIG shares closed 24 cents lower at $41.29 on Tuesday. The stock’s strong recovery in 2010 has helped improve the government’s view of the ultimate fate of its AIG investment.