The Rescue of American International Group Module F: The AIG Credit Facility Trust

32 Pages Posted: 13 Aug 2021

See all articles by Alec Buchholtz

Alec Buchholtz

Yale University - Yale Program on Financial Stability

Aidan Lawson

Yale University - Yale Program on Financial Stability

Date Written: April 15, 2021

Abstract

In September 2008, American International Group, Inc. (AIG) experienced a liquidity crisis. To avoid the insurance giant’s bankruptcy, the Federal Reserve Bank of New York (FRBNY) extended an $85 billion emergency secured credit facility to AIG. In connection with the credit facility, AIG issued 100,000 shares of preferred stock, with voting rights equal to and convertible into 79.9% of the outstanding shares of AIG common stock, to an independent trust (the Trust) set up by the FRBNY. Three trustees held the stock for the sole benefit of the US Treasury, exercised the rights, powers, authorities, discretions, and duties of the preferred stock, and acted as the beneficial owner of AIG. On January 14, 2011, the Trust converted the preferred stock into AIG common stock, and, after transferring the common stock to the Treasury’s General Fund, the Trust effectively dissolved. Over the next two years, Treasury sold the common stock in a series of six public offerings returning a profit to the government. The government’s equity investment and the Trust were controversial, raising debate about nationalization, transparency, and independence of the Trustees.

Keywords: AIG, credit facility, equity, liquidity, preferred stock, trust, voting rights

JEL Classification: G01,G28

Suggested Citation

Buchholtz, Alec and Lawson, Aidan, The Rescue of American International Group Module F: The AIG Credit Facility Trust (April 15, 2021). The Journal of Financial Crises: Vol. 3 : Iss. 1, 177-207, Available at SSRN: https://ssrn.com/abstract=3903621

Alec Buchholtz (Contact Author)

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Aidan Lawson

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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