S&P Says AIG Ratings “Developing;’ Short-Term Ratings Raised

September 18, 2008

Standard & Poor’s Ratings Services has revised the CreditWatch status of most of its ratings on the AIG group of companies to CreditWatch developing from CreditWatch negative. The revisions affect its ‘A-‘ long-term counterparty credit ratings on American International Group Inc. and International Lease Finance Corp. (ILFC) and the ‘A+’ counterparty credit and financial strength ratings on most of AIG’s insurance operating subsidiaries.

S&P has also raised its short-term counterparty ratings on AIG, its guaranteed subsidiaries, and ILFC to ‘A-1’ from ‘A-2′.

However, S&P also announced that it has “lowered the ratings on various subsidiaries’ preferred shares to ‘B’ from ‘BBB’; the ratings on the preferred shares remain on CreditWatch negative because of the increased risk of deferral of dividend payments due to the right of the U.S. government to veto dividend payments.

“The ‘BBB/A-3’ counterparty credit rating on American General Finance Corp. is unchanged. The outlook is negative.”

S&P then discussed the $85 billion borrowing facility for AIG, part of the bailout plan concluded with the Federal Reserve Bank of New York. S&P noted that credit facility is “secured by a pledge of all of the assets of AIG and its nonregulated subsidiaries as well as AIG’s stock ownership interest in its regulated subsidiaries. The U.S. government will also receive a 79.9 percent equity interest in AIG, giving it effective control of the company.”

“The Fed’s actions will provide AIG with substantial relief from its near-term liquidity constraints,” noted credit analyst Rodney A. Clark. “We believe that the size of the facility greatly exceeds any near-term needs for liquidity.” The amount drawn from the facility will affect decisions on which businesses might be sold, and the result could either favorably or unfavorably affect AIG’s competitive position and operating performance.

S&P also explained: “Most of the ratings are on CreditWatch developing to reflect the significant uncertainty in the near term as to any impact of recent events on AIG and its ability to attract and retain business as well as uncertainty as to which businesses might be sold to repay AIG’s borrowings from the Fed.”

Clark added: “It is likely that the ratings on AIG and its various subsidiaries will move in different directions as these facts become more clear and strategic alignment within the insurance operations is more defined. The ratings on the preferred shares remain on CreditWatch negative because of the right of the U.S. government under the terms of the agreement to veto dividends on any preferred shares. Any action on that right is uncertain but could occur with little warning at the government’s discretion.”

Source: Standard & Poor’s – www.standardandpoors.com

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