The fate of
Indications are that a deal could come as soon as the first week of November, although market conditions could still influence the timing. The business is part of the company’s AIG Investments unit, and a likely scenario at this point seems to be the sale of the whole unit. Such a resolution would keep together all operations managing third-party capital, our source said.
News of the divestiture itself isn’t a shocker considering the company’s liquidity issues and its plans, disclosed in early October, to focus on its core property and casualty insurance businesses. At that time, AIG said it was “actively at work” on a number of alternatives for its financial products businesses.
The private equity group, which has about $28 billion in assets under management, includes global funds of funds and secondary funds as well as sponsored direct funds. The group also provides co-investment and mezzanine financing. AIG Investments as a whole casts a much bigger shadow, with roughly $758 billion in assets under management. In addition to private equity, it has portfolios with exposure to equities, fixed income, hedge funds and real estate.
Possible buyers in the mix include
“They like trophy assets, and the bottom line is that a SWF [sovereign wealth fund] would look at it as a trophy asset. Plus they’d get really low cost investment activity if they own the vehicle,” the source told Buyouts. “It’s an interesting option.”
The possibility that the private equity group would instead look to engineer a break away from the parent company was played down by our source, who said there’s been very little talk of splitting off from the larger firm. “The infrastructure group was always keen to be more independent,” the source said, referring specifically to those working on
The early November timeframe would fit with the holding pattern the business seems to be in. According to our source, AIG Investments is still taking meetings with regard to private equity opportunities but it’s not engaging in any investment activity right now.
Facing a cash crunch, AIG received a two-year, $85 billion revolving credit facility from the Federal Reserve on Sept. 23. The terms of the facility are fairly stringent, calling for an interest rate of 3-month LIBOR plus 8.5 percent, an initial gross commitment fee of 2 percent, and a commitment fee of 8.5 percent per year on the undrawn amount. AIG also issued a substantial amount of convertible preferred stock to the federal government in the deal. That stock converts to voting power of 79.9 percent in the company.
This facility wasn’t enough, however. AIG subsequently entered a securities lending program with the Federal Reserve on Oct. 8, exchanging certain fixed income securities overnight in exchange for cash collateral. As of Oct. 6, roughly $37.2 billion of securities were subject to loans under the program.
Also, on Oct. 24, AIG named Paula Rosput Reynolds vice chairman and chief restructuring officer. Reynolds, the former chairman, president and chief executive officer of Safeco Corp., was tapped to oversee the divestiture of the company’s assets and serve as its chief liaison with the Federal Reserve. The company also named Richard Booth its chief administrative officer, to serve as vice chairman, transition planning.
An AIG spokesperson declined comment for this story.