On November 10, 2008, the Federal Reserve Board and the U.S. Treasury Department announced the restructuring of the government’s financial support to American International Group, Inc. (AIG) in order to facilitate its ability to complete its restructuring process. As part of this restructuring, under section 13(3) of the Federal Reserve Act, the Federal Reserve Board authorized the Federal Reserve Bank of New York (New York Fed) to lend up to $22.5 billion to a newly formed Delaware limited liability company, Maiden Lane II LLC (ML II LLC), to fund the purchase of residential mortgage-backed securities (RMBS) from the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG (AIG Subsidiaries).

Transaction Overview
ML II LLC was formed in the fourth quarter of 2008. On December 12, 2008, ML II LLC purchased RMBS with an estimated fair value of approximately $20.8 billion, determined as of October 31, 2008, (Asset Portfolio). ML II LLC financed this purchase by borrowing $19.5 billion (Senior Loan) from the New York Fed. The Senior Loan proceeds, after adjustments (totaling $0.3 billion between October 31, 2008, and December 31, 2008) including principal and interest payments received by the AIG Subsidiaries on the RMBS, were used to purchase the $20.8 billion Asset Portfolio. In addition to receiving the cash purchase price on the closing date, AIG Subsidiaries received a contingent right to collect the deferred portion of the total purchase price of $1.0 billion (Fixed Deferred Purchase Price) plus a one-sixth participation in the residual portfolio cash flow, if any, each following ML II LLC’s repayment of the Senior Loan and accrued interest thereon to the New York Fed.

As of October 31, 2008, the Asset Portfolio had a par value of approximately $39.3 billion.

The New York Fed has all material control rights over the Asset Portfolio and is the sole and managing member of ML II LLC.

Significant Transaction Terms
The Senior Loan and the Fixed Deferred Purchase Price are secured by the Asset Portfolio.  The Senior Loan was issued with a stated term of six years, and may be extended at the New York Fed’s discretion.

The interest rate on the Senior Loan is one-month LIBOR plus 100 basis points. After the Senior Loan to the New York Fed has been repaid in full plus interest, to the extent that there are sufficient remaining cash proceeds, the AIG Subsidiaries will be entitled to receive the Deferred Fixed Purchase Price, plus accrued interest at a rate of one-month LIBOR plus 300 basis points.

After repayment in full of the Senior Loan and the Fixed Deferred Purchase Price (each including accrued interest), any remaining proceeds will be split 5/6th to the New York Fed and 1/6th to the AIG Subsidiaries.

Distribution of the proceeds realized by the Asset Portfolio (including interest proceeds and proceeds from the maturity or liquidation of the Asset Portfolio) will occur on a monthly basis, and will be made in the following order (each category must be fully paid before proceeding to the next lower category):

• first, to pay any costs, fees and expenses of ML II LLC then due and payable;
• second, to fund the expense reimbursement sub-account to $500,000 or such other amount as may be specified by the New York Fed;
• third, to pay the outstanding principal amount of the Senior Loan;
• fourth, so long as the entire outstanding principal amount of the Senior Loan has been repaid in full, to pay unpaid interest outstanding on the Senior Loan accrued at LIBOR plus 100 basis points;
• fifth, so long as the entire outstanding principal amount and all accrued and unpaid interest outstanding on the Senior Loan have been paid in full, to repay the outstanding principal amount of the Fixed Deferred Purchase Price;
• sixth, so long as (i) the entire outstanding principal amount of and all accrued and unpaid interest on the Senior Loan have been paid in full and (ii) the entire outstanding principal amount of the Fixed Deferred Purchase Price has been repaid in full, to pay unpaid interest outstanding on the Fixed Deferred Purchase Price accrued at LIBOR plus 300 basis points;
• seventh, so long as the entire outstanding principal amount of and all accrued and unpaid interest on the Senior Loan and the Fixed Deferred Purchase Price have been paid in full, to pay 5/6th of all remaining amounts to the New York Fed and 1/6th of all remaining amounts to the AIG Subsidiaries (each as Contingent Interest).

Management of Assets
BlackRock Financial Management Inc. (Investment Manager) has been retained by the New York Fed to manage the Asset Portfolio.

The Investment Manager’s objective in managing ML II LLC’s portfolio is maximization of long-term cash flows to pay the Senior Loan (including principal, interest, and Contingent Interest), subject to the need to meet other obligations in the waterfall that are senior to the Senior Loan and refraining from investment actions that would disturb general financial market conditions.

Cash proceeds from the Asset Portfolio may be invested solely in U.S. Treasury or agency securities with a remaining maturity of one year or less, U.S. 2a-7 government money market funds, reverse repurchase agreements collateralized by U.S. Treasury and agency securities and dollar denominated deposits.

Board and Treasury Department Announce Restructuring of Financial Support to AIG
AIG Loan Facility »

ML II LLC Annual Financial Statements, year ended December 31, 2008

Summary of Assets and Outstanding Principal Balance of Senior Loan and Fixed Deferred Purchase Price