AIG RMBS LLC Facility: Terms and Conditions
Effective December 16, 2008
On November 10, the Federal Reserve Board and the U.S. Treasury announced the restructuring of the government’s financial support to the American International Group, Inc. (AIG) in order to facilitate its ability to complete its restructuring process successfully. 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 (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.
Terms of the Loan
The interest rate on the loan from the New York Fed is one-month LIBOR plus 100 basis points (currently, a rate of approximately 2.6 percent). 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, AIG’s domestic insurance company subsidiaries will be entitled to receive from the LLC additional deferred consideration in the amount of up to $1.0 billion, plus interest at a rate of one-month LIBOR plus 300 basis points (currently, a rate of approximately 4.6 percent).
Repayment of the loan will begin immediately upon the receipt of proceeds from the RMBS portfolio. Payments from the maturity or liquidation of the assets in the LLC 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):
After payment of all of the foregoing, 1/6th of any remaining cash flows from the RMBS assets will be paid as deferred consideration to participating domestic AIG insurance company subsidiaries, and 5/6th will be paid to the New York Fed as contingent interest on the senior loan.
Liquidation of Assets