AIG and Fed's unveil trust model for sale of company units.

In yet another major news announcement from AIG, today it was reported in the Wall Street Journal that an innovative trustee arrangement will be put in place by the Federal government to oversee the sale and management of the AIG assets necessary to repay the government loan provided three weeks ago to bail out the company.

Under this format the Federal Reserve would appoint three trustee's to handle the over sight and day to day process of managing the sale of assets, relieving the Federal Reserve bank and Treasury from the burden of management, all while insuring oversight and review of the decisions in process.

The Federal Reserve and Treasury are working to provide the capital and oversight necessary to provide for the orderly sale and liquidation of AIG units to repay the federal loan and the 80% stake the tax payers now have in the company as part of the bail out. The idea is to remove the pressure to sell quickly in a bad market and allow the trustees and the company to use the full two year period if necessary to pay back the loan.

It's obvious these are not currently ideal market conditions to sell insurance assets, so this structure buys time so that the maximum price can be obtained vs. a fire sale just to raise cash. That said, it was noted in the story that AIG has already used over $70 billion of the credit line and loans and now faces over $1 billion per month in interest payments to the Fed so the pressure is intense to get these sales done.

It's very good reading for anyone involved with the AIG situation so be sure to check it out.

Posted on October 13, 2008 and filed under Political issues.