American International Group Inc. sold $2 billion of bonds in the insurer?s first offering since its government bailout two years ago.
AIG issued $500 million of 3.65 percent notes due January 2014 that yield 295 basis points more than similar-maturity Treasuries, and $1.5 billion of 6.4 percent debt due December 2020 at a spread of 362.5 basis points, according to data compiled by Bloomberg.
Orders for the bonds ?showed the pent-up demand for the AIG name,? said Anne Daley, managing director at Barclays Capital in New York, which helped underwrite the sale. ?We?re getting close to the end of the year, and we felt there was a compelling opportunity to get the size in and out of the market in one day, so we decided to move forward.?
Chief Executive Officer Robert Benmosche tapped the corporate bond market after announcing on Sept. 30 a plan to pay back taxpayers and regain the firm?s independence. AIG, based in New York, expects to repay a Federal Reserve credit line with proceeds from asset sales and convert the Treasury Department?s $49.1 billion stake into common stock by the end of March for sales on the open market.
?The markets have increased confidence in AIG?s ability to service debt on an ongoing basis, and, by extension, in its feasibility as a sustainable enterprise,? said Clark Troy, a senior analyst based in Chapel Hill, North Carolina, for Aite Group, a research firm.
?Lot of Angst?
While the cost to protect AIG bonds from default has declined this year, it?s risen this month. Corporate bond issuance has tumbled amid concern that Ireland?s debt woes will spread across Europe and slow the global economy.
?There?s a lot of angst right now in the marketplace, so I think anyone would?ve been better served to come a couple weeks ago,? said Lon Erickson, a money manager who helps oversee $9 billion of fixed-income assets for Thornburg Investment Management Inc. in Santa Fe, New Mexico.
The insurer, ranked A- by Standard & Poor?s, sold the debt at spreads wider than companies with similar credit ratings. Investors holding debt graded A demand an average spread of 120 basis points on notes due in one to three years and 174 basis points for bonds due in seven to 10 years, according to Bank of America Merrill Lynch index data.
Proceeds from AIG?s offering will be used for general corporate purposes, the company said today in a regulatory filing. The senior unsecured notes may be rated A3 by Moody?s Investors Service and A- by S&P, Bloomberg data show.
Market Reception
?We?re pleased with the market?s reception to our offering,? Mark Herr, a spokesman for AIG, said in an e-mailed statement.
The insurer must earn standalone investment-grade ratings to execute its repayment plan, which hinges on selling bonds and stock to private investors as the government withdraws support. AIG will get a $2 billion Treasury backstop for emergency funding until March 2012 or the insurer sells at least $2 billion in equity.
Five-year credit-default swaps tied to AIG climbed 13.8 basis points to 259 basis points today, the highest in nine weeks, according to data provider CMA. While the contracts, which typically fall as investor confidence improves, have declined from 581 on Dec. 31, they?ve risen from 211 at the end of last month, CMA data show.
AIG?s Focus
AIG will focus on global property-casualty coverage and U.S. life insurance after selling its two largest overseas life insurance divisions, AIA Group Ltd. and American Life Insurance Co. AIG divested in October a 67 percent stake in AIA for $20.5 billion in Hong Kong?s largest public offering. MetLife Inc. paid $16.2 billion for Alico on Nov. 1.
AIG?s third-quarter profit from continuing insurance operations climbed 6.4 percent to $2.05 billion. The company has made ?huge progress? in its restructuring and will emerge from government ownership ranked among the world?s largest insurers, Benmosche said Nov. 5. AIG?s stock surged 38 percent this year. The company?s shares fell 24 cents to $41.29 as of 4:15 p.m. in New York Stock Exchange composite trading.
The insurer, once the world?s largest, was rescued in September 2008 by the Fed. The firm?s lifeline includes a $60 billion Fed credit facility, a Treasury investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage-linked assets owned or backed by AIG.
In August 2008, AIG raised $3.25 billion in its previous sale of corporate bonds, according to data compiled by Bloomberg. The insurer sold 8.25 percent, 10-year senior unsecured notes in a private placement that priced at par to yield 432.8 basis points more than similar-maturity Treasuries, Bloomberg data show. A basis point is 0.01 percentage point.
Bank of America Merrill Lynch, Citigroup Inc. and Morgan Stanley also managed today?s offering for AIG, according to the prospectus.
?It?s a good thing to test the capital markets and see what kind of answer they get,? said Erickson. ?It?ll be a good clue to see if they?re ready to stand on their own.?
To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.
To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net
This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured article: Beyond Hiroshima - The Non-Reporting of Falluja's Cancer Catastrophe.
No comments:
Post a Comment