The Rescue of American International Group Module A: The Revolving Credit Facility

The Journal of Financial Crises: Vol. 3 : Iss. 1, 20-62.

44 Pages Posted: 13 Aug 2021

See all articles by Alec Buchholtz

Alec Buchholtz

Yale University - Yale Program on Financial Stability

Aidan Lawson

Yale University - Yale Program on Financial Stability

Date Written: April 15, 2021

Abstract

On September 15, 2008, the big three rating agencies downgraded AIG’s credit ratings multiple levels, exacerbating liquidity strains that the company was experiencing due to increasing cash demands by securities borrowers and collateral calls by credit default swap (CDS) customers. To prevent AIG from filing for bankruptcy, the Federal Reserve (the Fed) announced on the following day that, pursuant to its emergency powers, it would provide the company with an $85 billion Revolving Credit Facility (RCF). The RCF was secured by AIG assets and interests in its subsidiaries and required AIG to grant the US Department of the Treasury a 79.9% voting equity interest in the company. Although AIG leaned heavily upon the RCF, the credit line was insufficient to stabilize AIG. The government later provided additional assistance and eased the terms of the RCF. In January 2011, AIG paid the last of the amounts owed to the Federal Reserve Bank of New York (FRBNY) under the RCF, ending it. The FRBNY netted $6.4 billion in capitalized interest and fees from the program.

Keywords: credit facility, preferred shares, trust, liquidity

JEL Classification: G01,G28

Suggested Citation

Buchholtz, Alec and Lawson, Aidan, The Rescue of American International Group Module A: The Revolving Credit Facility (April 15, 2021). The Journal of Financial Crises: Vol. 3 : Iss. 1, 20-62., Available at SSRN: https://ssrn.com/abstract=3903413

Alec Buchholtz (Contact Author)

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Aidan Lawson

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
35
Abstract Views
120
PlumX Metrics