American International Group (AIG) has signed a definitive agreement with the Federal Reserve Bank of New York for the $85 billion loan that will keep the firm afloat.
Deemed ‘too big to fail’ by the US government, AIG was extended a loan by the central bank in return for 79.9 per cent of the company’s stock.
AIG said interest on the loan will accrue at 8.5 per cent above the three-month London inter-bank offered rate (Libor), the rate at which banks lend to each other.
The insurer is required to sell assets and use debt issuances to repay the loan.
AIG chairman and chief executive, Edward Liddy, said: “AIG made an exhaustive effort to address its liquidity needs through private sector financing, but was unable to do so in the current environment.
“This facility was the company’s best alternative.”
AIG said it has a plan to repay the loan and emerge as a smaller, more profitable company.
Earlier today, it emerged that AIG was among several finance giants under investigation from the FBI into possible fraud.
In the UK, AIG underwrites guarantees from John Lewis and several policies from high street retailers such as Boots.
Twitter: My Finances
Join the conversation at #news_myfinances