Banking, finance, and taxes

AIG Borrows From Peter To Pay Paul In Debt-Arbitrage (AIG)

Aig_logo_2American International Group Inc. (NYSE: AIG) disclosed in a filing today that four affiliates applied for participation in the Federal Reserve Bank of New York’s Commercial Paper Funding Facility.  It is harder to tell which is more surprising: the billion of cumulative capital or the fact that this looks more like a financial shuffle.

The following company units may issue up to these amounts of commercial paper under the funding program:

  • AIG Funding Inc. $6.9 billion
  • International Lease Finance Corp. $5.7 billion
  • Curzon Funding LLC $7.2
  • Nightingale Finance LLC $1.1 billion

What is interesting is that it looks like funding general operations isnot the point.  The funds generated from the commercial paper issuancewill be used to refinance AIG’s outstanding commercial paper as itmatures, to meet other working capital needs, and to make voluntaryprepayments under AIG’s $85 billion credit facility with the FederalReserve Bank of New York.

Some might consider this borrowing from Peter to repay Paul.  But allin all, you might want to think of it more like internal debtarbitrage.  In older days this would be outright silly, but right now anything that lowers any cost of funds or puts off the maturity dates of short-term or long-term debt is what firms have to do.  The hope is that a normalization returns to the market.

Jon C. Ogg
October 30, 2008

It’s Your Money, Your Future—Own It (sponsor)

Retirement can be daunting, but it doesn’t need to be.

Imagine having an expert in your corner to help you with your financial goals. Someone to help you determine if you’re ahead, behind, or right on track. With SmartAsset, that’s not just a dream—it’s reality. This free tool connects you with pre-screened financial advisors who work in your best interests. It’s quick, it’s easy, so take the leap today and start planning smarter!

Don’t waste another minute; get started right here and help your retirement dreams become a retirement reality.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.

AI Portfolio

Discover Our Top AI Stocks

Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.

You can follow him investing $500,000 of his own money on our top AI stocks for free.