Fitch Expects to Rate AIG's Euro/Sterling Hybrids 'A+'; Outlook Negative
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CHICAGO--(BUSINESS WIRE)--
Fitch Ratings expects to assign an 'A+' rating to the following American International Group, Inc.'s (NYSE: AIG) junior subordinated debentures:
--Series A-7, Euro, junior subordinated debentures, due May 2068.
--Series A-8, Sterling, junior subordinated debentures, due May 2068.
The Rating Outlook is expected to be Negative.
The series A-7 debentures will pay a fixed-rate of interest until May 2018 and pay a floating-rate based on three-month EURIBOR with quarterly resets thereafter. The series A-8 debentures will also pay a fixed-rate of interest until May 2018 and pay a floating-rate based on three-month sterling LIBOR with quarterly resets thereafter. Final maturity for the series A-7 and A-8 debentures is May 2068. Scheduled maturity is May 2038, but only with replacement securities. The series A-7 and A-8 debentures may be redeemed by AIG in whole or in part at any time on or after May 2018 at par plus any accrued and unpaid interest or earlier at a make-whole redemption price, subject to issuing replacement securities.
AIG has the right to defer interest for up to 10 consecutive years without giving rise to an event of default. In the event of bankruptcy, the debenture holders will have a claim for deferred and unpaid interest only to the extent such interest relates to the first two years of the deferral period for which interest has not been paid. Since the series A-7 and A-8 debentures allow for 10-year deferral, claims may be extinguished in respect of interest accrued during as many as eight years. The series A-7 and A-8 debentures are pari passu with previously issued Series A-1 through A-6 junior subordinated debentures.
Based on Fitch's hybrid rating criteria, the series A-7 and A-8 debentures have a high equity component. Fitch has assigned a Class D designation to the series A-7 and A-8 debentures that will allocate 75% of the principal to adjusted equity and 25% to adjusted debt in evaluating the financial leverage of AIG. Key features supporting the equity credit class of the series A-7 and A-8 debentures include the junior subordinated ranking, 10-year deferral period, and a long maturity with no put provision. AIG's call option is balanced by a replacement capital covenant that requires series A-7 and A-8 debentures be replaced with the issuance of similar equity-like securities.
The proceeds of this issuance are expected to be used for general corporate purposes.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Source: Fitch Ratings
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