In a two-part sale, AIG issued three-year notes worth $500 million and 10-year bonds worth $1.5 billion. The yields on the bonds were much higher than comparable Treasurys. The 3.65% notes due January 2014 yield 295 basis points more than similar-maturity Treasurys, and the 6.4% debt due December 2020 was issued at a spread of 362.5 basis points. The spreads were also wider than companies with similar credit ratings, at 120 and 174 basis points, respectively.
The offering was an important test of whether investors think the insurer can stand on its own. Indeed, orders for the bonds "showed the pent-up demand for the AIG name," said Anne Daley to Bloomberg. Daley is managing director at Barclays Capital in New York, which helped underwrite the sale.
Beefing Up Repayment Plans
Proceeds from the offering will be used for general corporate purposes, AIG said in a regulatory filing. The senior unsecured notes were rated A3 by Moody's Investors Service.
With proceeds of asset sales, it plans to repay the New York Federal Reserve in full and convert the Treasury Department's $49.1 billion stake into common stock by the end of March for sales on the open market. CEO Robert Benmosche said then that "AIG will restructure itself around its core property casualty and life and retirement services businesses." In the third-quarter, profit from continuing insurance operations climbed 6.4% to $2.05 billion, which Benmosche called "solid."
AIG shares climbed 1.2% in premarket trading. While the stock has fallen 1.7% over the past month, it has climbed 37% year-to-date.