Moody's may downgrade AIG, rates convertibles Aa3

Moody's Investors Service said it placed American International Group, Inc.'s Aa2 long-term issuer and senior unsecured debt ratings on review for possible downgrade following the company's announcement of a $7.8 billion net loss for the first quarter.

To bolster its balance sheet, AIG plans to raise $12.5 billion of capital in the form of common stock, mandatory convertible securities and hybrid fixed income securities. Moody's has assigned an Aa3 rating to the convertibles. Proceeds will be used for general corporate purposes.

The agency said the review was prompted by persistent volatility in AIG's reported results, which has diminished the firm's financial flexibility to some extent, and by concerns over the capital and liquidity levels of subsidiaries that hold the mortgage related positions. The planned capital issuance will strengthen AIG's balance sheet and liquidity, but Moody's noted it will also increase the firm's fixed charge burden.

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