Greenberg urges AIG to restructure government loan to protect shareholders, jobs

By Lisa Kerner

Charlotte, N.C., Oct. 14 - Former American International Group, Inc. chief executive officer Maurice R. Greenberg said the loan to the company from the federal government "will result in the liquidation of AIG, the loss of thousands of jobs, and the irretrievable loss of billions of dollars in shareholder value."

It was previously reported that the Federal Reserve Bank of New York agreed to lend up to $85 billion to AIG. The loan runs for 24 months and is priced at Libor plus 850 basis points.

Greenberg, in an Oct. 13 letter to AIG chairman and CEO Edward Liddy, suggested that the loan be changed to non-voting preferred stock with an approximately 5% to 6% dividend and a 10-year right of redemption for AIG at a 10% premium. According to Greenberg, this would result in a win/win situation.

Currently, the government loan carries an interest rate of roughly 14%, including an 8.5% annual rate whether AIG takes down the loan or not, plus a 2% one-time commitment fee, said the letter, which was included in a schedule 13D filed with the Securities and Exchange Committee.

According to Greenberg, when AIG actually draws on the loan facility, it pays additional interest at the annual rate of Libor, for an actual interest rate in excess of 14%.

The government also receives 79.9% of the ownership of the New York financial and insurance services company, Greenberg added.

As a result, Greenberg said that AIG cannot pay off the loan using proceeds from asset sales and it cannot pay the annual interest rate from earnings.

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