Moody's rates AIG notes Baa1

Moody's Investors Service said it assigned a Baa1 rating to three tranches of senior notes issued by American International Group, Inc. (senior unsecured debt Baa1).

The tranches include about €421 million due in 2017, £662 million due in 2017 and $256 million due in 2037. The senior notes are being issued in exchange for junior subordinated debentures with a total principal amount of $2.5 billion under an offer announced on Oct. 24.

The rating outlook is stable.

The debt exchange is credit positive, according to Moody's, slightly improving AIG's financial leverage and interest coverage metrics. The transaction reduces AIG's total outstanding debt by nearly $550 million and reduces its yearly interest expense by more than $20 million.

These benefits are somewhat offset by the fact that the new senior notes lack certain equity-like features (such as optional coupon deferral and alternative coupon settlement mechanism) of the junior subordinated debentures, the agency noted.

AIG's ratings reflect the leading market positions of its core insurance operations, its broad diversification across products and geographic areas, its divestment/unwinding of noncore businesses over the past few years and the strong liquidity of the parent company, the agency said.

The company's credit profile is constrained by the weak profitability of the core operations, the continuing exposure to noncore activities with weaker credit profiles and the complexity of risk management across numerous business lines and regions, Moody's said.

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