AIG Goes For Re-Broke, Offers To Repurchase Toxic Subprime Portfolio From Fed For $15.7 Billion

Tyler Durden's picture

When a bankrupt zombie company offers to purchase from the Fed the very instruments that put it in bankruptcy in the first place, and which the Fed was forced to put on US taxpayers in order to perpetuate the status quo farce, you know the words Banana republic don't even start to begin to express the describe the lunacy we live in.

From Reuters:

  • Submits offer to buy all of rmbs owned by Maiden lane II for $15.7 billion

  • If accepted, this offer will substantially reduce the amount of
    government assistance to AIG
  • If accepted, offer will guarantee frbny earns a profit on its interest in
    Maiden lane II
  • Says total outstanding assistance from U.S. government will be reduced by
    about $13 billion to total of about $26 billion
  • Says conditions that necessitated Maiden lane II have been resolved
  • Aig's outstanding assistance from the U.S. government totals approximately
    $39 billion
  • Says is offering to purchase all of the approximately 800 rmbs owned by
    Maiden lane II in a single transaction
  • Anticipates more than 98 percent of Maiden lane II securities will be
    classified as naic 1 securities by regulators
  • Says does not expect the transaction to have a material effect on its
  • Says set aside the cash necessary to pay the purchase price in full

Incidentally, $15.7 billion is below the value the Fed has Maiden Lane II marked at as of today, which is $15.9 billion. We are confident that this will not prevent the Fed from doing everything in its power to bend over to the nationalized insurer's demands.

And yes, Maiden Lane was created by the Fed to front the insolvent AIG cash back in 2008, and purchase AIG's own toxic paper. To wit:

Purpose: ML II LLC was created to alleviate capital
and liquidity pressures on American International Group Inc. (AIG)
stemming from its securities lending program by purchasing $20.5 billion
in residential mortgage-backed securities (RMBS) from several of AIG’s
U.S. insurance subsidiaries.

Terms: The New York Fed lent ML II LLC
approximately $19.5 billion. The loan has a 6-year term and accrues
interest at 1-month LIBOR plus 100 basis points. The AIG insurance
subsidiaries agreed to defer receipt of $1 billion of the purchase
price. The fixed deferred purchase price accrues at 1-month LIBOR plus
300 basis points.

Investment Objective: Maximize the long-term
cashflows of the portfolio to repay the New York Fed’s senior loan
(including principal, interest, and residual), while refraining from
disturbing general financial market conditions. Monthly loan repayment
commenced in January 2009.