US Government, AIG Reach Agreement on Exit - CNBC

Two years after it was bailed out American International Group and the government agreed in principle on a plan for the government to sell its stake in the insurer, AIG said on Thursday.

Under the plan, AIG expects to repay the entire amount and terminate the Federal Reserve Bank of New York (FRBNY) senior secured credit facility.

It also foresees an exit of the U.S. Government's interests in two special purpose vehicles.

Currently, the FRBNY holds preferred shares in the two vehicles, holding overseas life-insurance units AIA and ALICO, worth some $26 billion.

AIG plans to draw down up to $22 billion of undrawn funds available to the company under the Troubled Asset Relief Program (TARP) to purchase an equal amount of the FRBNY preferred stake in the vehicles.

AIG will then immediately transfer these preferred interests to the U.S. Treasury, the statement said.

The Treasury is expected to receive approximately 1.655 billion shares of AIG common stock in exchange for the $49.1 billion of TARP preferred shares, AIG said in a statement.

Ultimately, the Treasury Department will own 92.1 percent of AIG common stock, which it will then sell on the open market.

AIG [AIG 37.45 --- UNCH (0) ] finalized the terms of the exit deal early on Thursday. AIG was up 2.4 percent before hours.

"We are very pleased that this agreement vastly simplifies current government support of AIG, sets forth a clear path for AIG to repay the FRBNY in full, and sets in motion the steps for the U.S. Treasury to exit its ownership of AIG over time," AIG President and CEO Robert H. Benmosche said in the press release.

The plan is subject to approval from Treasury, the Federal Reserve, AIG's board and trustees that oversee the government's majority interest in AIG.

AIG expects to repay FRBNY credit facility and complete the issuance of common stock to the U.S. Treasury before the end of the first quarter of 2011.

AIG announced early on Thursday it will sell its two Japanese life insurance units to Prudential Financial for $4.8 billion, marking further progress in disentangling itself from the government.