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 After Monday's new $30 billion round of government aid, insurer American International Group Inc. (NYSE:AIG) is already warning that a downgrade could leave it needing yet more capital as its assets sales creep along. In an SEC filing late Monday, the giant insurer said that a downgrade by the ratings agencies would result in AIG having to pay $8 billion in collateral and termination payments to counterparties, thereby rendering it insolvent without more cash from the government or other sources.
According to MarketWatch:
A one-notch downgrade to Baa1 by Moody's Investors Service and BBB+ by Standard & Poor's would allow AIG's trading partners in derivatives and other markets to demand the extra payments...A two-notch downgrade to Baa2 by Moody's and BBB by S&P would force AIG to come up with another $2 billion in collateral and termination payments, the company added.With a downgrade a very real possibility considering the company's condition, there's little chance that counterparties wouldn't take the additional collateral and be safe rather than sorry in spite of the federal government considering AIG too systemically important to be allowed to fail. - George White See MarketWatch story See Deal Pipeline story on future bailouts Categories Deal Video
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