Standard and Poor’s Ratings Services has downgraded its CreditWatch ratings on American International Group Inc. and its guaranteed subsidiaries to “negative” from “developing.”
Financial-strength ratings on most of AIG’s insurance operating subsidiaries are still on CreditWatch with developing implications, and changes on those ratings depend on whether the entities are sold and who buys them.
The downgrade reflects New York-based AIG’s announcement today that it had borrowed $61 billion to date from the $85 billion loan made to it by the Federal Reserve Bank of New York. The “A-/A-1” counterparty credit rating on AIG relies on that loan.
“The $61 billion draw to date on the facility is much larger than we had previously anticipated,” Rodney A. Clark, a credit analyst at New York-based S&P, said in a statement. “This has caused the scope of the planned business sales to exceed our expectations.”
The negative credit watch on AIG and its guaranteed subsidiaries indicates possible downward pressure on the companies stemming from the risks and execution of the planned sale of AIG’s businesses. It also reflects the large debt-service requirements from a smaller AIG that isn’t as diversified, according to a research note from S&P.
Disruptions in the credit markets could also make it harder for AIG to sell its subsidiaries at an attractive price.
Changes in mark-to-market accounting rules, the approval of the bailout bill and AIG's efforts to control its residential mortgage-based securities losses may mean that AIG won't have to use as much from the Fed's loan in the long term.
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