American International Group's life insurance companies have followed through with a Federal Reserve Bank of New York (FRBNY)-assisted plan to sell their interests in a $39 billion pool of residential MBS to a newly-formed limited liability company in a move that AIG said will address liquidity issues associated with its U.S. securities lending program.
The FRBNY is the sole member in the LLC, Maiden Lane II. The RMBS had been held by AIG's agent, AIG Securities Lending Corp., in connection with AIG's U.S. securities lending program. In addition to addressing liquidity issues, AIG said the creation and launch of the financing entity will "facilitate" its efforts to repay its federal loan facility.
FRBNY extended a senior loan to the LLC to enable the purchase of the RMBS at an initial purchase price of $19.8 billion that could increase under certain conditions. The loan currently has a six-year term (subject to extension by FRBNY), is secured by the $39.3 billion face amount of RMBS, and bears interest at the one-month London interbank offered rate plus 1.0%.