Moody’s credits AIG for restructuring efforts, but weak global economy posing challenge to asset values

Moody’s has seen good and bad omens as it monitors the restructuring and divestiture efforts of American International Group, Inc. (NYSE: AIG)
“AIG has made important strides in the restructuring plan announced on Nov. 10, 2008,” the ratings agency announced in a special commentary on AIG’s financial position since the U.S. Treasury and the Federal Reserve Bank of New York offered the company a US$150-billion bailout.
“AIG has revised its capital structure, terminated its U.S. securities lending program, and materially reduced its exposure to credit default swaps (CDS) written on multi-sector collateralized debt obligations (CDOs).
“These developments are positive in Moody’s view, helping to limit future strains on AIG’s liquidity and capital.”
Nevertheless, Moody’s notes, “the company faces significant challenges in its efforts to divest non-core operations, unwind the remainder of AIG Financial Products Corp. (AIGFP) and preserve the values of major operating units. These challenges are heightened by the weak global economy and distressed financial markets.”
In particular, Moody’s reports, the pricing and timing of planned asset dispositions have been hampered by the weak global economy and limited availability of financing alternatives for potential business buyers.
“During the past few months, AIG’s core and non-core insurance operations have seen deterioration with respect to sales and persistency of business,” Moody’s comments. “Moody’s expects that lower business volumes combined with the costs of retaining key employees will hurt profit margins. Material delays in the divestiture process could cause significant erosion of the values of operations to be sold as well as core operations to be retained.”