American International Group, Inc. (AIG) declared the redemption of its outstanding notes with coupon rate of 3% that are due in 2015. AIG will redeem the notes on May 5, 2014.
On the date of redemption, the registered holders of the Notes will be paid a redemption price per $1,000 principal amount of Notes by AIG. Additionally, the company will also pay the unpaid and accrued interest to the holders.
These notes are a part of Direct Investment Book (DIB.V) and will be repaid through the cash allocated with the DIB. Consistent with its trend, the repayment of debt will further improve debt-to-capital ratio at AIG.
AIG has ample amount of cash balance which supports the prepayments of the notes. Cash distributions to AIG from its subsidiaries increased significantly during 2013. Total cash distributions from subsidiaries during 2013 were $8.7 billion comparing favorably with $5.2 billion distributed in 2012. This strengthens liquidity and cash position of the company.
Adding to the company’s capital flexibility, the long-pending divestment of ILFC to AerCap Holdings appears to be an attractive deal. Upon culmination, the transaction is projected to have a positive impact on AIG’s liquidity and credit profile.
AIG has a healthy and consistent track record of repaying its debt. Long-term debt declined to $41.7 billion at the end of 2013 from $48.5 billion at 2012-end owing to effective liability management.
During the fourth quarter of 2013, AIG issued $1.0 billion of 4.125% senior notes due 2024 and bought back debt worth $1.1 billion that bore an average coupon rate of over 7.5%. This also improved the total debt-to-capital ratio to 17.3% from 20.5% at 2012-end.
Additionally, in Jan 2014, the company reduced DIB debt by $2.2 billion using cash and short term investments allocated to it. This included redemption of $1.2 billion of 4.25% notes that were due 2014 and a repurchase of $1.0 billion of 8.25% notes due 2018.
AIG presently carries a Zacks Rank #3 (Hold). Some top-ranked stocks worth mentioning in the multi line insurance industry are AXA Group (AXAHY), FBL Financial Group Inc. (FFG) and ING U.S. Inc. (VOYA). All these stocks carry a Zacks Rank #2 (Buy).