AIG shares up, Moody's sees government repayment

Shares of American International Group Inc. climbed Tuesday after Moody's Investor Service analysts said they believe the company will have the resources to fully repay the federal government.

As of Sept. 30, AIG owed the government $122.31 billion, which includes loans, interest and money the government spent buying investments from AIG.

The insurer has been working for the past year to sell assets and streamline operations in an effort to repay the government debt. Last week it reported that it was profitable for the second straight quarter.

The Moody's analysts said AIG continues to stabilize its core insurance operations and has made progress on its restructuring plan.

They said they believe AIG "can generate sufficient value to fully repay the government's senior secured loan and to repay much or all of its preferred equity stake, giving the government incentive to continue supporting AIG and its various creditors."

A material decline in the value of AIG assets, however, could reduce the government's incentive to support other creditors, the analysts said.

Moody's maintained the current ratings on AIG, a long-term issuer rating of A3, an investment grade rating and a short-term issuer rating of Prime-1, the highest level. The outlook remains "negative."

AIG's shares were up $1.58, or 4.4 percent, to $37.76 in afternoon trading.

The government bailed out AIG in September 2008 as the financial crisis spiraled out of control. The insurer has received aid packages with a total value of more than $182 billion. In return for that financial support, the government received an 80 percent stake in AIG.

The company's financial stability was undermined by its underwriting of risky credit derivatives contracts. A collapse in the value of those contracts was the primary driver of AIG's near-collapse.

Recovering financial markets and changes in accounting rules have helped AIG write up the value of its remaining risky assets.

Those assets could again lose value or AIG could be forced to take losses as it sells them off. AIG had $1.1 trillion in derivative contracts sitting on its books as of Sept. 30, many of which are tied to risky mortgage debt.