Ailing AIG nears restructuring

Times Staff Writers

Struggling to raise billions of dollars, financial colossus American International Group Inc. on Sunday was working on a restructuring that could include the sale of Woodland Hills-based 21st Century Insurance Group, people close to the company said.

But AIG, a provider of insurance and other services, decided against selling another Southland company, aircraft leasing giant International Lease Finance Corp. of Century City, the sources said.

New York-based AIG, which has been hurt by its exposure to mortgage-related debt, reportedly rejected a private equity firm’s offer to invest $8 billion in the insurer and was seeking to borrow $40 billion from the Federal Reserve, the New York Times reported.

The company, whose stock price plunged 46% last week, is said to face possible credit downgrades that could force it to post more than $13 billion in collateral.

Its struggles approached a climax on the same day that Bank of America Corp. agreed to acquire Merrill Lynch & Co. for $44 billion in stock and efforts by Lehman Bros. Holdings Inc. to find a buyer collapsed.


Spokesmen for AIG declined to comment on the company’s plans.

But people close to the company’s leaders, who were not authorized to speak publicly, said the board of directors was meeting into the night in New York to determine the best way to raise money to meet AIG’s obligations.

One option was a sale of some of AIG’s far-flung and diverse assets.

The holdings said to be under consideration for a possible sale were a majority stake in reinsurer Transatlantic Holdings of New York, whose clients are other insurers, and an employee benefits arm as well as 21st Century.

Primarily an auto insurer that sells directly to consumers, 21st Century was started in 1958 as a one-man operation by Louis W. Foster. It also sells homeowners insurance.

In September 2007, AIG, which owned 62% of 21st Century, bought the remainder for $813 million, valuing all of 21st Century at more than $2 billion.

The combination of AIG Auto Insurance and 21st Century created a top 10 auto insurer with more than 3.5 million vehicles covered.

International Lease Finance owns more than 950 planes, which it leases to airlines. The fleet is valued at nearly $50 billion. The company is the biggest buyer of commercial passenger jets made by Boeing Co. and European Aeronautic Defence Defense & Space Co.'s Airbus.

AIG acquired the business in 1990 and let its co-founder, Steven Udvar-Hazy, help run the unit. Udvar-Hazy, who became a major shareholder of AIG as a result of the sale, helped form the company in 1973.

This year, with AIG’s credit woes hurting the leasing unit’s ability to get favorable financing terms, Udvar-Hazy raised the prospect of separating from AIG.

In late June, AIG’s new chief executive, Robert Willumstad, was quoted as saying the company had concluded that the unit was more valuable to shareholders if it was part of AIG than separate. He worked out an agreement with Udvar-Hazy that included more freedom for the unit and new employee compensation terms that were linked less tightly to AIG’s performance.