AIG weighs altering terms

American International Group Inc., the insurer bailed out by the U.S. government, may restructure its rescue package for the second time in four months as the recession forces down the value of the firm’s assets.

AIG may announce that it is converting the government’s preferred shares into common stock to relieve pressure on the New York firm’s liquidity, a person familiar with the situation said. AIG pays a 10% dividend on preferred stock but none on common shares.

“Paying a huge dividend on the preferred only makes you bleed slowly over time, so this would help,” said Robert Haines, an analyst at CreditSights Inc. AIG is facing a “huge potential loss on their investment portfolio,” which also could lead to credit-rating downgrades, he said.

AIG, once the largest insurer by assets, is expected by analysts to report a fifth-straight quarterly loss, which may cast doubt on whether it can repay the government. The company’s loss could be as much as $60 billion, CNBC said Monday, citing a source it didn’t identify.

Details of a new rescue package may be announced when AIG posts fourth-quarter results, said one person who asked not to be identified because talks with the government are private.

“We continue to work with the Federal Reserve Bank of New York to evaluate potential new alternatives for addressing AIG’s financial challenges,” said Christina Pretto, an AIG spokeswoman, who declined to comment further.

AIG is selling most of its businesses to repay a $60-billion credit line included in its $150-billion bailout.

North American insurers have posted more than $140 billion in losses since early 2007.