Friday, October 31, 2008

GENIUS!

AIG is taking advantage of the commercial paper program to borrow short term from the government at 1.74% to pay back the loan they are getting for LIBOR plus 8, about 11% right now. I wonder if they will somehow get burned by commercial paper some time down the road...

2 comments:

Yang said...

Link down right now.

Are they just floating the debt or something?

Chuck said...

Pretty much. They issue commercial paper at low rates that the US government buys, then pays back the high rate debt. Technically, it's considered "floating".

"The insurer got as much as $20.9 billion from the program, which swaps commercial paper for cash, AIG spokesman Nicholas Ashooh said yesterday in an interview. The terms of the commercial paper funding are better than the U.S. loan made last month to save New York-based AIG from collapse, he said.

``They're paying off a Fed loan with another kind of government subsidy -- it's like using one credit card to pay off another credit card,'' said Robert Haines, an analyst at CreditSights Inc. ``If they make progress paying off debts over time, I don't think it'll be viewed as necessarily a bad thing.'' "