American International Group, Inc. (AIG) has announced the redemption of its entire outstanding balance of 7.7% Series A-5 junior subordinated debentures due 2047. The company has set Mar 18 as the redemption date, on which it will repay the principal amount along with any accrued and unpaid interest to debenture holders of record as of Mar 15.
AIG has outstanding 7.7% junior subordinated debentures worth $1.1 billion as of Mar 7, 2013. They are held in book-entry form through the Depositary Trust Corporation, which will redeem them according to its procedure. The debenture holders will receive the payment once the process is over and need not take any action to receive it as all the debentures are being redeemed.
The transaction is aimed at achieving AIG’s capital management targets. The redemption is expected to reduce the high-interest rate debt, thereby improving the interest coverage ratio. Reducing its interest expense by debt repayment is a priority for the company at present.
Thereafter, AIG might reinstate its dividend policy, which was suspended in 2008 due to the financial crisis faces by the company. However, the reinstatement depends on a Federal Review of its capital position. The company also intends to start repurchasing shares once its financial position becomes strong enough.
AIG is steadily trying to enhance its financial flexibility. Last month, the company announced its intention to repurchase bonds worth $1.25 billion from the open market, through a tender offer. AIG plans to redeem some of its junior subordinated debentures worth about $650 million and another set of bonds with principal amount totaling $275 million. One more set of sterling and Euros denominated debentures, valued at about $325 million, are also set for buyback.
AIG carries a Zacks Rank #3 (Hold). Other multi-line insurance companies worth considering are AEGON N.V. (AEG), Ageas SA/NV (AGESY) and CNO Financial Group Inc. (CNO). All these companies carry a Zacks Rank #1 (Strong Buy).
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