AIG signs terms for $85bn package

The $85bn loan from the US Fed saved the firm

Insurance giant AIG has signed the terms of its $85bn (£48bn) deal with the Federal Reserve Bank of New York, which is helping the firm stay afloat.

The Federal Reserve announced the lifeline on 16 September when it emerged AIG was in danger of collapse.

Under the "definitive" two-year agreement, the central bank will have a 79.9% stake in the insurer.

The interest on the loan is steep but AIG said the facility was the firm's "best alternative".

Under the terms of the deal, interest will accrue at 8.5% above the rate of the three-month London Interbank Offered Rate, or Libor, which is the rate at which banks lend to each other.

The firm will have to repay the loan by, among other things, the sale of certain assets as well as issuances of debt.

Borrowings under the facility are conditional on the Federal Reserve Bank of New York being "reasonably satisfied" with AIG's corporate governance, among other requirements.

AIG's chief executive, Edward Liddy, said the company was "already developing plans to sell assets, repay the facility and emerge as a smaller but profitable company".

A day earlier, news reports said the FBI was separately launching a probe into four key finance firms, including AIG, for potential fraud.

Other firms named were Fannie Mae and Freddie Mac and failed bank Lehman Brothers.