AIG Near Deal On New Terms Of U.S. Bailout-Source

The new equity commitment would give AIG the ability to issue preferred stock to the government at a later date, the source said.

American International Group Inc is close to a deal with the U.S. government that would ease the terms of its bailout, provide a further equity commitment and help it pay down debt, a person familiar with the matter said on Saturday.

The board of the troubled insurer is due to meet on Sunday to vote on the deal, which could be announced when AIG reports its quarterly results on Monday, the source said.

The revised agreement is expected to include an additional $30 billion equity commitment from the government, more lenient terms on an existing preferred investment, and a lower interest rate on an existing $60 billion government credit line, the source said.

The new equity commitment would give AIG the ability to issue preferred stock to the government at a later date, the source said.

The London Interbank Offered Rate floor on the interest rate AIG pays on the government's credit line is expected to be removed under the new terms, which would save the insurer about $1 billion a year, the source said. The company currently pays 3 percentage points above Libor.

AIG will also give the Federal Reserve ownership interests in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co (AIA) in return for reducing its debt, the source said.

AIG may also securitize some U.S. life insurance policies and give them to the government to further reduce its debt, the source said.

The new deal would come as the insurer struggles to sell assets amid the financial crisis and prepares to post the largest quarterly loss in corporate history.

AIG, once the world's largest insurer, is expected to post a roughly $60 billion fourth-quarter loss on Monday, produced in large part by write-downs on certain tax assets and commercial mortgage backed securities, the source said.

The loss works out to about $460,000 per minute.

AIG declined to comment.