Preparations for what could be the biggest stock offering in U.S. history officially get under way Thursday, as AIG and government officials audition Wall Street banks for a lead role in what insiders are calling the "re-IPO" of AIG.
Top executives of multiple banks, including Bank of America Corp. chief Brian Moynihan, J.P. Morgan Chase & Co. vice chairman and deal maker James B. Lee Jr. and Morgan Stanley chief James Gorman are among those scheduled to attend a series of meetings in New York at the midtown law offices of Davis Polk & Wardwell LLP, according to people familiar with the matter.
AIG said Wednesday it plans to pay down and terminate a $21 billion credit facility from the Federal Reserve Bank of New York on Friday, issue warrants to private shareholders, and exchange the Treasury's preferred shares into common stock representing a 92.1% stake in the company. That majority stake has an implied value of over $75 billion. Treasury plans to carve it up into pieces that can be sold through several offerings.
Late Wednesday, Moody's Investors Service lowered its ratings on AIG and the company's two core insurance businesses by one notch to reflect the impending end of U.S aid. Moody's said that, while AIG's businesses have stabilized, "they have not yet improved sufficiently to justify their previous ratings in the absence of continued government support." AIG now has a Baa1 investment-grade rating, while its property and casualty insurance and
U.S. life insurance businesses are rated slightly higher.
The first share offering, which people familiar with the matter say could top the record $23.1 billion sale by General Motors Co. in November, will be a test of investors' appetite.
Currently planned for March or May after AIG reports quarterly earnings, bankers are calling the sale a "re-IPO," comparable with an initial public offering of stock, as it involves marketing a "new AIG" and its size will dwarf the roughly $8 billion in AIG common shares currently held by private shareholders.
In marketing the shares, AIG and its bankers will likely have to address concerns about the health of AIG Chief Executive Officer Robert Benmosche, who in October was diagnosed with cancer but hasn't disclosed what type.
AIG directors are considering disclosing more about the health of Mr. Benmosche, 66 years old, according to a person familiar with the matter. In early February, the directors intend to get an update from Mr. Benmosche and his doctors on his prognosis so that they can determine if the CEO should remain through the stock sale, people familiar with the matter say. Investor feedback over the next few weeks could also pressure AIG to name a new long-term chief executive ahead of the share sales, the people said.
If he stays in the job, more details about his condition may have to be disclosed in AIG's offering prospectus.
"We're now one step closer to completing a major restructuring transaction for AIG," Mr. Benmosche said in an interview Wednesday. "I am very proud to get to the major event this Friday, and I would love to stay 'til the next milestone and see the U.S. government sell its last share, but I think my importance is not as great in the future for AIG as it has been in the last 17 months."
Mr. Benmosche added he is "working toward getting clarity to the extent I can" from his doctors, and will let AIG's board decide how it wants to proceed. "It would be a mistake to think this company is dependent on any single person at this stage of the game," he said.
The Treasury's success to date with large sales of shares in GM and Citigroup Inc. has given officials hope that the momentum could help them pull off the AIG share sales. In October, a Hong Kong IPO of one of AIG's overseas units raised $20.5 billion, another encouraging sign of investor demand.
But AIG has long had a reputation for being a "black box"—a complex holding company of insurance and other operations that aren't as easy to understand as GM's business of making cars.
The company will have to overcome the doubts of investors, including large mutual funds and pension funds, who lost more than $50 billion in a matter of weeks when the company nearly collapsed in late 2008.
"There's a big trust issue with AIG," says William Schultz, chief investment officer of McQueen, Ball & Associates Inc. in Bethlehem, Pa. "The challenge will be to separate the new AIG from the old AIG, and change the perception of it in the minds of investors that may still have hard feelings."
Over the past week, bankers have been canvassing investors for feedback on what they want to know before they will consider buying AIG shares. Besides management succession, investors have flagged concerns such as the outlook for AIG's remaining businesses and their growth potential, now that some of its crown-jewel assets have been sold.
Following Thursday's meetings, Treasury and AIG intend to select one or more banks to lead the sale for a heavily discounted underwriting fee, which will be close to, or below, the 0.75-percentage-point fee banks earned for the common-stock portion of the GM sale, say people familiar with the matter. "We will rely on the banks with the best ideas," one of the people said.
Most investment banks will likely end up getting a piece of the AIG offering because the U.S. has so many shares to sell. One politically charged issue that could affect the choice of banks to lead the sale is the relationships that several large banks had with AIG during its 2008 bailout.
Goldman Sachs Group Inc., for example, was one of the largest recipients of cash from AIG, which used taxpayer money to cover obligations on bad mortgage bets the insurer made before the financial crisis. Goldman has worked with AIG on some asset sales, and was recently a lead underwriter of the IPO of its overseas unit.
Another question for AIG and Treasury officials will be whether they can choose Morgan Stanley, which led the GM sale with J.P. Morgan Chase and managed the Citigroup sale by itself, without raising objections from other banks. Morgan Stanley also advised the Federal Reserve Bank of New York throughout the AIG bailout.