Downgrades Push AIG Closer to Brink

Another turn of the screw pushed American International Group closer to the brink as the three major credit rating agencies downgraded the troubled company. The moves are reportedly making it difficult for the company to raise additional capital. On Monday, New York Gov. David Patterson announced that the state would allow AIG to transfer some assets to provide about $20 billion in cash for short-term liquidity. Gov. Patterson has sent the state's insurance superintendent, Eric Dinallo, to work with the Federal Reserve on a plan to help AIG. However, reports indicate that no money is coming from the Fed. Fitch cut AIG's long-term issuer default rating from AA-minus to A. In its report, Fitch noted that as of July 31, AIG "estimated that it could be required to post $10.5 billion of additional collateral if the company's ratings are downgraded one notch from current levels by the other major rating agencies and $13.3 billion of collateral if downgraded by both of the other agencies." Standard & Poor's Ratings Services lowered its long-term counterparty rating on AIG from AA-minus to A-minus. S&P credit analyst Rodney A. Clark said mark-to-market losses from mortgage-related investments and swap exposures have pressured AIG's ability to access capital. Moody's Investors Service downgraded AIG's senior unsecured debt rating from Aa3 to A2, noting that the volatility in AIG's stock price and borrowing spreads "have made it more difficult to address the company's immediate liquidity and capital needs through traditional capital market issuance." A.M. Best downgraded AIG's financial strength from A-plus to A.