American International Group says it plans to raise $12.5 billion to shore up a capital base rocked by the deterioration in the credit markets.
AIG shares tumbled $3.27, or 7.4 per cent, to $41.45 in after-hours trading last night after the company disclosed it needs fresh cash and reported a first-quarter loss of $7.81 billion.
The capital raising effort will be a two-step process, with the first portion estimated to raise $7.5 billion through an offering of common stock and equity units.
The equity units will consist of subordinated debt securities and contracts that require the holders to purchase AIG stock at a future date.
No pricing for the offerings, nor a final date for when the offering will be completed, was disclosed. Citigroup. and JPMorgan Chase & Co are managing the offerings.
Once the $7.5 billion offering is completed, AIG will raise an additional $5 billion through an offering of high equity fixed-income securities. AIG, the world's biggest insurer, has yet to disclose a timetable for when it will offer the securities.
All of the new capital is being raised in response to the hard hits AIG has taken from deterioration in the credit markets, which led the insurer to lose billions of dollars for the second straight quarter.
As defaults sharply increased on mortgages beginning in the middle of 2007, investors shied away from purchasing all but the safest debt. Because of the illiquidity in the credit markets the value of risky debt has plummeted, forcing companies like AIG to reduce the value of their investments in products such as credit default swaps and mortgage-backed securities.
Agencies