Business Context and Reporting Period
This Form 8-K, filed on March 1, 2011, by American International Group, Inc. (AIG), reports the entry into a Material Definitive Agreement. On March 1, 2011, AIG, ALICO Holdings LLC (ALICO SPV), and MetLife, Inc. entered into a Coordination Agreement to facilitate the early sale of MetLife securities previously received by AIG in the sale of American Life Insurance Company (ALICO) to MetLife in March 2010.
Key Financial Metrics and Transaction Details
The filing details a series of integrated transactions (the "Disposition") scheduled to close on March 8, 2011, subject to conditions. The transaction involves the sale of MetLife securities and the repurchase of preferred stock, generating significant proceeds for ALICO SPV.
- Common Stock Sale: Sale of 78,239,712 shares of MetLife Common Stock for approximately $3.367 billion (before expenses).
- Equity Units Sale: Sale of 40,000,000 MetLife Common Equity Units for approximately $3.299 billion (before expenses).
- Preferred Stock Repurchase: MetLife agreed to repurchase all Interim Preferred Stock held by ALICO SPV for approximately $2.950 billion (before expenses).
- Total Aggregate Proceeds: Approximately $9.616 billion (before expenses).
- Escrow Allocation: $3.0 billion of the proceeds will be placed in escrow as substitute collateral for indemnity obligations.
- Net Cash Release: Approximately $299 million from the Equity Units sale will be released to ALICO SPV after escrow placement.
Material Changes and Use of Proceeds
The transaction represents a material change from the original terms of the ALICO Sale, which prohibited the sale of MetLife securities for 270 days and limited proceeds to $4 billion per offering. The Coordination Agreement waives these restrictions to allow the immediate disposition.
Use of Proceeds: Net proceeds in excess of the $3.0 billion escrow requirement will be utilized to:
- Repay the remaining liquidation preference of the U.S. Department of the Treasury's preferred interests in ALICO SPV.
- Partially repay the liquidation preference of the Treasury's preferred interests in AIA Aurora LLC (AIA SPV).
Guidance, Risks, and Contingencies
Conditions to Closing: The transaction is contingent upon the satisfaction or waiver of all closing conditions, including the closing of a concurrent primary offering of Common Stock by MetLife. The Coordination Agreement will terminate on or after March 18, 2011, if the transactions have not closed.
Regulatory Consent: AIG and ALICO SPV obtained consent from the U.S. Department of the Treasury for the Disposition, as the Treasury holds preferred interests in the relevant special purpose vehicles.
Collateral Arrangements: The Equity Units, previously held in escrow as collateral, will be sold. Cash proceeds equal to their stated value ($3.0 billion) will replace them as collateral. Any indemnity payments due will be made first from the cash escrow and second from any remaining Equity Units (though none will remain if the transaction closes as described).
Investor Verification Checklist
- Verify the closing date of March 8, 2011, and confirm all conditions precedent have been satisfied.
- Confirm the final net proceeds after transaction expenses, as figures provided are "before expenses."
- Monitor the specific allocation of net proceeds to ensure repayment of Treasury preferred interests in ALICO SPV and AIA SPV occurs as planned.
- Review the Amended and Restated Indemnification Collateral Account Security and Control Agreement to understand the terms of the new $3.0 billion cash escrow.
- Check for any subsequent filings regarding the termination of the Coordination Agreement if the March 18, 2011 deadline is approached without closing.