Aug. 11 (Bloomberg) -- American General Finance Inc. bonds declined the most in almost two years on speculation that Fortress Investment Group LLC may try to restructure its debt.
American General’s $3 billion of 6.9 percent notes due in 2017 dropped 6.5 cents to 83.5 cents on the dollar as of 3:12 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the largest one-day decline since the bonds fell 10 cents on Oct. 17, 2008, Trace data show.
Fortress, the buyout and hedge-fund firm that said today it bought a majority stake in the consumer lender from American International Group Inc., may seek to reduce the company’s $17.3 billion debt burden through a bond swap, according to investors and analysts. American General has posted about $1.7 billion in operating losses since 2008.
“What you have is a balance sheet that is not capable of standing alone, and a new owner that may look to do something about that via an exchange,” said Joel Levington, managing director of corporate credit at New York-based Brookfield Investment Management Inc., with $24 billion in assets under management.
Fortress will take an 80 percent stake in American General with New York-based AIG retaining the rest, according to a statement today that didn’t disclose terms.
“New ownership may potentially seek to engage in some type of business reorganization, up to and including a restructuring of the firm’s capital structure,” Fitch Ratings analysts Mark Rouck and Julie Burke in Chicago said in a statement today.
The bond-ranking firm placed American General on rating watch negative. Fitch grades the company B-, six steps below investment quality, according to Bloomberg data.
Joe Norton, an AIG spokesman, declined to comment. Gordon Runte, a spokesman for New York-based Fortress, didn’t immediately return a call.
American General cut 1,400 jobs and closed 196 branch offices last year, the unit said in a March filing. The business posted operating losses of $723 million in 2008, $868 million in 2009 and $143 million in the first six months of 2010.
Investors may have been hoping AIG would sell the unit to a bank or insurance company that would guarantee or support American General’s debt, rather than a firm that may try to force bondholders to reduce the value of their investment, said Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, which has $61 billion in assets under management.
“You’d certainly rather have the franchise bought by a strategic buyer rather than a financial buyer,” Brady said in a telephone interview. “It’s just not an ideal scenario” for bondholders.
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