AIG Cut to Negative by S&P on Plan for Stake Sale, Payout

  • Mortgage guaranty unit also placed on CreditWatch Negative
  • `Revised outlook reflects the potential for weaker earnings'

American International Group Inc., the insurer being pressured by activist investor Carl Icahn to divest assets, had the outlook on its credit rating changed to negative from stable by Standard & Poor’s after announcing plans to sell a stake in mortgage insurer United Guaranty Corp.

S&P put the holding company’s A- counterparty credit rating on outlook negative, while also placing UGC’s ratings on CreditWatch Negative. AIG had said Tuesday it will have an initial public offering for 19.9 percent of the operation, and ultimately will exit the venture, under a plan to return $25 billion to shareholders over the next two years.

“The revised outlook reflects the potential for weaker earnings due to the divestiture of UGC, reduced investment income as capital is returned to shareholders, and the lack of improvement in projected interest expense in 2016 and 2017,” S&P said of the holding company in a statement Wednesday. Of UGC, the ratings firm added: “It is not yet clear to what extent the existing explicit support provided by AIG will be modified or withdrawn, or whether the stand-alone credit characteristics, including capitalization, may change.”

Chief Executive Officer Peter Hancock is selling assets and looking to boost returns to protect his job amid criticism from Icahn. The CEO also announced the creation of a “legacy” portfolio of assets, encompassing about $22 billion of adjusted equity, that he will sell or wind down.

A spokesman for AIG declined to comment on S&P’s decision.

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