AIG - Rating Agencies - Downgrades - Triggers

  • 2008 0915 - WSJ - S&P Downgrades AIG, Citing ‘Reduced Flexibility’- [link]
    • All of these ratings remain on CreditWatch with negative implications, where they were placed on Sept. 12, 2008.
    • "The main reason for the rating actions is the combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses," explained Standard & Poor's credit analyst Rodney A. Clark.
      • Mark-to-market losses from mortgage-related investments and swap exposures have placed significant pressure on AIG's ability to access capital and liquidity.
  • 2008 0912 - FRB - Federal Reserve Bank of New York Meeting with AIG Notes - Mosser - FCIC-AIG0021217 - 2p
    • Rating triggers:
      • GICs are issued out of AIG-Financial Products (AIG-FP), insured by the holding company.
        • downgrade by 1 rating agency leads to $10B in collateral calls, plus an additional $4B-$5B in portfolio obligations that are puttable if downgraded (total of $15B in liquidity needs)
        • downgrade by 2 rating agencies — additional $3B in liquidity needs
        • If downgraded, they must post half of the additional collateral within 2 days, and the other half in 10 days.
  • 2008 0914 - FRB - email - Adam B. Ashcraft, Financial Intermediation Function, Federal Reserve Bank of New York, FCIC-AIG0021566 - 2p
    • Short comment on the AIG situation, with references attached. One if the Merril note Warren circulated yesterday.
    • ⇒  The bottom line is that this downgrade action is about risk management and not capital, and reflects the unwillingness of AIG to sell or hedge some of its ABS CDO risk, preferring to keep the upside of these exposures to to itself, and thus leave the bondholders vulnerable to a further deterioration in the housing market.
    • The threat to sell assets is a clear attempt to scare policymarkers into giving the access to the discount window, and avoid making otherwise hard but viable options: sell or hedge the COO risk (little to no impact on capital), sell subsidiaries, or raise capital.
  • (p219) - Damon SILVERS. What you’ve said is, is that—you said that all kinds of terrible things would have happened had they defaulted on the collateral posting obligations.
    • But it was, but it’s the collateral posting obligations that were the triggering issue, right?
  • Jim MILLSTEIN. (Chief Restructuring Officer U.S. Department of the Treasury): The collateral posting obligations were actually triggered by the downgrade. The downgrade——
  • Mr. SILVERS. Yes, I know that. But that’s where the cash need was that week.
  • Jim MILLSTEIN. I’m sorry.
  • Mr. SILVERS. All the witnesses, all day long have said this.
  • Jim MILLSTEIN. And the——
  • Mr. SILVERS. You’re not disputing that.
  • Jim MILLSTEIN. And the securities lending part——
  • Mr. SILVERS. Right, exactly.
  • Jim MILLSTEIN. They refused to roll over——
  • Mr. SILVERS.  Okay, so we all agree.
  • Jim MILLSTEIN.  Okay. 

2010 0526 - COP - Hearing - TARP and Other Government Assistance for AIG, Congressional Oversight Panel, Elizabeth Warren  ---  [BonkNote]

  • (p2) - Dixie asked what would have immediately precipitated a ratings downgrade, and Mr. Mahoney said that in the second quarter of 2008, the company “had extraordinary losses in the order of $20 billion, which were announced I think August 6 and then in the subsequent days, each of the sell side analysts, from Merrill and Goldman to the banks and sell-side firms, issued reports to examine the losses - where they came from, was it a one-time event – and subsequently, the rating agencies put them on a watch for a downgrade.
    • Because there were lots of rating agency triggers in the CDS contracts where counterparties could demand more collateral in the event of a downgrade,” AIG felt a need to explain its situation to the NY Fed, he said.
      • He said that the securities lending program, which was already experiencing problems because counterparties were terminating trades, would have suffered greatly in the event of a downgrade because counterparties would terminate their trades in huge numbers.
      • He also said that a downgrade would have triggered automatic cash demands, and would make it much harder for the company to roll commercial paper – “we heard this parade of horrible events,” he said, noting that “lots of the things they discussed did end up happening.”

2010 0430 - FCIC - Interview - James M. Mahoney, FRB-NY - Team Leader: Dixie Noonan  ---  [BonkNote]  ---  6p

  • (p2) - On September 15, 2008, the three major credit ratings agencies downgraded AIG’s credit rating due to rising calls for AIG to post billions of dollars in cash collateral.3
    • 32009 1117 - SIGTARP - Factors Affecting Efforts To Limit Payments To AIG Counterparties - [PDF-47p]
      • [Bonk: Where does it say / imply that the downgrades were "due to rising call for AIG to post billions of dollars in cash collateral.3?"]

2010 0125 - GOV (House - Report) - Public Disclosure As A Last Resort: How the Federal Reserve Fought to Cover Up the Details of the AIG Counterparties Bailout From the American People: Special Report, Darrell Issa (CA-R) - [PDF-22p]