A temporary sight of relief for the financial markets for now, at the very least, following US Government's decision to bailout AIG with up to USD85bilion two-year loan rescue package. The US government will get a 79.9% equity stake in the insurer in the form of warrants called equity participation notes. The two-year loan will carry an interest rate of Libor plus 8.5 percentage points.
The loan is secured by AIG's assets, including its profitable insurance businesses, giving the US Government some protection even if markets continue to sink. And if AIG rebounds, taxpayers could reap a big profit through the government's equity stake.
The decision marks a quick reversal from US Government's earlier stand on their refusal to bailout Lehman Brothers.
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