A.I.G. Borrows Another $20.9 Billion From the Fed

American International Group has found another place to borrow billions of dollars from the government: the Federal Reserve’s commercial paper program.

The distressed insurance company disclosed Thursday afternoon that it was borrowing up to $20.9 billion from the Fed’s program, under which the central bank is buying companies' short-term debt in an effort to unfreeze the market for commercial paper.

A.I.G. already has access to two government credit lines totaling $122.8 billion in order to avoid collapse, and the company's borrowing from the commercial paper program enabled it to reduce its debt under those lines.

In a filing with the Securities and Exchange Commission, A.I.G. said four of its affiliates had exchanged commercial paper for cash from the Federal Reserve Bank of New York. It said in the filing that it would use the proceeds to refinance its outstanding commercial paper, as well as pay down its initial credit line of $85 billion.

The Fed said A.I.G. reduced its debt under the two existing credit lines to $83.5 billion, from $90.3 billion a week ago, by using cash from the commercial paper program, Bloomberg News reports. With the latest loans of up to $20.9 billion from the Fed, the insurer's borrowing now totals as much as $104.4 billion.

A.I.G. spokesman, Nicholas Ashooh said that the terms of the commercial paper program were better than those for the original $85 billion credit line, which has a higher interest rate.

"They're paying off a Fed loan with another kind of government subsidy -- it's like using one credit card to pay off another credit card," Robert Haines, an analyst at the research firm CreditSights, told Bloomberg. "If they make progress paying off debts over time, I don't think it'll be viewed as necessarily a bad thing."

A.I.G. is rapidly running through the $122.8 billion made available by the Fed. Last week, A.I.G.’s chief executive, Edward M. Liddy, said the company might need to borrow even more money.

Walter