by Ed Zwirn
Originally published on the NY Post – March 7, 2015. Read the original article here…
AIG’s early repayment of its debt to the government this week may come as good news for taxpayers, but the outlook for investors is uncertain.
With the company’s exit of the risky CDS (collateralized debt securities) market that got it into trouble in the first place well under way, analysts agree that AIG is poised to prosper.
But Andrew Kligerman of UBS Securities said he’s not changing his neutral rating on AIG, currently trading at around $54, anytime soon. That’s in part because the company’s largest shareholder, the government, which now owns around 92%, is committed to selling its stake.
“It’s certainly a potential pressure point,” said Kligerman of the impending share selloff. The market values AIG at around $80 billion, and the government is planning to dump its entire holding within the next two years, some $15 billion to $20 billion of that between March and May, he said.
Even though Uncle Sam’s $29-per-share break-even point on the $182 billion bailout would seem to argue for a much lower AIG price, Kligerman believes that “the government would like to get out sooner or later, but in a very manageable manner,” being careful to avoid the accusation of selling off too cheaply, particularly during down markets.
In the meantime, ratings agencies are split on AIG’s creditworthiness.
Moody’s followed last week’s announcement of the accelerated repayment by downgrading the company one notch, arguing that AIG should be evaluated as a stand-alone.
Standard & Poor’s took the opposite tack, sticking to its A- rating, arguing AIG deserves “one notch of uplift from the stand-alone credit profile because of the continued implied support from the US government.”