AIG faces disaster as ratings are lowered

16 September 2008

Insurer AIG's battle for survival has received a setback, with agencies Standard & Poor's, Fitch and Moody's downgrading its credit rating.

The move will make it harder for the firm to borrow funds, at a time in which it is under severe financial pressure.

AIG asked the government for a $40 billion bridging loan last week due to its difficulties, insiders have claimed.

Two sources who spoke to news agency Bloomberg also say that AIG is currently looking for $70-75 billion in loans arranged through other banks in order to tide itself over.

Meanwhile, Lehman Brother's bankruptcy and Merrill Lynch's merger with Bank of America has led to further pressure being heaped on the insurer's stock.

Announcing its decision to cut AIG's long-term counterparty rating to A-, S&P said that the firm was suffering from "reduced flexibility" in its attempts to meet its "collateral needs…over increasing residential mortgage-related losses".

Meanwhile, Moody's reduced the firm's senior unsecured debt to A2, while Fitch cut its AIG rating from A to AA-.

AIG's stock fell 61 per cent in New York yesterday, bolstering fears that the firm is sliding towards bankruptcy.

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