Credit Suisse downgraded American International Group Inc to underperform from neutral, saying near-term sale of businesses would leave little to no value for common equity holders.
Analyst Thomas Gallagher, who halved his price target on the stock to $15, said the insurer has ample liquidity, but near-term debt maturities may increase reliance on Federal government funds.
There is risk of further erosion of franchise value and the intention of the government to be a bridge rather than a permanent stakeholder suggests meaningful asset sales or initial pubic offers need to occur over the coming 12-18 months, analyst Gallagher wrote in a research note.
As a potential opportunity to delever, improve common equity capitalization, and provide a substantial boost to reported GAAP common shareholders equity, we wouldn't be surprised if AIG pursued a distressed tender offer for its $12 billion of junior sub debt and its $5.9 billion of mandatory converts, he said.
AIG's capital structure suggests that the most obvious course of action is a debt reduction program through asset sales, and even after repaying debt, AIG will likely need to replace all of the $40 billion of government equity with common equity, Gallagher said.
Shares of the company were trading down $1.65 at $38.40 in trading before the bell. The stock closed at $40.05 Friday on the New York Stock Exchange. (Reporting by Supantha Mukherjee in Bangalore; Editing by Himani Sarkar)