AIG board nears approval of revised Fed plan

By Paritosh Bansal and Lilla Zuill

NEW YORK (Reuters) - The board of troubled insurer American International Group (AIG.N) was nearing approval late on Sunday of a revised U.S. bailout to replace a previous $85 billion (53.7 billion pound) rescue, a person familiar with the matter said.

Under the revised rescue plan, the U.S. government is expected to buy $40 billion of AIG preferred shares through Treasury's Troubled Asset Relief Program (TARP) and greatly ease lending terms, sources said.

The government is also expected to set up two separate vehicles that will buy securities worth billions of dollars underlying the insurer's credit default swaps and backstop a securities lending portfolio, the sources said.

AIG plans to announce the new plan early on Monday, when it reports third-quarter results, sources said.

"It's not done until it's done, but this is where this is headed," said one person familiar with the details under discussion.

The government gave AIG, once the world's largest insurer by market value, $85 billion in bailout financing in September after counterparties and rating downgrades forced it to post large amounts of collateral for credit derivatives positions.

It later offered additional financing to bring the support extended to AIG up to $123 billion.

The new package is designed to help staunch the cash drain on the insurer and give the company more breathing room for its planned sale of assets to repay the government.