AIG bond prices may overstate risk: CreditSights

NEW YORK (Reuters) - The distressed level at which American International Group's (AIG.N) debt is trading may be reflecting too much risk as the company's planned asset sales should raise ample funds to protect bondholders, CreditSights said Friday.

Bonds trading between 50 and 60 cents on the dollar have a "significant amount of value given our projection of nearly 1.0 times asset coverage even in our most draconian scenario," analyst Rob Haines said in a note.

For example, AIG's 5.375 percent bond due 2011 traded at 59 cents on the dollar on Friday. It had traded at 95 cents in early September, according to MarketAxess.

CreditSights carried out a sum-of-the-parts valuation of AIG, based on market comparables and metrics from recent transactions. The valuation was done after AIG said it is planning to refocus on core property and casualty insurance and put all its other businesses up for sale.

AIG was bailed out by the government last month after a severe liquidity crisis. The company was given access to an $85 billion loan facility to enable it to meet short-term financing needs while it prepares asset sales.

Newly appointed Chief Executive Ed Liddy said the company is not in a fire sale position and will take the time needed to maximize value for its units. For more, see ID: nN03321593

CreditSights estimates that the company's general insurance business is worth $95.2 billion, its life insurance and retirement services business is worth $147.7 billion, its financial services business, including its aircraft leasing unit, is worth $9 billion and its asset management operations are worth $3.6 billion, said Haines.

That valuation, which assumes limited stress in the financing markets, comes to a total of $255.5 billion. The research firm also prepared a scenario that adjusts estimates to allow for current difficult market conditions.

Following the disclosure that AIG has drawn down $61 billion of its loan facility, CreditSights updated its estimate of the company's pro forma debt structure.