The U.S. Treasury has revised its loan agreement with U.S. insurance company AIG, adjusting the terms of the loan to function under the Troubled Asset Relief Program.

"These new measures establish a more durable capital structure, resolve liquidity issues, facilitate AIG's execution of its plan to sell certain of its businesses in an orderly manner, promote market stability, and protect the interests of the U.S. government and taxpayers," said a press release from the Fed.

According to the new terms, the Fed is loaning the firm $60 billion rather than the original $85 billion and the Treasury Department will purchase $40 billion in the firm's shares under the TARP program.

AIG came under pressure several months ago, causing government and the Fed to deploy multiple loans to the ailing firm, which was judged 'too big to fail'.

The Fed also set up two emergency loan facilities with AIG allowing the firm to borrow up to $22.5 billion against mortgage-backed securities and $30 billion backed by credit default swaps. Both facilities will charge an interest rate of 300 bps above the three-month libor rate rather than the 850 bps above-libor-rate previously.

The Treasury Department also enforced a rule against 'golden parachutes', limiting the bonus pool for the top 70 executives in the firm.

In the moments following the announcement, AIG reported a third quarter adjusted loss per share of $3.42 despite analysts' expectations of an $0.80 loss per share.

By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2008