Fortress Inks Deal for AIG Unit

Fortress Investment Group became the latest private equity shop to buy a piece of AIG. Today, Fortress inked a deal to acquire 80% of American General Finance, with AIG keeping the remainder. 

Evansville, Ind.-based American General provides loans, like mortgages and personal lines of credit, to consumers in the U.S. and Britain. AGF has about $20 billion in assets, including $18 billion in liabilities (this itself includes $17 billion in debt).

AGF used to be a very profitable business, one banker said. The company provides subprime mortgages for people that walk into its branches. “Before subprime became a dirty word, AGF did a good job of underwriting,” the source says. “It wasn’t a broker-originated business which is what people got into trouble.”

Last week, AGF reported that second quarter operating losses narrowed to $11 million compared to $202 million operating losses in 2009. AIG valued its investment in American General at $2.4 billion. But it’s not clear what Fortress is paying for its 80% stake.

“If Fortress is paying a positive value [for AGF] then it definitely outperformed,” the source says.

News of the sale caused Fitch Ratings to place American General on “ratings watch negative.” Fitch believes that new ownership may seek to reorganize AGF’s business, which may include a restructuring of the firm’s capital structure. Fitch thinks AGF has “sufficient liquidity” to meet its needs over the next two years, according to a statement.

AIG, in 2008, received about $180 billion in a federal bailout. The insurer still owes about $130 billion to U.S. taxpayers, according to press reports.

Private equity has been an buyer of AIG units. Earlier this year, Pacific Century Group, the investment firm from Richard Li, closed its $277 million buy of the former AIG Investments (now called Pinebridge). In April, the Macquarie Group acquired a portfolio of 52 aircraft for about $2 billion from AIG’s International Lease Finance Corp.

Bank of America advised AIG in the sale of AGF. It was not clear who provided financial guidance to Fortress.