http://www.boston.com/business/articles/2009/03/02/us_may_spend_another_30b_to_prop_up_aig/ The federal government agreed last night to loosen the terms of its huge loan to American International Group and provide another $30 billion as the insurer prepares to report a $62 billion loss today, the biggest quarterly loss in history, people involved in the discussions said last night. The intervention marks the fourth time the federal government has had to step in to help AIG avert bankruptcy. The government already owns nearly 80 percent of the insurer's holding company; earlier interventions included a $60 billion loan, a $40 billion purchase of preferred shares, and $50 billion to soak up the company's toxic assets. The government will commit another $30 billion in cash to AIG from the Troubled Assets Relief Fund, should the company need it, said people involved in the talks. AIG is not expected to draw down the money immediately. Federal officials, who worked feverishly over the weekend to complete the restructuring, felt they had no choice but to prop up AIG because its activities are so intricately woven through the world's banking system. But the deal presents more financial risks to taxpayers at a time when the public and Congress have been sharply questioning the wisdom of risking federal money to bail out private enterprises. AIG's businesses continue to hemorrhage and competitors have been poaching its executives and customers and submitting lowball bids for AIG's profitable operating units Credit-rating agencies had been preparing to sharply downgrade AIG because of the record quarterly loss. That would have forced AIG to default on its debt, threatening to set off shock waves throughout the financial system. In the banking sphere, AIG has used derivatives contracts to guarantee complex debt securities on the books of many other financial institutions. If AIG were downgraded, some of those financial institutions had the right to demand collateral from AIG. If AIG had failed to pay, those institutions would bear losses and their capital would be eroded. AIG reported in November that counterparties to some $48 billion of trades also had the option of terminating their contracts if it was downgraded. That raised the possibility of more large cash outflows - a possible run on the bank - but AIG said it was unable to project how large. Credit-rating agencies were briefed on the pending deal between AIG and the government, the people involved in the talks said, and they have committed not to downgrade the company's debt as a result. Another part of the deal would let AIG exchange some preferred nonvoting shares, which paid a 10 percent dividend, for new preferred shares that do not require a dividend, to save AIG $4 billion annually. To further ease AIG's debt burden, some of its other debt to the government would be converted into equity in two subsidiaries in Asia. Both units are performing well. This would give the government direct ownership in those subsidiaries and provide sellable assets to taxpayers, even if the AIG holding company were to default on loans. Also, the government would agree to lower the interest rate on all remaining AIG debt to match the London Interbank Offered Rate. That would replace the previous rate, which was 3 points higher than LIBOR. That move would save AIG another $1 billion in interest payments.