A Bloomberg article entitled, "AIG Told U.S. Failure May Cripple Banks, Money Funds" refers to a confidential report that allegedly points to risks to money market funds based on exposure to AIG. Money market participants, however, appear baffled as to what exactly the referenced report is referring to, as most believe any direct threat from AIG is long past. Sources tell us that AIG was referring to "stable value funds" not "money market funds."
The Bloomberg piece says, "The $38 billion in support provided by the firm to money-market funds would be in jeopardy, AIG said, possibly forcing some to 'break the buck.' The term refers to a money fund that suffers losses so large that it must pay investors less than the traditional $1-a-share value that gives the short-term funds their reputation for safety."
We originally thought the company must be referring to European funds or stable value funds, since there are no "money fund insurance" programs of that magnitude (other than of course the U.S. Treasury's Money Fund Guarantee Program). AIG has never been a large direct issuer in the money markets, though there were several advisor support events last October involving AIG-affiliated asset-backed commercial paper conduits. We then thought perhaps some liquidity support in the muni market was the issue. But it appears that the information is incorrect or at the very least dated, or that the company invoked money market funds in order to attract attention or support."
S&P's Peter Rizzo says, "I believe that article was referring to paper issued by two of AIGs subsidiaries: American General Finance Corp.and AIG Financial Products Corp. We did see plenty of this paper in our rated funds as it was eligible investment because the paper issued had a short term rating of A-1 or better based on a put provided by these entities and ultimately AIG. Specifically, AIG Financial Products was a big participant in structured securities market as it provided liquidity to numerous vehicles under the following names: Curzon Funding Ltd issued European notes (European CP, European CLNs, and European MTNs), Curzon Funding LLC (an SPE incorporated in Delaware) issued U.S. notes (U.S. CP, secured liquidity notes, callable notes, U.S. credit-linked notes, and U.S. MTNs), and Nightingale Finance Ltd/Nightingale Finance LLC issued structured investment vehicles (SIVs)."
The majority of these issues, however, are long gone from money fund portfolios, which have been avoiding anything even remotely AIG-related for many months now. So it appears that today's mention is a false alarm.
