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The U.S. Treasury Department announced Monday that it is purchasing $40 billion in American International Group, Inc. (AIG: News ) stock. The stock purchase is part of a new plan that scraps the previous AIG bailout and is far less costly than the original federal loan to the embattled insurer announced in mid-September.

"Together with steps taken by the Federal Reserve, this restructuring will improve the ability of the firm to execute its asset disposition plan in an orderly manner," the Treasury Department said in a statement. "AIG will use the equity to pay down $40 billion of the Federal Reserve's secured lending facility."

The new plan overhauls the original $85 billion bailout package provided to AIG by the federal government to prevent the company from collapsing. Under the revised bailout deal, the federal government will reduce the original loan provided to the company to $60 billion and will buy $40 billion of AIG's preferred shares in return for partial ownership.

Part of the restructured loan is a freeze on bonuses for the top 70 company executives, as well as limiting the "golden parachutes," or executive compensation packages.

The revised package is expected to give AIG's chief executive officer Edward Liddy additional time to salvage the company, which was rescued from bankruptcy by the U.S. government on September 15 after three quarterly losses that exceeded $18 billion. Efforts to repay the original $85 billion loan stalled as plunging financial markets forced potential buyers to shore up their own balance sheets.


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Source :
1. Fed, Treasury Announce Revamped AIG Bailout Package 11/10/2008 9:56 AM ET