Reuters reports that 5 year credit default swaps on American International Group, Inc. ("AIG") fell sharply from 49% up front to 19% up front plus $500,000 in annual premium. This represents the cost of insuring AIG's debt with credit default swaps. Such "breathing room" means that to protect $10 million of debt for 5 years it would now cost $1.9 million. plus $500,000 annually instead of $4,900,000 plus $500,000 annually.
It was increased upfront collateral required on the credit default swaps that was one of the key components that caused the big squeeze on AIG.
Reuters cites Scott MacDonald, head of research at Aladdin Capital in
Stamford, Connecticut who says "It sends a very strong signal to the markets and investors that this company (AIG) is
not going under. It should help their balance sheet and anybody that does
business with them."
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