AIG agrees to repay Federal Reserve credit line

American International Group Inc. has struck a deal to repay a Federal Reserve credit line as the insurer seeks independence from the government.

AIG will use proceeds from the sales of two non-U.S. life insurance units to repay the line, on which it owed about $21 billion as of last week, the New York-based company said Wednesday in a filing. The deal was struck with entities including the Treasury Department, which holds a $49-billion preferred stake in the company.

The Treasury Department plans to convert its investment into about 1.66 billion shares of common stock, or about 92% of the total, by March 15. The stake will then be sold to private investors.

AIG, which is seeking to replace government funds with private capital, may raise as much as $7 billion in share sales through Aug. 15 under the deal. The insurer last month sold $2 billion of bonds in its first offering since the bailout.

Shares of the insurer slid $1.73, or 3.9%, to $42.22 until trading was halted for the release of news. The company’s stock has surged about 41% this year as profit rebounded at units the company plans to keep.

The U.S. is selling holdings in financial firms that taxpayers bailed out at the depths of the financial crisis. The Treasury this week divested its remaining stock in Citigroup Inc. for $10.5 billion. Treasury aims to raise at least $15 billion from an offering of AIG shares in the first quarter of next year, the Wall Street Journal said, citing unidentified people.

AIG’s Fed credit line was created in 2008 after regulators said a failure of the insurer would hobble the global economy. The bailout swelled to $182.3 billion as it was revised at least four times to make more funds available, lower interest payments and give the company more time to rebuild.

AIG divested a 67% stake in AIA Group in October for $20.5 billion and sold American Life Insurance Co. last month to MetLife Inc. for $16.2 billion.

Wednesday’s agreement is an “important step forward in our progress toward completely repaying taxpayers,” AIG said in a statement. “We remain committed to executing the steps and meeting all conditions in the agreement as soon as possible.”