Fortress takes 80% stake in AIG subsidiary

In the latest in a string of deals tapping the subprime market, the alternative investment firm is acquiring a controlling stake in credit provider AGF.

New York-based Fortress Investment Group has agreed to buy an 80 percent stake in American General Finance, a provider of loans, retail financing and other credit related products.

“We believe that AGF is well positioned for significant growth in an underserved market,” said Wesley Edens, co-chairman and founder of Fortress Investment Group, in a statement.

AGF, a subsidiary business of American International Group, was valued by the parent group at $2.4 billion in its 2010 second quarter report. AIG will retain a 20 percent interest in the business.

AGF, which holds roughly $20 billion in assets and $18 billion in liabilities, including $17 billion of debt, will be removed from AIG's financial statements, allowing government-owned AIG greater flexibility in repaying the federal government.

Terms of the transaction were not disclosed.              

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The deal is Fortress’ latest in a string of purchases which focus on assets soured by the recent economic downturn. In July, Fortress assumed $230 million of Japan-based daVinci’s Holdings corporate debt. DaVinci, a private equity real estate firm, is said to have paid inflated prices for commercial real estate assets prior to the recession, as previously reported on PEO.

The DaVinci deal came just weeks after Fortress had purchased real estate debt business CW Financial Services “to benefit from, the real estate market's recovery and reconstitution”, the firm said.

In reaction to the AGF sale, Moody’s downgraded the business's ratings to B3 from B2 saying “the pending sale of the firm results in a lower expectation of support from AIG.” The credit rating agency cited concerns over possible changes in AGF’s operational strategy, capital structure, and liquidity.

“This transaction marks another important step in our ongoing restructuring process as we seek to monetise non-core assets and pay back US taxpayers,” said Robert Benmosche, AIG president and chief executive officer, in a statement.

The transaction is expected to close by the end of the first quarter of 2011 subject to regulatory approvals and customary closing conditions, according to the statement.

Founded in 1998, Fortress Investment Group has approximately $41.7 billion in assets under management.