[furiouslol]

AIG is getting badly punished for this.

They are getting the loan at LIBOR + 8.5%. That's downright punitive.

LIBOR + 8.5% is not a rate at which a company with AIG's business model could survive at. AIG lends to people at around LIBOR + 4% for mortgages or LIBOR + a lower % to insure BBB to AA rated borrowers.

They'll probably have to sell off their assets in a hurry at below fair value. The longer they wait, the more pain the high interest inflict on them.

[icey]

Well, thanks to you I just learned something. I had no idea the US government used the London index to figure out rates for loans. I actually went and looked it up; and you're totally correct.

Amazing.

[jcl]

What happens to them if they fail to pay it off?

[furiouslol]

The taxpayers suffer. You have to eat the loss.