American International Group Inc. reduced its debt by $25 billion as it transferred to Federal Reserve vehicles two overseas life insurance units that are destined for sale.

AIG reduced its debt on a Federal Reserve credit line by $16 billion through the handover of American International Assurance Co. and by $9 billion with the transfer of American Life Insurance Co. The moves trimmed the principal borrowing on a Fed credit line to $17 billion, New York-based AIG said Tuesday.

AIA and Alico will be sold to competitors, private-equity buyers or in initial public offerings, "depending on market conditions," the insurer said. It said it will take a $5.7 billion charge in the fourth quarter tied to the credit line reduction.

The company is entitled to a portion of the proceeds if the sales realize more than $25 billion. The insurer's bailout was valued at $182.5 billion in June, including a $60 billion Fed credit line.

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