American International Group Inc. has reached an agreement with the Federal Reserve Bank of New York that will allow it to pay back $25 billion in debt owed to the bank through the initial public offerings of two international life-insurance units.

The ailing insurance giant had said last month that it would "accelerate steps" to spin off American International Assurance Co. through a public listing on an Asian stock exchange, as part of its efforts to repay a government bailout totaling up to $173.3 billion.

Under the deal with the New York Fed, first conceived in March, AIG will put equity from American Life Insurance Co. and American International Assurance Co. into separate special purpose vehicles in exchange for preferred and common interests in the vehicle. The New York Fed will get $25 billion in preferred interests in the two special purpose vehicles, reducing the debt AIG owes the bank by the same amount.

AIG will hold the common interests in the vehicles. The company said it expects the deals to close in the second half of the year. American International is focused on Asia while ALICO is in 50 countries around the world.

ALICO Chairman and Chief Executive Rodney Martin Jr. said the pact "accelerates the movement of ALICO toward greater independence and helps maintain the value of the franchise."

Meanwhile, the New York Fed said the agreement furthered the goal of helping AIG fully pay back the funds it received from the government.

AIG has also been looking to pare assets and raise capital. It has sold a handful of units, including its Mexican consumer-finance operations and two-thirds of its stake in long-time holding reinsurer Transatlantic Holdings Inc.

AIG's shares closed Wednesday at $1.42 and haven't traded premarket.

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