NU Online News Service, Aug. 23, 3:16 p.m. EDT

WASHINGTON–American International Group said it has reached another milestone in its efforts to become independent of federal financial support, repaying the Federal Reserve Bank of New York almost $4 billion.

The repayment reduces AIG's outstanding balance under a credit facility negotiated in March 2009 to $15 billion.

Concurrently, under the terms of the AIG/Fed credit agreement, the size of the Fed credit facility available to AIG drops by a similar amount, from $34 billion to $30 billion, according to a securities filing by AIG.

The principal amount that AIG owes the Fed under the federal facility is now $15 billion, according to the filing.

Specifically, the filing said that the repayments are mandatory under its agreement with the Fed.

An AIG spokesman said that, with accumulated interest and fees, the actual amount outstanding is $21 billion.

The payment of $3.95 billion to the Fed represented the proceeds of funds the agency provided to AIG's International Lease Finance Corp. (ILFC) last year through a credit facility after the private credit markets signaled they were unwilling to provide credit to the cash-hungry AIG subsidiary.

Officials with the New York Fed declined official comment. But a source familiar with the issue acknowledged that the Fed considers the repayment "a very positive development."

ILFC has now regained access to private credit markets. It raised $4.4 billion this month in secured and unsecured notes, according to a statement issued by the subsidiary, which is based in Los Angeles.

According to the ILFC statement, the repayment will trigger a $650 million pretax accounting charge for AIG and free about $10 billion in ILFC collateral that was pledged to the Fed.

In a statement, AIG President and Chief Executive Officer Robert Benmosche said, "AIG is getting stronger every day. We still have more work to do, but we will finish the job and make sure we repay the American taxpayer."

Mr. Benmosche noted the progress AIG and its subsidiaries have made during the last year.

"ILFC has demonstrated today further progress in stabilizing its finances and buttressing ILFC's balance sheet," Mr. Benmosche said.

He said AIG's insurance businesses are profitable; client retention rates have stabilized; and surrender rates have improved to normal levels.

"We are starting to see light at the end of the tunnel," he added.

Earlier this month, when reporting a 2010 second-quarter net loss of $2.7 billion–primarily due to a $3.3 billion goodwill impairment charge–Mr. Benmosche said AIG expects to make "meaningful progress" in 2010 toward repayment to the Federal Reserve Bank of New York.