American International Group, Inc. (AIG) recently reached two key agreements with the Federal Reserve Bank of New York (FRBNY) that will come as good news for American taxpayers.

First, the debt that New York-based AIG owes the FRBNY has been reduced by $25 billion. Second, in a related agreement, two of AIG’s leading international life insurance franchises—American International Assurance Company, Ltd. (AIA) and American Life Insurance Company (ALICO)—have been positioned for initial public offerings, depending on market conditions.

Under the agreement, AIG will contribute the equity of each of AIA and ALICO to separate special purpose vehicles (SPVs) in exchange for preferred and common interests in the SPVs. The FRBNY will receive preferred interests in the AIA SPV of $16 billion and in the ALICO SPV of $9 billion.

When the transactions are completed, together they will result in a reduction in the debt owed by AIG under the FRBNY credit facility and the line available to AIG by $25 billion. Currently, AIG’s outstanding balance under the FRBNY credit facility is about $40 billion.

According to a statement from the FRBNY, the agreements with AIG advance the goals of the company to repay completely the assistance that it received last fall from U.S. taxpayers and further the company’s global restructuring process. “The exchange of senior secured debt for preferred equity interests reduces AIG’s financial leverage and facilitates the independence of these two key subsidiaries,” the statement said.

The face value of the preferred interests represents a percentage of the estimated fair market value of AIA and ALICO. AIG will hold the common interests in the two SPVs and will benefit from the fair market value of AIA and ALICO in excess of the value of the preferred interests as the SPVs monetize their stakes in these companies.

“Placing AIA and ALICO into SPVs represents a major step toward repaying taxpayers and preserving the value of AIA and ALICO, two terrific life insurance businesses with great futures,” said Edward Liddy, chairman and CEO of AIG. “Operating AIA’s and ALICO’s successful business models in the SPV format will enhance the value of these franchises as we move forward with our global restructuring.”

AIG expects these transactions to close in the second half of this year, subject to customary closing conditions, including regulatory approvals. Until they become independent companies, AIA and ALICO will remain wholly owned subsidiaries of AIG, consolidated in AIG’s reported financial statements.