AIG Subordinated Debentures (AVF)

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1. If AIG go BK, AVF will be colse to worthless.
2. If after two years, AIG can not repay the bridge loan, and government takes over 80% of its ownership. I would say AIG will still honor its debts/bonds. AVF will eventually reach $25 its par, and interests will be paid. Current yield is around 44%. 2-3 year of interests will give your principal back already. You can look at Fannie and Freddie. After government took over the ownership and they are still paying interest on the bonds.

http://bonds.about.com/b/2008/07/18/are-fannie-mae-and-freddie-mac-bonds-safe.htm

3. If government chops AIG in pieces, I think bonds should still be safe. Debts should go with its associated business.

Personally, at this stage, I believe the Government will not let AIG go BK. If so the damange is too big and the ripple effect is too huge. Plus it has already invested $120 billions into it.