Fitch Lowers American General Finance, Inc.'s CP Rtg To 'F1'.

Business Editors

CHICAGO--(BUSINESS WIRE)--July 18, 2002

Fitch Ratings has lowered American General Finance, Inc.'s (AGFI) and its principal operating subsidiary, American General Finance Corporation's (AGF) commercial paper ratings to 'F1' from 'F1+', and affirmed their senior unsecured debt ratings of 'A+'. In addition, the commercial paper rating of CommoLoCo Inc., which is guaranteed by AGF, is lowered to 'F1' from 'F1+'. The Rating Outlook remains Stable.

The rating action reflects the announcement that AGF and AGFI have replaced their current shared bank facility with its parent, American General Corporation (AGC), with an independent facility. Previously, Fitch maintained the 'F1+' commercial paper rating for AGF and AGFI based solely on the continuation of the shared bank facility with AGC. AGC's ratings reflect the guarantee, by American International Group, Inc. (AIG) of senior debt issued by AGC.

The ratings for AGF and AGFI reflect solid profitability, good asset quality, conservative growth levels, and solid capitalization. Further, current ratings reflect that AGF and AGFI are rated on a stand-alone basis without the implied support AGC. Rating concerns center on the company's limited diversity of its loan portfolio and short track record in accessing the capital markets without the support of AGC, as well as its unproven ability to access the securitization markets for its current loan portfolios.

Profitability has improved over the last few years as the strategy to focus on originating lower-risk receivables has enhanced the company's risk-adjusted yields. Provisioning has been on a decline in recent years, but it increased in 2002 due to weakness in the U.S. economy. The increase in provisioning was offset by higher net interest margins due to a decline in interest rates during the year. Future earnings momentum may be difficult to achieve given AGF's low growth rate, higher provisions, and likely erosion in the net interest margin. The latter being impacted by the current interest rate environment combined with an increased shift to higher-cost long-term funding.

Asset quality continues to be good reflecting the high percentage (65% of net finance receivables at March 31, 2002) of real estate secured subprime receivables. Annualized net losses to average receivables increased to 2.38% for the three months ended March 31, 2002, from 2.06% for the comparable period in 2001. Given the economic slowdown taking place, Fitch would expect losses to rise from the present levels. Reserves remain good at 3.80% of receivables at March 31, 2002.

AGF's capital measures are solid on both an absolute and risk-adjusted basis, but it is intended that leverage will be run more aggressively which could put pressure on the ratings. AGF's debt-to-tangible equity is currently managed at 7.5 times. Equity to managed assets remains solid, but declined in 2002 to 11.55% from 12.99% at March 31, 2001. AGF's usage of short-term debt generally fluctuates around 40%-45% of total debt, which is relatively high compared to its competitors. The company's backup line coverage of aggregate commercial paper is an average of 75%, which Fitch views as low given the current rating.

American General Finance Corporation (AGF) is a leading consumer finance company operating some 1,362 offices in 43 states, Puerto Rico and the U.S. Virgin Islands. The $11.6 billion receivable portfolio consisted of real estate-secured loans (65%), non-real estate-secured loans (24%) and retail sales finance (11%). American General Finance, Inc. is a financial services holding company whose principal subsidiary is AGF.