LONDON (Bloomberg) - American International Group Inc. (AIG), the world's biggest insurer, will bail out its Nightingale Finance structured investment vehicle, according to Moody's Investors Service.

AIG Financial Products Corp., a unit of the New York-based insurer, is buying the SIV's $2.2 billion of senior debt or will replace it with loans, Moody's said in an e-mailed statement yesterday. Moody's affirmed its top Aaa ratings for the UK Channel Islands-based SIV's senior debt.

AIG follows Citigroup Inc. and HSBC Holdings plc. in financing their SIVs after the collapse of the US sub-prime mortgage market caused prices of their assets to decline. SIVs, which use short-term borrowing to invest in higher-yielding securities, have reduced their holdings by more than $100 billion from a peak of $400 billion last year, according to Moody's.

"Any realisation of current or future mark-to-market losses will be avoided given the support of AIG Financial Products provided that AIG FP remains a going concern," the New York- based ratings company said in the statement.

Nightingale was set up in May last year by Banque AIG, a banking unit owned by the insurer.

Moody's cut Nightingale's junior-ranking capital notes seven levels to B3, the sixth-lowest rating, in November after the company's net asset value fell to 81 percent from 95 percent. Net asset value measures what would be left after a SIV sells its assets and repays senior debt, expressed as a percentage of capital.

AIG had bought almost three quarters of Nightingale's senior debt and was working with creditors to restructure the fund, CEO Martin Sullivan said on December 5.

Other SIV managers are working on amending or winding down their companies. Bank of Montreal has shrunk its Links Finance Corp. SIV from $23.4 billion in July last year to $15.1 billion in mid-January, the Toronto-based bank said earlier this month.

Five SIVs, including companies set up by IKB Deutsche Industriebank AG in Dusseldorf and London-based Cheyne Capital Management (UK) LLP stopped paying creditors after being shut out of the commercial paper markets.