American International Group Inc. (AIG) agreed to sell 80 per cent of its subprime-lending arm to Fortress Investment Group LLC (FIG), freeing itself from the unit's $17bn in debt as it works to repay the bail-out funds it received from the government.

The two firms didn't disclose the terms of the deal but according to people familiar with the agreement said Fortress paid only "a small fraction" of the unit's $2bn to $3bn in equity.