AIG has raised funds from a new Federal Reserve lending facility to repay part of a $123 billion Fed loan that is keeping the stricken US insurer alive, in a move that could deepen the political backlash over its use of taxpayers’ money, according to the Financial Times.

AIG said yesterday that it had tapped a Fed lending window designed to kick-start the flagging market for commercial paper and used some of the proceeds to pay back part of the government loan.

AIG operates a number of business lines including a private bank.

The decision to use one government facility to repay another could raise eyebrows among US politicians, who have attacked AIG for paying for a corporate retreat and for spending money on lobbying following the federal bail-out.

AIG has since cancelled all corporate events, saving an estimated $80 million, and suspended its lobbying activities. In the UK, AIG is the principal sponsor of the Manchester United football team.

The company on Thursday declined to say how much it had raised from the commercial paper facility, which is open to all top-rated corporate borrowers. It has also declined to say what portion was used to repay the rescue loan.

Fed figures showed that as of Wednesday, AIG owed the government $83.5 billion, down from $90 billion a week ago.

One of AIG’s subsidiaries, AIG Life UK, meanwhile, said earlier this week that it has engaged Cairn Financial Products, a subsidiary of Cairn Capital Limited, to provide advisory services in relation to the portfolio of securities held by the AIG Life Enhanced Fund. 

The AIG Life Enhanced fund has been under the media spotlight, due to the formation of an action group that is pressing for the recovery of invested funds.  The fund, which was frozen in September, will officially close on 15 December, leaving investors to decide when they will cash-out their investment.