American International Group (AIG) and the federal government announced a major restructuring of the insurance giant’s government bailout Monday morning that commits the Treasury Department to invest up to $30 billion in new equity in the company if it needs it.

“The company continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year and continued turbulence in the markets generally,” the Treasury Department said in its press release announcing the plan. “The additional resources will help stabilize the company, and in doing so help to stabilize the financial system.”

AIG CEO Edward Liddy stressed in a conference call that “there is no immediate cash infusion from the federal government,” and the changes were made so AIG can “maintain flexibility” during its divestiture process. “What we’re trying to do is get ahead of the issue to preserve all of the valuable franchises we have.”

However, the reworked agreement now puts the U.S.’s total exposure at around $186 billion, up from $150 billion before.

AIG will, as part of the agreement, give large stakes in two subsidiaries to the Fed to repay most of the $38 billion it has borrowed from the central bank under an existing $60 billion credit line.

The company released its fourth-quarter earnings as well, posting a loss of $61.7 billion in the period -- the largest loss ever recorded by a U.S. company. The loss was caused by writedowns of various investments, accounting changes and restructuring charges, among other things.

The revised bailout will give AIG “a lot more breathing room” as it seeks to reorganize and sell assets to repay the government over time, a person familiar with the situation said. The net result of the changes will cut its existing debt to the Fed and save AIG about $1 billion in annual interest charges.

The person said that while the company had received some offers for operations it has put up for sale and continues to evaluate bids, the person suggested some terms were not good enough for AIG -- and the government, which owns warrants equal to a 79.9% stake in the company -- to accept in the current financial environment.

“It’s not for want of interest,” the person said. “Nobody’s got the money, nobody’s got the equity, nobody’s got the cash, nobody’s got access to credit. It’s a problem.”

--To ensure that most -- if not all -- of the $38 billion in Fed borrowings are repaid, the Fed will also accept securities backed by AIG life insurance contracts as debt repayment. Treasury authorized the New York Fed to make new loans of up to $8.5 billion to special-purpose vehicles established by domestic life-insurance AIG subsidiaries. Proceeds from those loans would pay off debt under the revolving credit facility.

--AIG also plans to merge two of its property and casualty divisions, with combined revenues of $44 billion in 2008, and will “study a range of strategic options” for the merged unit, the person said, including selling up a 20% stake in it to the public.

The company and government officials are still negotiating terms and valuations of some of the assets involved in the restructured bailout, the person familiar with the negotiations said. 

Spokespeople for the Fed, Treasury and AIG declined to comment.

One of the motives of the new deal was avoiding a credit-rating downgrade for the insurer, which could have had disastrous consequences for it

The major credit-rating agencies appeared to have signed off on the plan, a key element because a downgrade could have triggered termination of many corporate insurance policies and would have forced AIG to post billions of dollars of collateral on a variety of financial contracts.

Fitch Ratings, for instance, said, “Favorably, this added level of support highlights the commitment by the U.S. Government to assure that AIG remains financially healthy and meets its future obligations. Negatively, additional support was required due to AIG's very weak performance, as well as AIG's inability to date to move forward in selling assets at reasonable terms consistent with its restructuring plan.”

AIG was initially bailed out last September as the financial crisis began to accelerate, with the government taking over Fannie Mae (FNM) and Freddie Mac (FRE), and with the collapse of Lehman Brothers in the weeks leading up to the AIG decision.

Under the initial bailout in mid-September last year, the Fed agreed to loan AIG up to $85 billion in exchange for a 79.9% stake in the insurer. In October, the bailout was increased to $123 billion, and in November it was boosted to $150 billion.

The initial loan term was two years, but it’s becoming more and more likely with each change of the bailout package that U.S. taxpayers will be on the hook for longer than that.

“There has to be a floor” to the woes in the economy and the markets, AIG CEO Liddy said. “When that floor is hit, our shareholders and taxpayers will be well-served.”

This move by AIG is just the latest from a company that’s been bailed out by the federal government that’s coming back for more. Citigroup (C), for instance, has gotten its initial bailout deal from the government reworked twice, and Bank of America (BAC) came back for more once. In addition, auto makers General Motors (GM) and Chrysler (which is owned by private-equity firm Cerberus Capital Management) had to ask for a second set of bridge loans last month, after getting an agreement for billions of dollars in loans from the government in December.

AIG's shares on Friday fell 10 cents, or 19%, to 42 cents each on the New York Stock Exchange. The insurer's stock is down 99% from its 52-week high of over $52.