American International Group agreed to sell its Asian life insurance business for $35.5 billion, making it one of the largest insurance deals in history.

AIG will use the money to pay off nearly three-fourths of the $48 billion the global insurer owes the Federal Reserve, part of nearly $180 billion loaned to the insurer after its near implosion in September 2008. Part of that total – $47 billion – came from U.S. Treasury Department Troubled Asset Relief Program (TARP) funds.

The buyer, British insurer Prudential PLC, is paying $25 million in cash and $10.5 billion in stock and securities for AIA Group Ltd. and its subsidiary, American International Assurance Co. Ltd.

AIG had been shopping the life unit around for months, part of its effort to sell units to pay back government loans. The company fell into trouble in late 2008 after its Financial Products division, based in Europe, became too heavily invested in credit default swaps.

AIG has sold more than 20 of its units, but the sum of all those sales has not matched what it received for its latest sale, according to the Washington Post.

The transaction, by virtue of the ownership share the U.S. government has in AIG, now has an interest in Prudential.

Standard & Poor’s Ratings Service reacted to the sale by putting Prudential – no relation to New Jersey-based Prudential Financial – on Creditwatch with “negative” implications, meaning the company’s outlook is likely to be changed to “negative” in the near future.

“We have placed our ratings on Prudential on CreditWatch negative because of the size and weaker credit profile of AIA relative to Prudential and to reflect our view that the transaction likely will have a material adverse impact on Prudential’s key credit metrics, such as capitalization and fixed-charge coverage,” said Standard & Poor’s credit analyst Mark Button in a statement. “We also believe the transaction carries significant execution risks.”

Prudential will fund the $35.5 billion transaction through a substantial underwritten rights issue to existing Prudential shareholders ($20 billion), underwritten senior debt issuance ($5 billion), and various securities issued to AIG ($10.5 billion), including shares, according to Standard & Poor’s.

The deal gives Prudential a strong presence and profile in Asia, the ratings service said.