UPDATE 1-AIG units to participate in commercial paper program

NEW YORK Oct 30 (Reuters) - American International Group Inc (AIG.N), the insurer saved from bankruptcy by a federal bailout, said on Thursday four affiliates applied to participate in the Federal Reserve Bank of New York commercial paper funding facility in order to repay other debts.

AIG Funding Inc, International Lease Finance Corporation, Curzon Funding LLC and Nightingale Finance LLC may issue up to $20.9 billion of commercial paper under the New York Fed's program.

AIG -- crippled by losses on bad mortgage debt -- said the proceeds would be use to refinance its outstanding commercial paper as it matures, meet other capital needs and make voluntary prepayments under an $85 billion bridge loan with the Fed of New York.

In total, the government has put about $123 billion at AIG's disposal, in two programs established to provide liquidity to the insurer as it restructures. The company has already borrowed $90.3 billion.

AIG, once the world's largest insurer, is scrambling to sell off parts of its business to repay the bridge loan, which carries hefty interest and fees.

The company's shares were up 6.5 percent at $1.65 in afternoon trade on the New York Stock Exchange, after losing 97 percent of their value this year.

(Reporting by Juan Lagorio, editing by Bernard Orr)