FDIC Guarantees $1.8bn of Structured Financing on Failed Bank Assets

Guidance is out on a forthcoming issue of structured notes from the Federal Deposit Insurance Corp. (FDIC). The issue, which is expected to be backed by private-label mortgage-backed securities (MBS), as well as other highly-seasoned cherry-picked assets, acquired through depository bank failure receiverships, is expected to launch and price this week. One class of notes worth $1.33bn is said to be at 65bps over Libor, while the class of $480m of notes range at swaps plus 90 to 95bps, according to price guidance provided to HousingWire. The issue bears a 100% FDIC guarantee, meaning it bears the full faith and credit of the US. Sources confirm that Barclays Capital is lead arranger on the deal though the official release of information remains restricted. The issue will rank among the first signs of activity in the US securitization industry in several years – another sign the US market is poised for recovery as the UK securitization market prepares another prime RMBS. FDIC sources confirmed to HousingWire in January a move to consider securitizing assets seized from failed banks and depository institutions. The Securities Industry and Financial Markets Association (SIFMA) called it “an attempt to restart the stalled securitization markets.” “These deals will provide a model for future private market issuances, could help kick-start nonconforming loan securitizations and secondary markets, tighten pricing for securities and strengthen the interests of real money investors,” said SIFMA president and CEO Tim Ryan. It marks a break from the FDIC’s more common means of spinning off acquired assets. The FDIC often packages failed bank assets into limited liability companies (LLCs) and then sells the ownership interest. For example, the FDIC in early January sold a 40% equity stake in a LLC with $1bn of distressed commercial real estate loans seized from banks that failed in the past 18 months. This practice is often a way for banks to increase their market share, similar to the way Spanish bank BBVA Compass became the 15th largest US commercial bank when it took over Austin, TX-based Guaranty Bank in August. Another means for winding down failed banks, a “shelf charter” was used for the first time in January. Write to Diana Golobay.

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