Deals of the year 2010: FDIC $4 billion multi-tranche structured sale guaranteed note
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CAPITAL MARKETS

Deals of the year 2010: FDIC $4 billion multi-tranche structured sale guaranteed note

Mortgage securitization markets have been practically frozen since 2008, largely because of the overhang of distressed assets that sit on the balance sheets of banks and the main mortgage agencies Fannie Mae and Freddie Mac, both of which now sit under US government conservatorship. For the Federal Deposit ­Insurance Corp, which has absorbed the assets of 324 failed banks since the beginning of 2008, the challenge was to dispose of its most distressed assets and rebuild its deposit insurance fund without further depressing prices in the underlying market.

Federal Deposit Insurance Corporation (FDIC)
Size: $4 billion multi-tranche structured sale guaranteed notes
Date: March 11, 16, 26
Lead: Barclays Capital
Coupon: zero and fixed coupon

After Barclays Capital had advised the FDIC on the sale of the failed Californian bank IndyMac in early 2009, BarCap and the FDIC began discussing various techniques that would create some liquidity and set a new market level, while also allowing the FDIC to monetize some of its investment. Selling the distressed assets onto the open market was considered a risky option, given the varied estimates of clearing prices of between 10 cents and 50 cents on the dollar. Other options included a re-remic structure (resecuritization of real estate mortgage investment conduits) or the sale of notes wrapped by a government guarantee. Raising cash via selling notes backed by failed banks’ assets was one method of raising cash without increasing deposit insurance premiums on banks or directly borrowing from the US Treasury. Working with Barclays Capital, the FDIC executed a series of transactions involving the sale of US-guaranteed FDIC senior certificates, which brought in an equity partner for a minority stake in the assets.

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