Filed Under:Carrier Innovations, Regulation/Legislation

Fed Sells Securities Held in Facility Created to Assist AIG

NU Online News Service, Feb. 9, 3:02 p.m. EST

The Federal Reserve Bank of New York today ended one chapter from the American International Group bailout, selling a group of mortgage-backed securities that closed out its Maiden Lane II facility.

The FRBNY says it sold securities with a face value of $6.2 billion from its Maiden Lane II portfolio through a competitive process to Goldman Sachs & Co.

AIG declined to comment on the sale at this time.

The Fed says that the proceeds from this sale and a Jan. 19 sale to Credit Suisse will enable the repayment of the entire remaining outstanding balance of the senior loan from the New York Fed to ML II on the next payment date in early March. The original amount of the senior loan was $19.5 billion.

The Fed created two facilities in November 2008 to provide $44 billion in cash to AIG in late 2008 that paid off a part of a loan made earlier. The facilities were called Maiden Lane II and Maiden Lane III.

They constituted the second Fed effort to bail out AIG.

The Maiden Lane facilities were backed with approximately $79 billion in MBS and collateralized debt obligations of various quality purchased by AIG Financial Products and backed by high-quality bonds held by AIG in its life-insurance subsidiaries, whose assets were also guaranteed by its property and casualty operating subsidiaries.

The ML II facility involved residential mortgage-backed securities of various grades from prime to sub-prime.

The Maiden Lane III facility involved collateralized debt obligations from AIG   Financial Products Corp.

The Fed received a request in 2011 from AIG to buy back the facilities, but the Fed decided in March 2011 that it could get a better deal by selling them directly.

However, when the Fed responded to an unsolicited offer from Credit Suisse Securities (USA) LLC in January to buy ML II assets, the market easily absorbed the paper.

Tom Fink, senior vice president and managing director of Trepp LLC., which tracks these transactions, says, “Maiden Lane II is a facility that the NY Fed set up to hold collateral received from AIG when it loaned AIG TARP money. 

“The bonds were primarily subprime residential mortgage bonds and [their sale] will have little impact on the CMBS market.”

The five broker-dealers who made bids were Barclays Capital Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co., Morgan Stanley & Co. LLC, and RBS Securities Inc., the Fed says. The broker-dealers were selected based on the strength of each of their recently submitted reverse inquiries for large parcels of the portfolio, the Fed explains.

William C. Dudley, President of the New York Fed, says, “I am pleased with the continued interest in these assets and am especially gratified that the New York Fed's loan to ML II will be repaid as a result of the sale announced today.”

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