Friday, March 12, 2010

FDIC Closes on Sale of $1.8 Billion of Notes Backed by Mortgage-Backed Securities

Transaction Adds Liquidity to DIF and Stimulates Investor Demand

FOR IMMEDIATE RELEASE

March 12, 2010

The Federal Deposit Insurance Corporation (FDIC) today closed on a sale of notes backed by residential mortgage backed securities (RMBS) from seven failed bank receiverships. The sale was conducted through a private placement priced and allocated on March 5th. The transaction was met with robust investor demand, with over 70 investors participating across fixed and floating rate series. The investors included banks, investment funds, insurance funds and pension funds. All investors were qualified institutional buyers.

The $1.81 billion of notes is backed by 103 non-agency residential mortgage-backed securities. The aggregate unpaid balance of the 103 securities was approximately $3.6 billion at the time of the sale. The FDIC retained an equity interest in each series.

The transaction features two series of senior notes, each backed by a separate pool of RMBS. The larger series of approximately $1.3 billion, is based on option ARMS and has a floating rate tied to the one-month LIBOR. The smaller series of $480 million is based mostly on fixed-rate RMBS and pays a fixed rate. Both series priced at rates comparable to Ginnie Mae collateralized mortgage obligations.

The timely payment of principal and interest due on the notes are guaranteed by the FDIC, and that guaranty is backed by the full faith and credit of the United States.

The $1.8 billion in proceeds will go to the seven failed bank receiverships and eventually be used to pay creditors, including the FDIC's Deposit Insurance Fund (DIF). This will maximize recoveries for the receiverships and recover substantial funds for the DIF while also meeting strong investor demand. Underscoring this investor demand, the issuance was significantly oversubscribed allowing the transaction to price at lower spreads to benchmark rates.

Barclays Capital, New York, New York served as the sole bookrunner, structuring agent and financial advisor to the FDIC on the Structured Sale of Guaranteed Notes (SSGN 2010-S1).

This offering marks the first issuance of notes by the FDIC since the early 1990s and the first issuance by the FDIC of FDIC guaranteed debt backed by the full faith and credit of the U.S.

SSGN 2010-S1 Transaction Summary:

The FDIC issued $1.81 billion in notes backed by non-agency residential mortgage backed securities. The underlying securities, which were held by the FDIC as receiver for various depository institutions, were sold to a statutory trust, which issued senior notes backed by those underlying securities. The notes were issued with the benefit of a full and unconditional FDIC Guaranty backed by the full faith and credit of the United States of America.

Pricing Details

The transaction features two series of senior notes, each backed by a separate pool of securities.

Senior I-A notes are backed by securities which are in turn backed by option ARM mortgage loans and pay a monthly floating rate coupon of 1-month LIBOR plus 0.55% per annum with a maximum rate of 7.00% per annum.

Senior II-A notes are backed by securities which are in turn backed primarily by fixed rate mortgage loans and pay a monthly fixed rate coupon of 3.25% per annum.

Pricing Date: March 5, 2010

Closing Date: March 11, 2010

Financial Advisor to FDIC/Structuring Agent/Sole Bookrunner: Barclays Capital

Investor Participation

The transaction was met with robust investor demand and subscription levels with over 70 accounts participating across fixed and floating rate series.
Investors included banks, investment funds, insurance funds, and pension funds. All investors were 144A eligible (Qualified Institutional Buyers).

Note Structure

The FDIC will initially retain the owner trust certificate, or equity interest, for each series, which will not receive any principal or interest cashflows until the senior notes for that series have been repaid in full.

The senior notes will amortize based on the timing of cashflows on the underlying securities. Principal will not be paid based on a fixed amortization schedule.

Each series of senior notes will benefit from credit enhancement in the form of overcollateralization and excess interest, in addition to the FDIC Guaranty.

Senior I-A notes were structured with 56.51% initial overcollateralization.

Senior II-A notes were structured with 11.97% initial overcollateralization.

FDIC Guaranty

The FDIC, in its corporate capacity, will fully and unconditionally guarantee the timely payment of principal and interest due and payable on the senior notes.

The Guaranty is backed by the full faith and credit of the United States of America.