Barclays Capital, Citigroup Global Markets, Credit Suisse and Deutsche Bank Securities were among the winning bidders for the sale of roughly $4.5 billion of additional assets from the Maiden Lane III (ML III) portfolio, the New York Federal Reserve said in a press release today.
For details of the sale, please click here.
To date, about $31.6 billion in face value of CDOs have been sold out of ML III. After the July 24 auction for $3.5 billion in face value of CDOs and the latest auction for another $4.5 billion, there will be less than $7 billion in face value left in the vehicle.
The Maiden Lane bid lists have drawn the attention of investors who remain concerned that supply in the non-agency and subprime markets will become challenged and are looking to pick up bonds while they can, said Bank of America Merrill Lynch analysts in a securitization report after the July 24 sale.
The wind down of Maiden Lane means the non-agency market will lose a consistent source of bonds it has had throughout 2012.
"The auctions, which had once served as a negative overhang on the market, were more recently viewed by investors as an opportunity to source sizable positions in a rapidly shrinking sector," analysts said. "The general thought of 'get ‘em while you can' is already prevalent in the market, and removing Maiden Lane supply will only stoke this mentality."
Non-agency sales from the Maiden Lane I portfolio averaged $390 million in par value per month in 2010 and $320 million per month in 2011 as the majority of MBS sales were from the vehicle’s agency holdings.
By 2012, as market conditions improved, the Fed picked up the pace of sales. Through May, 449 of the 753 deals held at the start of 2012 were sold with no disruption to the market. By the end of May 2012, only $3.7 billion remained of the original $27.8 billion that was in the portfolio.
BofA Merrill analysts said that sales from Maiden Lane II saw bonds price at a one- to two-point premium to the rest of the market when the auctions started in April 2011. By June, pricing had widened and the sales were stopped.
Early in 1Q12, after a rebound in prices, the NY Fed began to receive unsolicited bids for the remaining portions of the ML II holdings. The remaining bonds left in the vehicle were sold in three successive sales; two won by Credit Suisse and the other by Goldman Sachs.
"The demand for the products was strong, prices held up, and the NY Fed was able to make a $2.8 billion profit on the U.S. taxpayers' $19.5 billion loan," analysts said."The successful sale of the remaining bonds in the MLII portfolio injected a sense of confidence in the market, as it proved that the market was priced at a level where it could successfully absorb excess supply. "