The Federal Deposit Insurance Corp. (FDIC) concluded the sale of $1.45 billion of distressed performing and nonperforming residential and commercial construction loans using two private/public partnership deals.
These structured sales used the asset management expertise of the private sector, while retaining for the FDIC a participation interest in all future cash flows generated by the workout of the assets over time, according to a release from the FDIC.
In the two recent deals, the FDIC placed the loans, which were exclusively from the failed First National Bank of Nevada, into a limited liability corporation (LLC). The government agency retained an 80% interest in the assets with the winning bidder picking up an initial 20% stake.
The release said that once certain performance thresholds are met, the FDIC's interest declines to 60 %. The future expenses and income will be shared on the percentage ownership of the purchaser and the FDIC.
"The FDIC is drawing on its previous successes and those of the Resolution Trust Corp.," said James Wigand, deputy director, division of resolutions and receiverships. "During the last banking crisis, when asset values were similarly difficult to ascertain, these types of structures ultimately resulted in superior recoveries relative to the then-depressed market valuations."
According to the release, by retaining a participation interest in the structure, the FDIC as receiver will benefit in the portfolio's future return aside from receiving immediate proceeds from the purchaser for its 20% interest in the portfolio.
The successful bidders on the two deals were Diversified Business Strategies and Stearns Bank.
The agency hired the financial advisor Keefe Bruyette Woods to market the LLC to potential bidders. In all, 18 separate bidders submitted 30 unique bids for both pools of loans, according to the release.
The sale's closure brings the total amount of assets sold using private/public partnership deals to around $3.2 billion in the last year and in five separate transactions.The release said that based on the program's success and the positive feedback received from the private sector, the FDIC expects that it will use this and similar sales strategies going forward.