The Federal Deposit Insurance Corp. (FDIC), in an effort to get rid of residential and construction loan assets from failed banks, has priced two note offerings totaling $1.8 billion to "robust market demand," according to a source familiar with the transaction.
This is the first in a series of three deals said to be totaling $4 billion. These notes, which are wrapped with a 100% FDIC guarantee, were rule Rule 144A debt offerings.
Barclays Capital was the sole bookerunner on the $1.8 billion offering. It was divided into a $1.33 billion floating rate transaction and a $480 million fixed-rate deal.
According to a person familiar with the offering, the floating-rate portion priced at 55 basis points over one-month Libor, which is 10 points tighter than the initial price guidance of 65 basis points over one-month Libor.
Meanwhile, the fixed-rate portion priced at 85 basis points over i-swaps, or 5 to 10 points tighter than the initial price guidance of 90 to 95 basis points over i-swaps. The fixed-rate portion priced at a slight discount at 99.61019 with a coupon of 3.25% and a yield of 3.367%.
According to ASR sister publication National Mortgage News sources, the buyer of these notes will pay a fraction of the assets' value, work the underlying loans, and share part of the upside with the government. By selling structured notes, the FDIC will also be receiving some cash upfront, a report from National Mortgage News said.
As to why the FDIC chose to place these notes in the private placement market, an ASR source said the FDIC might not have wanted to deal with the level of disclosure it would have needed for these assets if the deals were placed in the public market.
"This leads you to the FDIC's timing," the source said. If these deals were not privately placed it "could take too long to get the public disclosure together, and on a greater level, to get Securities and Exchange Commission (SEC) approval. But then again, does the FDIC need SEC approval to do a public offering? Typically, if you want to do something faster and cheaper you go with private, the trade-off being the falloff in execution. That said, maybe the FDIC thinks they have buyers that don’t care whether these deals are placed in the public or private markets, so the execution will not suffer, and so why deal with a public offering?"