The $3.847 billion securitization for the National Credit Union Administration (NCUA) has come to market. This is the first in a series of securitizations for the NCUA.

The underlying RMBS portfolio of assets will be split into two pools, according to a Fitch Ratings presale report. One contains all floating-rate assets and the other has all fixed-rate assets. The issuer will issue securities in two series, each represented by a senior note and an owner trust certificate that will be initially retained by the NCUA, which is the deal's guarantor.

According to Fitch, series I will be backed by the floating-rate RMBS portfolio, while series II will be collateralized by the fixed-rate portfolio. There will be no cross-collateralization between the two series, the rating agency said.

The offering, which has Barclays Capital as the sole bookrunner,  comprises two triple-A-rated tranches. The class I-A portion has a 4.21-year weighted average life and is worth almost $3.3 billion. The class II-A tranche has a 3.34-year weighted average life and is worth $566.5 million.

The deal is rated by  Moody's Investors Service, Standard & Poor's and Fitch Ratings.

Wells Fargo and JPMorgan Securities are co-managers on the deal, which is expected to settle Oct. 27.

CastleOak Securities, ISI, Loop Capital Markets, and Williams Capital Group are part of the transaction's selling group.

This deal is reportedly the first of at least eight securitization deals that the NCUA is planning on. It has over $35 billion in assets, mostly MBS, that it plans to sell in the securitization market.

According to a report by Ed Roberts from Credit Union Journal, ASR's sister publication, yesterday’s sale of over $3.8 billion of NCUA guaranteed notes backed by toxic assets held by U.S. Central Federal Credit Union, a credit union that was taken into conservatorship by the NCUA board in March 2009, followed the sale of $9.5 billion of U.S. Central and WesCorp Federal Credit Union assets, which allowed the credit union regulator to pay off a federally backed $10 billion loan from the U.S. Treasury. The loan was used to stabilize the corporate system since the March 2009 conservatorship of the two corporate giants.

“This is a significant first step in NCUA’s orderly corporate resolution process,” said NCUA Chairman Debbie Matz.

The sale of the U.S. Central and WesCorp assets included included securities backed by performing residential and commercial mortgages, credit card receivables, student loans and auto loans.

The liquidation of U.S. Central and WesCorp will be the first step in the sale of as much as $35 billion of troubled mortgage assets held by those two and three other corporate failures, including Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitutional Federal Credit Union. The five corporates held as much as $60 billion in credit union assets, or 68% of all the assets in the corporate network (accounting for the fact that most of U.S. Central’s assets were doubled counted), at one time, according to Matz.

The resolution of the failed corporates will cost the credit union movement an estimated $16 billion, according to NCUA.

The proceeds from the sale of the U.S. Central and WesCorp assets allowed the NCUA to repay a $10 billion loan from the Treasury to NCUA’s Central Liquidity Facility, which in 2009 transferred the $10 billion to the National CU Share Insurance Fund in order to lend $5 billion each to U.S. Central and WesCorp. Those loans stabilized the two corporates while they were in conservatorship. Future loans from the Treasury for corporate stabilization will be assigned to the Corporate Stabilization Fund.

The NCUA is taking a similar route to that of the Federal Deposit Insurance Corp.(FDIC), which has used the securitization market to offload assets it holds as a result of taking over failed banks. In March, the FDIC sold the first such deal, which was also managed by Barclays and was worth $1.8 billion. It was backed by loans from Franklin Bank in Houston and Corus Bank in Chicago.

Fitch Presale

In a presale report released today by Fitch on the NCUA transaction, the rating agency said it expects to assign ‘AAAsf’ ratings to both the senior I-A and senior II-A notes to be issued by NCUA Guaranteed Notes Trust 2010-R1, which is the bankruptcy remote special-purpose vehicle (SPV) established to issue the senior notes and owner trust certificates.

The proceeds of which, according to the rating agency, will for buying a static portfolio of private-label RMBS. The RMBS were previously owned by U.S. Central FCU.

Fitch’s ratings on the senior notes are credit-linked to the rating of the U.S. government, the presale indicated. The NCUA, which is unrated, offers a full and unconditional guaranty of timely payment of interest and principal to each class of the senior notes. As a unit of the U.S. government, the NCUA’s obligations under this agreement are backed by the full faith and credit of the U.S., Fitch stated.  



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