The New York Federal Reserve has started a competitive bid process in response to several reverse inquiries for the MAX CDO holdings in its Maiden Lane III (ML III) portfolio. 

The agency has asked BlackRock Solutions, ML III's investment manager, to conduct a competitive bid process for the entire MAX CDO holdings.

All-or-none bids will be due on April 26 at which point the New York Fed will decide whether to sell depending on the strength of the best bid.

Eight broker-dealers have been invited by the Fed to submit bids for the portions of the ML III portfolio. The following eight banks were chose based on the strength of their expressions of interest in these holdings: Barclays Capital, Citigroup Global Markets, Credit Suisse, Deutsche Bank Securities, Goldman SachsMerrill LynchMorgan Stanley and Nomura Securities.  

"Consistent with the current investment objective of ML III, the New York Fed, through BlackRock Solutions, is exploring the sale of assets held by ML III, including the MAX CDO holdings," the NY Fed stated. "There is no fixed timeframe for the sales; at each stage, the Federal Reserve will sell an asset only if the best available bid represents good value for the public, while taking appropriate care to avoid market disruption."

Last Friday Bank of America Merrill Lynch analysts put out a report on the effect of ML III talk on the securitization market.

According to the analysts, the news of the potential supply coming into the market caused CMBS AM and AJ spreads to widen. However, they said that the effect on the non-agency market was less pronounced.

They said that while the underlying CMBS tranches are contained in only two transactions, the $30+ billion of non-agency bonds are spread across 83 different CDOs. This fact makes collapsing those offerings much harder.

Because of this, analysts do not think that the non-agency market will be deluged with added supply coming from this portfolio.

Analysts believe Maiden Lane III should not exert considerable downward pressure on RMBS prices to the extent that the structured finance CDOs are collapsed over an extended period of time. Additionally, there is the recent success of the Maiden Lane II wind down, the demand for higher yielding assets, and the lessons that both the NY Fed and Blackrock learned from the disposition of ML II. They think that cash and demand is currently there, although these might go away if the broader macro picture deteriorates.

For more of the ML III sales' potential effect on AJ CMBS tranches, please view this article. With the ML III sales, the Fed might also be looking to raise rates, as explained here.

 

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