The Federal Reserve declined American International Group’s offer to buy all of the assets in Maiden Lane II LLC (MLII), according to a release from the Fed.
Instead, the Federal Reserve Bank of New York (New York Fed) and the Board of Governors of the Federal Reserve System after careful review decided that public interest would be better served by using an "alternative approach to realizing value," which is also more consistent with normal market practice, the release said.
In light of improved conditions in the non-agency RMBS secondary market, and keen buyer interest, the Fed thinks that conditions are ripe for MLII to start more extensive asset sales while taking care to avoid market disruption.
The Fed's investment manager BlackRock Solutions is expected to circulate the first bid list sale by early next week. Inquiries on the sale can be made at ML2inquiries@blackrock.com.
The New York Fed via BlackRock will get rid of the MLII portfolio securities individually, in segments over time and as market conditions warrant by using a competitive sales process.
The government agency does not have a fixed timeframe for the sales. The Fed will also only execute a deal if the best available bid represents good value.
"Offering the Maiden Lane securities for sale individually and in segments rather than as a single block will give a larger set of investors opportunity to bid for the assets," the Fed's release said. The Fed thinks that this will maximize sale proceeds while also limiting the chance that any one institution ends up with concentrated exposure to these assets.
BlackRock Solutions will offer the securities for sale using the standard bid list process through multiple broker dealers. Over time, the Fed will also entertain investor inquiries to buy specific parcels of securities where these offer superior value, though no such bid will be accepted without offering them to other interested investors. In such cases, investors can submit offers for parcels of securities directly without going through a dealer.
The New York Fed already publishes on its Web site a list of all the securities in its portfolio. To track the progress of asset dispositions, the New York Fed will offer monthly updates on portfolio holdings and a list of the securities sold within the prior month. It will also provide quarterly updates on total proceeds from sales, and the total amount purchased by each counterparty.
The New York Fed will offer further details about these deals such as an account showing the acquirer and the price paid for each individual security three months after the last asset is sold.
This method ensures, according to the Fed release, timely accountability without jeopardizing maximum sale proceeds.