Sharps SP 1 LLC launched an offer today to exchange 119 different CUSIPs of RMBS and ABS insured by Financial Guaranty Insurance Co. (FGIC) with an aggregate unpaid principal balance of round $9.6 billion.

Sharps is offering to exchange the insured securities for a combined cash and certificates generally representing the right to receive distributions of an amount equal to the principal and interest distributions made on the underlying insured securities without the benefit of the related FGIC insurance policy. Once the offer is completed, it would considerably lessen FGIC's statutory loss reserves for the Insured Securities.

The offer will expireat 11:59 p.m., NYC time, on April 29. Holders of the insured securities that participate in the offer before 11:59 p.m., NYC time, on April 15 will be eligible to receive a cash payment determined by reference to the unpaid principal balance of their insured securities as of Feb. 28. Holders that tender after the early consideration date but on or prior to the expiration date will be eligible to receive a cash payment determined by reference to the unpaid principal balance of their insured securities as of the expiration date.

The closing of the offer and related financing are conditioned upon approval or non-objection of the New York State Insurance Department  and the tender of a minimum amount of insured securities that, together with FGIC’s completion of other restructuring transactions, will result in FGIC having policyholders’ surplus of at least $290 million, among other conditions.

To achieve the minimum surplus threshold, FGIC and Sharps expect that around 70% of the aggregate unpaid principal balance outstanding of all insured securities will be required to be validly tendered into the offer (assuming other FGIC obligations subject to other restructuring transactions are adequately remediated).

FGIC has committed to provide financing for the offer, subject to certain conditions. Upon completion of the offer, FGIC will receive certificates that generally represent rights to receive payments on the FGIC insurance policies relating to the insured securities acquired by the offeror in return for the financing provided by FGIC for the offer.

The offer is being conducted only with qualified institutional buyers as defined in Rule 144A under the Securities Act of 1933, as amended that are also qualified purchasers as defined in Section 2(a)(51) under the Investment Co. Act of 1940, as amended.

The certificates that might be issued pursuant to the offer have not been and, at the time of the deal's closing, will not be registered under the Securities Act or any state securities laws.

The certificates might not be offered, sold or transferred in or outside of the U.S. except in reliance on the exemption from the registration requirements of the Securities Act afforded by Rule 144A thereunder and in accordance with applicable state and foreign securities laws to qualified institutional buyers that are also qualified purchasers.

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