NEW YORK - Bank of America is underwriting a $239 million Lone Star subprime securitization backed by loans originated by troubled U.S. lender CIT Group, market sources said on Wednesday.
CIT, which specializes in loans to small- and medium-sized businesses, has been saddled with losses in recent years after the company tapped into riskier investments such as subprime mortgages.
A financial meltdown later triggered a sharp rise in loan losses and credit costs that led the the company to the verge of collapse earlier this summer.
Last month the Federal Reserve ordered CIT to submit a plan for raising captial and meeting debt obligations as it struggles to stave off bankruptcy.
Lone Star Funds, a U.S. private equity manager, acquired CIT's $9.3 billion subprime mortgage portfolio in 2008 for $1.5 billion in cash and the assumption of $4.4 billion of liabilities, as it pushed deeper into distressed securities investing.
Lone Star's residential mortgage-backed securities deal is backed by a mix of fixed- and adjustable-rate mortgage loans made to borrowers with average FICO scores of 571.
Ratings have not yet been determined for the offering, however, credit enhancement for its class A securities have been set at 60 percent, market sources said.
The deal, which is expected to price in the 144A private placement market, is one of very few transactions to emerge since the collapse of the subprime mortgage sector.
Lax lending standards in the period from 2005 to 2007 led borrowers to default on their mortgages in record amounts and led to the writedowns of billions of dollars at top U.S. investment firms and banks.
(Editing by Kenneth Barry)