The U.S. Federal Deposit Insurance Corp is planning to sell $1.8 billion of guaranteed asset-backed debt, according to IFR, in what may be a step toward restoring confidence in securities closely tied to the financial meltdown.
The debt will be backed by residential mortgage assets of failed banks seized by the FDIC, market sources said. The two-part deal is expected to sell this week via Barclays Capital, said IFR, a Thomson Reuters service.
The move has been anticipated by investors and dealers for months as the FDIC piles up loans from banks failing at an alarming rate. The plan calls up memories of the savings and loan crisis of the early 1990s when the federal government created the Resolution Trust Corp to dispose of assets.
It could also awaken a market that has been largely frozen for two years, except for government-sponsored programs of Fannie Mae and Freddie Mac. While the FDIC bonds are expected to also carry a government stamp, their origination via Wall Street suggests a stepping stone toward the kinds of private issuance seen crucial if U.S. housing is to wean itself from government support, analysts said.
It will be a new issue benchmark deal where we haven't had one in quite some time, said Scott Buchta, a strategist at Guggenheim Capital Markets in Chicago. Even though technically it's an agency, it's still a new issue.
Investors have been on edge for months as they anticipate the end of the Federal Reserve's $1.25 trillion guaranteed mortgage bond purchase program. The purchases have been a key support for the market where private issuance has been nil.
In that light, an FDIC issue may be no coincidence, Tim Ryan, chief executive officer of the Securities Industry and Financial Markets Association, and a former RTC board member, said in a recent interview.
We need somebody who has a large portfolio, and is a willing seller at a clearing price to move consumer assets in securitized form, Ryan told Reuters. Especially now, since the Fed is getting out of funding the business. This is pretty much timed, part of the replacement plan.
Ryan said an FDIC issue could lay groundwork for future private securitizations with guidance on pricing, documentation and transparency. The issuer will likely retain some risk, which would align its interests with investors, he expected.
The FDIC bond will probably be priced at a discount to standard Fannie Mae and Freddie Mac MBS, but a premium to the non-guaranteed mortgage securities, Buchta said.
(Additional reporting by Ciara Linnane, Karen Brettell and Karey Wutkowski; Editing by Andrew Hay)