In the past few years, regulators have found it necessary to close hundreds of insolvent banking institutions.
The FDIC, acting as receiver for failed banks, is usually able to sell most of the assets of failed banks. Typically, the purchaser of a failed bank will acquire most or all of the assets of a failed bank in an FDIC assisted transaction. There are occasions, however, when the FDIC cannot sell some or all of a failed bank’s assets, and in this situation the FDIC is forced to retain the failed bank assets.
As the financial crisis progressed and the number of banking failures increased, the amount of “resolution receivables” or failed bank assets held by the FDIC grew substantially. From almost nothing at the end of 2007, the amount of resolution receivables held by the FDIC increased to $15.8 billion at December 2008, $38.4 billion at December 2009 and $29.5 billion at December 2010.
On Tuesday, the FDIC reduced its resolution receivables after closing on the sale of $394.3 million of performing multi-family and commercial mortgages from thirteen failed banks. The sale marks the first time that commercial loan assets were sold in a securitization.
The FDIC received gross proceeds of $353.2 million on the transaction, representing 89% of the asset pool.
The FDIC noted in its press release that a wide variety of investors participated in the transaction.
The investors for the Class A senior certificates represented a wide variety of organizations, including banks, insurance companies and money managers, which paid par for the senior certificates. The Class B mezzanine and Class C subordinate classes were purchased by an affiliate of LNR Partners, LLC. This pilot transaction marks the first time the FDIC has sold commercial mortgage loans in a securitization since the beginning of the recent financial crisis.
The pilot transaction consisted of three classes of securities. Senior certificates of $315.4 million represented 80 percent of the capital structure and will be guaranteed by the FDIC in its corporate capacity. These senior certificates sold at a fixed-rate coupon of 1.84 percent and are expected to have an average life of 2.6 years. Approximately $39.4 million of mezzanine certificates represented 10 percent of the capital structure. These certificates sold at a fixed-rate coupon of 5.00 percent and are expected to have an average life of 6.5 years. The subordinate class also totaled $39.4 million and represented the most junior 10 percent of the capital structure. These certificates sold at a fixed-rate coupon of 5.00 percent and are expected to have an average life of 7.1 years. The mezzanine and subordinate certificates are not guaranteed by the FDIC.