Today, the Federal Deposit Insurance Corporation (FDIC) announced the close of a Rule 144A sale of $1.8 billion principal amount of notes backed by 103 non-agency residential mortgage backed securities (RMBS) from seven failed bank receiverships. The FDIC has guaranteed the "timely payment of principal and interest due on the notes," which guaranty "is backed by the full faith and credit of the United States." The transaction priced last Friday and, according to the FDIC, was significantly oversubscribed “with over 70 investors participating across fixed and floating rate series.”

The offering included two tranches of fixed and floating rate notes, each backed by a separate pool of securities with the FDIC retaining an equity interest in each tranche. At the time of sale, the aggregate unpaid balance of the RMBS was approximately $3.6 billion, however, the $1.8 billion in proceeds will go to the "failed bank receiverships and eventually be used to pay creditors, including the FDIC's Deposit Insurance Fund (DIF)."

Pursuant to the transaction summary provided by the FDIC, the notes have the following features:

  • amortization of the notes will be based on the timing of cash flows on the underlying securities and principal on the notes will not be paid based on a fixed amortization schedule;
  • in addition to the unconditional guarantee of the FDIC, “each tranche of notes will benefit from credit enhancement in the form of overcollateralization and excess interest”;
  • senior I-A notes were backed by securities that included primarily option ARM mortgage loans, structured with 56.51% initial overcollateralization; and
  • senior II-A notes were backed by securities that included primarily fixed-rate mortgage loans, structured with 11.97% initial overcollateralization.

Also, yesterday, the FDIC announced the extension through September 30, 2010, of the Safe Harbor Protection for Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation.