IFR-FDIC continues RMBS program with new deal

by Adam Tempkin

NEW YORK, July 26 (IFR) - Royal Bank of Scotland officially announced today a $367.9 million mortgage securitization for the FDIC, the first such deal for the deposit insurer this year.

The transaction will be backed by a pool of residential mortgage loans originated and acquired by seven different failed institutions in receivership: Colonial Bank, First Arizona Savings, Platinum Community Bank, Riverside National Bank, Security Savings Bank, Premier Bank, and Citizens B&T of Chicago.

More than half of the loans come from Colonial Bank, which failed on August 14, 2009, when its 346 branches were seized by regulators. About $22 billion of the bank's deposits were subsequently sold by the FDIC to BB&T Corp (BBT.N).

The guaranteed "Class A" senior tranche of this week's transaction, for $367.9 million, will be offered to investors. It has a 4.7-year weighted average life and a legal final maturity of July, 2026. Price talk for the transaction is between 90 and 95 basis points over Interpolated Swaps.

A mezzanine "Class M" tranche for $21.9 million will be offered separately. It is non-guaranteed.

The Class A offered certificates will be guaranteed by the FDIC, meaning that they will be backed by the full faith and credit of the U.S. -- though it's not clear if that will equate to a Double-A or Triple-A rating by the time the deal is priced, given the looming threat of a U.S. credit rating downgrade. For more, see [ID:nL6E7IQ17I]

The Class A bonds will have a fixed-rate coupon, a 15-year legal final maturity of July 2026, and are expected to price at par.

This transaction will be the FDIC's first securitization of residential mortgage loans in 2011. The last such offering was the FDIC 2010-R1 deal, for US$409m, which priced in July 2010.

RBS managed that deal as well; it was backed by residential mortgages from 16 failed banks.

While the 2010-R1 offering was part of the FDIC's loan-securitization program, the deposit insurer in recent years also sought to monetize assets from failed banks through a separate so-called structured-sales program. This consisted of bulk sales of non-performing residential, commercial and industrial whole loans. Barclays Capital worked closely with the FDIC on those programs.

The structured-sale transactions leveraged securitization technology to contribute assets to a newly formed limited liability company, although they were not bankruptcy-remote and did not require a so-called legal true-sale opinion, as most true securitizations do.

Today's FDIC mortgage securitization is expected to price by the end of the week.

RBS is the sole lead bookrunner; Barclays Capital, Jefferies & Company and CastleOak Securities are co-managers of the transaction.

(Adam Tempkin is a senior IFR analyst; Tel: 1-646-223-8841)