Following rumors that have lasted for months, the Federal Deposit Insurance Corp. is securitizing assets of banks that it has seized, assests from Franklin Bank in Houston and construction lender Corus Bank in Chicago.
The agency has kicked off this strategy with three offerings in the past month. The first involved the $108-billion sale of 103 residential mortgage-backed securities, in which the FDIC retained an equity interest. The assets derived from seven failed banks now in receivership. Proceeds from the sale will go to the receiverships to be used to pay creditors.
The offering marked the first issuance of notes by the FDIC since the early '90s. And the sale was met with a hearty response from buyers, with more than 70 investors participating across fixed and floating rate series, according to an agency release. All of the investors were institutional buyers.
A week later, the FDIC debuted a $1.4-billion offering of commercial mortgage-backed securities-secured by condominium-construction loans, foreclosed properties and other commercial assets from Corus Bank. Last October, the FDIC sold a 40% stake in a $4.5-billion portfolio of Corus assets to a Starwood Capitalled consortium.
Meanwhile, a third securitized offering backed by residential mortgage securities hit the market in mid-March. The three deals will total $4 billion, according to published reports. Barclays Capital has been enlisted to serve as the structuring agent and financial advisor on the securitizations, which will be backed by an FDIC guarantee. A call to the FDIC was not returned in time for publication.
It is unclear what impact the FDIC will have as it steps into the distressed market with these deals. Its primary mission, of course, is to get the best deal for taxpayers. The private sector, however, worries that the FDIC may drive up distressed asset valuations, which have been perceived to be too high to begin to move. At the same time, the agency could also introduce a welcome note of transparency into pricing with these deals.
"The FDIC has a lot of product, which is unfortunate for the system, but it's important to get really close to valuations that people will acknowledge as accurate," says Patrick Sargent, a partner in the Dallas office of Andrews Kurth LLP and president of the Commercial Real Estate Finance Council."We're seeing widely varying appraisal amounts," he says. "We've got to get 'price discovery' in order to find out where valuations really are. Once people are comfortable with that, there are many investors on the sidelines waiting for what they perceive to be the bottom and valuations that they can justify."
GlobeSt.com News Hub is your link to relevant real estate and business stories from other local, regional and national publications.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
