NCUA Goes To Market With Corporates’ Legacy Asset Bonds

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WALL STREET – The Securities and Exchange Commission has cleared the sale of NCUA-backed bonds comprised of legacy assets from corporate credit unions, expected to take place as soon as tomorrow.

Underwriters for the offering, Barclays Capital, are expected to sell between $3.5 billion and $4 billion of the bonds, known as NCUA Guaranteed Notes, on Thursday, and will follow up with as many as 10 additional offerings totaling approximately $35 billion. Because of the guarantee of NCUA and the U.S. government, the bonds are rated AAA and deemed permissible investments for credit unions. Maturities of the bonds will run as long as 10 years.

This week’s offering follows the SEC’s “no action” letter of last week clearing the sale of the government-guaranteed bonds just a week after NCUA requested a ruling, an unusually quick response to a request for a “no action” letter. The no action letter was required because the bonds will not be registered with the SEC before sale, as are most securities. That means NCUA, as is the case for the Treasury Department, Fannie Mae and Freddie Mac, will not have to pay registration fees on the bonds, which could amount to millions of dollars.

The bonds are comprised of the cash flows derived from underwater mortgage backed securities held by U.S. Central FCU and WesCorp FCU, which have been lingering under NCUA conservatorship since March 2009. Additional bonds backed by toxic assets held by Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU will follow in the coming weeks and months. Each of the bonds will be structured differently based on the cash flows of the assets being securitized.

Wall Street sources said additional information on the pricing of the bonds will be made public after the initial sale is completed.

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