WALL STREET – NCUA is expected to launch a fourth offering of guaranteed corporate notes this morning, this time of $3.5 billion worth.
The notes have been popular with big institutional investors, as well as credit unions, because of their healthy spread over agencies and the federal guarantee, according to several sources. “The capital markets love this stuff because there is not much guaranteed paper with spread available,” said Michael Doherty, president of the U.S. Central CUSO, CU Investment Services Inc., which is marketing the bonds to credit unions.
Today’s offering will include two floating-rate issues and one fixed-rate issue.
The four previous floating-rate issues have been priced around Libor plus 50 basis points, with an average monthly yield of between 70 bps and 75 bps--about 60 bps to 70 bps over agencies, according to Doherty.
The fixed-rate issues have carried yields averaging 1.63% for the bonds carrying an average life of 3.91 years; 2.70% for an average life of 5.84 years; and 2.96% for 6.71 years--or about 100 bps over agencies.
The spreads “are very attractive,” Doherty told the Credit Union Journal yesterday, noting the premium to the going SWAPs rate and to Libor. He said there has been avid interest among natural person credit unions for the bonds, which the federal guarantee have made into permissible investments for federally insured credit unions. “Issues like this usually go to international banks and outside institutions,” he said. “It’s not often that credit unions get to play.”
The higher yields are attributed to the uncertainty of the cash flows on the bonds, which are tied to troubled mortgage securities held by the five failed corporate credit unions, U.S. Central, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. NCUA has sold more than $13 billion worth of the bonds since the initial offering six weeks ago.
The offering is being sold through lead underwriter Barclays Capital, as well as Citi, FTN, Sandler O'Neill, WFC, CastleOak and ISI.
