NCUA’s Corporate Bonds Raise Almost $18 Billion

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WALL STREET – NCUA said yesterday that last Friday’s sale of $1.16 billion of NCUA Guaranteed Notes makes a total of $17.8 billion the agency has raised from investors to help finance the industry’s corporate bailout.

Proceeds from the notes offerings will be used by NCUA to pay out depositor credit unions who had almost $40 billion deposited with WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution FCU. The proceeds from the notes offerings will be used along with loans from the U.S. Treasury to finance the bailout, as NCUA has proceeded with the liquidation of the four failures, plus U.S. Central FCU.

NCUA has created the notes by collecting all of the assets form the failed corporates in a trust, using the cash flows on all of the investments–the principal and interest payments–then adding a federal guarantee. The investments themselves, many of which are continuing to go bad, continue to be held in the trusts, where any additional losses will eventually be realized by NCUA, and thus the credit union industry. Losses on the corporates are currently projected to be as much a $16 billion. NCUA Chairman Debbie Matz told Congress last week she expects credit unions to pay for all of the losses.

“NCUA’s ongoing efforts to resolve the corporate situation have yielded very positive
results,” said Matz. “ The financial success of the securitization is not only enabling NCUA to manage the disposition of troubled corporate credit unions, it is also allowing the credit union industry to pay for the losses without diminishing service to consumers.”

Through Friday’s offering NCUA had sold about 60% of a planned $35 billion worth of the notes to Wall Street investors. The sales, which are being managed by Barclays Capital, will continue in the first quarter of 2011.

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Corporate credit unions