Strong Demand At Launch Of NCUA Corporate Bailout Bonds

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WALL STREET – Traders yesterday were anxiously awaiting the first offering, expected as soon a late yesterday, of NCUA Guaranteed Notes, the bonds derived from cash flows on toxic assets held by the corporate credit unions that carry a full federal guarantee.

“There’s strong support. [But] people still need to see what the cash flows are, and how that plays out,” one Wall Street trader told Credit Union Journal.

The first offering of $3.8 billion was derived from cash flows on private label residential mortgage-backed securities owned by U.S. Central FCU, with additional offerings on securities owned by WesCorp FCU and three other corporate failures planned in the coming weeks, according to sources on the Street. The majority of the notes, $3.3 billion worth, had a 4.21% coupon, while $566 million worth carried a 3.34% rate. All of the notes were of 10-year maturities.

The NCUA bonds are being priced similar to notes offered by the FDIC based on the cash flows derived from toxic securities owned by failed banks. The FDIC has sold about $6 billion of notes priced around Libor plus 55 basis points, or the SWAPs rate plus 100. Most of it was floating-rate notes.

The federal guarantee is giving the NCUA bonds features similar to Ginnie Mae securities, which will weigh on the pricing, according to people familiar with the deal.

Most of the bonds held by U.S. Central and WesCorp were floating rate issues, meaning most of the NCUA notes will be of the floating rate variety.

The NCUA notes, which are permissible investments for federally insured credit unions, are being offered through Barclay’s Capital and through a co-underwriter ISI Securities, a brokerage that is owned by U.S. Central, which will focus on the credit union market.

NCUA plans to sell as much as $35 billion of the notes after liquidating five corporates, including U.S. Central, WesCorp, and recent failures Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU.

Separately, NCUA said it raised $9.5 billion by selling other assets owned by U.S. Central and WesCorp and used the proceeds of the sale to repay a $10 billion loan to the Treasury Department, which has been funding the corporate bailout.

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