BlackRock Inc.'s deal to buy a portfolio of subprime mortgage debt from UBS AG for $15 billion may have helped set a market-clearing price for such assets.
UBS announced the deal Tuesday and said that BlackRock, which has $1.4 trillion of assets under management, would put the debt in a new fund that will be sold to investors.
A spokeswoman for BlackRock confirmed the deal but would not say what the New York investment manager, in which Merrill Lynch & Co. Inc. owns a 49.8% stake and PNC Financial Services Group Inc. owns 34%, plans to do with the subprime portfolio.
UBS has reported more than $37 billion of subprime-related writedowns in the past year. It said the debt it is selling has a face value of $22 billion.
Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets, said that by buying the portfolio for 68 cents on the dollar, BlackRock has established a standard for other companies to use when buying and selling subprime debt.
"There are a lot of other companies, like Citi and others, that have similar subprime assets on their books, and now a market-clearing price has been set," he said. "This gives everyone something to price off of. This is very favorable for companies that have been waiting to sell these assets."
Geoffrey Bobroff, an analyst with Bobroff Consulting Inc. in East Greenwich, R.I., said that BlackRock is buying the debt "on the relative cheap with the hope and expectation to hold it and ride through the cycle for a payoff for both it and its investors."
In March, BlackRock announced plans to team up with Highfields Capital Management LP to raise $2 billion to start a joint venture, PennyMac, to buy delinquent mortgages.
The BlackRock spokeswoman said the deal for UBS' subprime debt is not connected in any way with the investment in PennyMac.
Mr. Bobroff said he expects companies to look to make similar deals for distressed mortgage portfolios.
Mr. Cassidy agreed with that assessment and said National City Corp. could be the next financial services company to sell its subprime assets.
"I anticipate that National City will do a bulk sale or a spinoff of their bad debt," he said. "It will be very interesting to see how much they get for their loan portfolio."
