N.Y. Fed Opens Bidding for $2.5 Billion in AIG Bonds
NEW YORK--The Federal Reserve Bank of New York said it invited nine Wall Street dealers to bid for residential-mortgage bonds with a face value of $2.5 billion as it unwinds a portfolio created during the 2008 bailout of American International Group Inc.</br></br>The New York Fed said the bid process was launched after it received several "strong" inquiries to buy the structured debt known as collateralized debt obligations, or CDOs.</br></br>The two "Triaxx" CDOs on offer were packaged in 2006 with residential-mortgage-backed securities containing jumbo and Alt-A loans, which are larger than those that fit into government programs or had limited documention. Such CDOs were at the heart of the credit crisis, fueling more risky lending and later causing steep losses to investors and banks that had counted on their high credit ratings.</br></br>The proposed sale would be the second from the Maiden Lane III portfolio in less than a month, after eight dealers recently formed unusual alliances to boost their chances of winning an auction for $7.5 billion of commercial-mortgage-backed security CDOs. Deutsche Bank AG and Barclays PLC won the auction and had commitments from investors to purchase the majority of the CMBS from them.</br></br>Similar demand could develop for the residential mortgage assets as many investors, including Two Harbors Investment Corp., have been adding the underlying RMBS in recent months. The CDO structure adds a layer of complexity that limits buyers, but some investors may relish the chances of buying such debt that likely has extra yield over the underlying securities that have already rallied up to 10% this year, analysts said.