UPDATE:Investors Looking To Offload Bonds Bought Using Fed's Loans-Source
September 23 2010 - 12:57PM
Dow Jones News
Investors are looking to sell consumer loan-backed bonds valued
at $940 million that they had bought a little over a year ago using
low-cost loans from the Federal Reserve.
The nine bonds, valued at between $11 million and $210 million,
are triple-A-rated securities and are backed by auto and credit
card loans, according to Jim Harrington, an asset-backed securities
investor who had purchased some of these bonds when he worked for
Ryan Labs Asset Management in New York.
In an effort to support the consumer loan-backed market, the Fed
had launched the Term Asset-Backed Securities Loan Facility, or
TALF, in March last year. Through the program, it offered investors
loans at attractive rates. The loans were nonrecourse, meaning that
if anything went awry, the investor could walk away from the loan
with minimal losses. The move was designed so investors could
purchase newly minted bonds backed by consumer debt at a time when
investors were wary of debt whose underlying collateral they were
unsure about. TALF was deemed successful in energizing the market
for these bonds as about $140 billion in asset-backed securities
were sold last year. By November, more asset-backed bonds were sold
outside the program than those under TALF.
"Those bonds are trading above par so investors have made their
money and want to sell so they can reallocate their cash,"
Harrington said.
Either they could buy new asset-backed bonds or they could buy
corporate debt, he said, noting there is ample supply of both even
as interest rates remain low and investors reach for higher
yields.
On Wednesday, a bid list of TALF bonds valued at $400 million
was circulating for sale, according to a person familiar with the
matter. The largest part of the list was a $115 million bond from
SLM Corp. (SLM), better known as Sallie Mae.
Among the bonds on sale Thursday are those issued by Ford Motor
Co. (F), AmeriCredit Corp. (ACF) and Citigroup Inc. (C), Harrington
said.
-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227;
anusha.shrivastava@dowjones.com
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