Traders are anxiously awaiting the first offering, expected soon, of NCUA Guaranteed Notes, the bonds derived from cash flows on toxic assets — including mortgages — held by 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 the 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 investment banking sources.
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 ten-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 also giving the NCUA bonds features similar to Ginnie Mae securities, which will also 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.
CUJ is an affiliate publication of National Mortgage News.
