Maiden Lane Transactions
Milestones

September 15, 2014: Remaining proceeds in ML II LLC and ML III LLC were paid to the New York Fed and AIG in accordance with their respective interest in each vehicle.

November 15, 2012: Net proceeds from additional sales of securities in Maiden Lane LLC enabled the full repayment of the subordinate loan made by JPMorgan Chase & Co. plus accrued interest. The New York Fed will receive 100 percent of future cash flows generated from the remaining ML LLC assets, in accordance with the ML LLC waterfall.

August 23, 2012: Maiden Lane III LLC sold all remaining securities. Subsequent to the repayment of ML III LLC’s liabilities to the New York Fed and AIG, net proceeds from sales of the securities, as well as cash flow the securities generated while held by ML III LLC, provided a net gain of approximately $6.6 billion for the benefit of the U.S. public.

July 16, 2012: Net proceeds from additional sales of securities in Maiden Lane III LLC enabled the full repayment of AIG’s equity contribution plus accrued interest and provided residual profits to the New York Fed. The New York Fed will continue to receive 67 percent of residual profits generated by future sales of ML III LLC assets.

June 14, 2012: Maiden Lane LLC and Maiden Lane III LLC repaid the loans made by the New York Fed, with interest. The successful repayment of the loans marks the retirement of the last remaining debts owed to the New York Fed from the crisis-era interventions with Bear Stearns and AIG.

February 28, 2012: Maiden Lane II LLC sold all remaining securities*. Net proceeds from sales of all the securities, as well as cash flow the securities generated while held by ML II LLC, enabled the full repayment of ML II LLC's liabilities to the New York Fed and AIG while also providing a net gain of approximately $2.8 billion for the benefit of the U.S. public.

Historical Supplemental Survey Reports

Chart Explanation


Source: H.4.1 Factors Affecting Reserve Balances offsite

Note: Data reflects the outstanding FRBNY senior loan principal balance for each of the LLCs and does not include accrued interest. Chart was updated on a weekly basis through the repayment of the FRBNY senior loans.

Financial Overview of the Facilities

Maiden Lane Facilities as of 09/17/2014 ($ millions)
  Original FRBNY
Senior Loan Balance
Current Accrued Interest on Senior Loan Cumulative Payments to FRBNY Current Outstanding Senior Loan Balance with Accrued Interest H.4.1 Portfolio Holdings Fair Value1 Net Realized Gain / Income for FRBNY2
Maiden Lane LLC $28,820 - $(29,585) - $1,664 $765
Maiden Lane II LLC $19,494 - $(22,394) - - ^ $2,899
Maiden Lane III LLC $24,339 - $(30,989) - - ^ $6,650
Source: Federal Reserve Board H.4.1, Federal Reserve Bank of New York.
Note: This table will be updated annually.
Weekly updates can be found on the Federal Reserve Board H.4.1

1 Portfolios remarked quarterly. Reflects 6/30/2014 prices applied to the portfolio as of the reporting date.
2 Net realized gain/income figure includes accrued interest earned on the senior loan and any current residual balance paid to the New York Fed. Currently, amounts for Maiden Lane LLC represent accrued interest only.
^ A de minimus cash balance remains in ML II LLC and ML III LLC for trailing expenses.


Introduction

The formation of the Maiden Lane LLCs in 2008 occurred during a time of severe economic distress in the United States. The sharp deterioration in the U.S. housing market in 2007, led to a loss of confidence in the value of mortgage-related products and in the financial institutions with exposures to these products. The ensuing funding pressures on a range of financial institutions and strained liquidity conditions across the financial system led the Federal Reserve to take a series of unprecedented policy actions to contain the broader risks the financial crisis posed to the economy. Among these actions, the Federal Reserve Board authorized the Federal Reserve Bank of New York (New York Fed) under Section 13(3) of the Federal Reserve Actoffsite to form three limited liability companies to facilitate lending in support of specific institutions:

Since 2008, the New York Fed has been focused on meeting the following objectives in the management of the Maiden Lane LLCs:

  • Ensure that the loans extended to the Maiden Lane LLCs by the New York Fed are fully repaid
  • Avoid actions that could disturb general financial market conditions

Maiden Lane LLC (ML LLC)

Purpose: ML LLC was created to facilitate the merger of JP Morgan Chase & Co. (JPMC) and Bear Stearns Companies, Inc. (Bear Stearns) by purchasing approximately $30 billion in assets from the mortgage desk at Bear Stearns.

Terms: The New York Fed lent ML LLC approximately $28.82 billion. The loan has a 10-year term and accrues interest at the primary credit rate. JPMC lent ML LLC approximately $1.15 billion. The JPMC loan has a 10-year term and accrues interest at the primary credit rate plus 450 basis points.

Investment Objective: Repay the New York Fed’s senior loan (including principal and interest), while refraining from disturbing general financial market conditions. Following a 2-year reinvestment period, monthly loan repayment commenced in July 2010.

On June 14, 2012, ML LLC repaid the loan made by the New York Fed, with interest. Proceeds from future sales of ML LLC assets will be used to repay the subordinated loan extended by JPMorgan Chase & Co., after which the New York Fed will receive all residual profits.


Maiden Lane II LLC (ML II LLC)

Purpose: ML II LLC was created to alleviate capital and liquidity pressures on American International Group Inc. (AIG) stemming from its securities lending program by purchasing $20.5 billion in residential mortgage-backed securities (RMBS) from several of AIG’s U.S. insurance subsidiaries.

Terms: The New York Fed lent ML II LLC approximately $19.5 billion. The loan has a 6-year term and accrues interest at 1-month LIBOR plus 100 basis points. The AIG insurance subsidiaries agreed to defer receipt of $1 billion of the purchase price. The fixed deferred purchase price accrues at 1-month LIBOR plus 300 basis points.

Investment Objective: Repay the New York Fed’s senior loan (including principal and interest) while striving to maximize sales proceeds and refraining from disturbing general financial market conditions. Monthly loan repayment commenced in January 2009.

On February 28, 2012, Maiden Lane II LLC sold all remaining securities*. Net proceeds from sales of all the securities, as well as cash flow the securities generated while held by ML II LLC, enabled the full repayment of its liabilities to the New York Fed and AIG while also providing a net gain of approximately $2.8 billion for the benefit of the U.S. public.


Maiden Lane III LLC (ML III LLC)

Purpose: ML III LLC was created to alleviate capital and liquidity pressures on American International Group, Inc. (AIG) stemming from credit default swap (CDS) contracts written by AIG Financial Products Corp. (AIGFP) by purchasing $29.3 billion in multi-sector collateralized debt obligations from certain AIGFP counterparties, enabling AIGFP to terminate the associated CDS.

Terms: The New York Fed lent ML III LLC approximately $24.3 billion. The loan has a 6-year term and accrues at 1-month LIBOR plus 100 basis points. AIG contributed $5 billion of equity to ML III LLC. AIG’s equity interest accrues interest at 1-month LIBOR plus 300 basis points.

Investment Objective:: Repay the New York Fed’s senior loan (including principal and interest), followed by AIG’s equity interest (including accumulated preferred distributions representing interest) for as long as the United States Treasury maintains an economic stake in AIG on behalf of the United States taxpayer, while also striving to maximize sale proceeds and refraining from disturbing general financial market conditions.

On June 14, 2012, ML III LLC repaid the loan made by the New York Fed, with interest.

On July 16, 2012, net proceeds from additional sales of securities in Maiden Lane III LLC enabled the full repayment of AIG’s equity contribution plus accrued interest and provided residual profits to the New York Fed.

On August 23, 2012, ML III LLC sold all remaining securities. Subsequent to the repayment of ML III LLC’s liabilities to the New York Fed and AIG, net proceeds from sales of the securities, as well as cash flow the securities generated while held by ML III LLC, provided a net gain of approximately $6.6 billion for the benefit of the U.S. public.


Oversight

The New York Fed established the Investment Support Office, a staff of asset specialists and senior managers, to oversee and coordinate all matters related to the ML LLC, ML II LLC and ML III LLC assets. In consultation with New York Fed senior management and the Board of Governors of the Federal Reserve System, the Investment Support Office works with the investment manager, other service providers, auditors, internal financial risk managers, accountants and lawyers to ensure that the portfolios of the LLCs are managed appropriately and to maximize the likelihood that the senior loans from the New York Fed are repaid. As part of this work, the Investment Support Office carries out a range of responsibilities, including:

  • ensuring that the New York Fed loans are repaid according to the investment objectives as efficiently as possible
  • ensuring, where possible, that the public’s interests are represented in the management of the portfolio assets
  • mitigating each portfolio’s financial and operational risks
  • providing guidance to the investment manager
  • managing day-to-day relationships with service providers
  • conducting vendor oversight reviews
  • coordinating portfolio reporting
News

* As part of the close-out procedures for Maiden Lane II LLC, on August 22, 2012, the New York Fed sold eight residual securities that had been factored to zero and consequently dropped from the portfolio holdings report published by the New York Fed. There was no active notional balance associated with these positions as the securities were fully written down prior to the last ML II sale on February 28, 2012; thus, the subsequent sale of these zero-factor securities had no material impact on the net gain reported for the ML II portfolio.

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1. Transaction Overview
2. Significant Transaction Terms
3. Management of Portfolio Assets
4. Vendors
5. Periodic Releases
6. Asset Sales

Charts

Asset Composition by Fair Value

Source: FRBNY - Summary of Assets.
Notes: Data for December 2013 is unaudited and preliminary. Finalized data will be published with the release of the Federal Reserve System financial statements. Other Investments includes CMBS, non-resi ABS, CDOs, corporates, municipals, and U.S. Treasury securities. Other Assets and Liabilities includes interest and principal receivable, amounts receivable for securities sold, amounts payable for securities purchased, collateral posted to the LLC by swap counterparties and other liabilities/accrued expenses. Change in fair value from the prior quarter reflects a combination of asset repayment of principal, change in the price, realized gains and losses as a result of sales and the disbursement of cash in accordance with the Maiden Lane LLC waterfall.

Maiden Lane Asset & Liability Summary
Source: FRBNY - Summary of Assets and Outstanding Loan Balance; Note: Fair value includes cash and loan balance includes accrued interest.


Transaction Overview

Overview

In March 2008, Maiden Lane LLC (ML LLC) was formed to facilitate JPMorgan Chase & Co.’s (JPMC) merger with Bear Stearns Companies Inc. (Bear Stearns) and prevent the contagion affects of Bear Stearns’s disorderly collapse to the broader U.S. economy. ML LLC borrowed $28.82 billion from the Federal Reserve Bank of New York (New York Fed) in the form of a senior loan, which, together with funding from JPMC of approximately $1.15 billion in the form of a subordinate loan, was used to purchase a portfolio of mortgage-related securities, residential and commercial mortgage whole loans and associated hedges (derivatives) from Bear Stearns.

Note: Derivatives includes swap contracts, futures, and options on futures

The ML LLC transaction closed on June 26, 2008 based on Bear Stearns’s fair value of its assets as of March 14, 20081. The portfolio of assets and hedges had a fair value on March 14, 2008 of approximately $30 billion.

The JPMorgan Chase subordinated loan will be the first to absorb losses, if any, on the liquidation of the portfolio assets.

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Selection Criteria for Portfolio assets

All the assets purchased originated from the Mortgage Desk of Bear Stearns. Under the terms of the agreement with the New York Fed, the assets purchased by ML LLC from Bear Stearns had to meet certain eligibility requirements. The due diligence review of the assets for adherence to the eligibility criteria was conducted by the New York Fed’s advisors, which included its investment manager, BlackRock Financial Management Inc. and Ernst & Young. Regardless of the final closing date of the asset purchase, in order to be eligible for purchase by ML LLC, the Bear Stearns assets needed to meet the following eligibility criteria as of March 14, 2008.

Cash Assets (Securities and Mortgage Loans)

Securities Criteria: The securities purchased by ML LLC had to be U.S. domiciled and issued and U.S. dollar-denominated. The securities had to be rated investment grade, which was defined as rated BBB- or higher.

Mortgage Whole Loan Criteria: All commercial and residential mortgage whole loans (i.e. non-securitized) had to be performing, which was defined as current or delinquent by no more than 30 days.

Hedges (Derivatives)

ML LLC purchased a pro-rata share of the macro, non-credit and credit hedges associated with the Mortgage Desk of Bear Stearns. Macro and non-credit hedges were largely in the form of interest rate swaps, futures, options on futures, U.S. Treasuries and agency mortgage TBAs. Credit hedges associated with the Bear Stearns Mortgage Desk’s outstanding positions on March 14, 2008, in the form of single-name credit default swaps (CDS) and to a lesser extent CMBX positions, were also purchased on a pro-rata basis. The CDS contracts purchased by ML LLC referenced investment grade and non-investment grade underlying securities. On an aggregate net basis, the single-name CDS positions purchased by ML LLC resulted in ML LLC being the protection buyer on the CDS contracts (i.e. holding a net short credit position).

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Composition of Assets at Inception (March 14, 2008)

Asset Fair Value* ($ billion)
Agency MBS $10.1
Commercial real estate whole loans $8.2
Non-agency RMBS $5.1
Derivatives $3.7
Residential whole loans $1.6
CMBS, non-residential ABS, CDOs, corporates and municipals $1.3
Total $30.0
*Bear Stearns fair value marks as of 3/14/08.
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Significant transaction Terms

  • The New York Fed loan to ML LLC is senior to the JPMC loan. Both loans are secured by ML LLC’s portfolio of assets and issued with a stated term of 10 years. The term of both loans may be extended at the New York Fed’s discretion; however, if the New York Fed extends the JPMC loan, it must also extend the FRBNY loan for the same amount of time.
  • The interest on the New York Fed senior loan accrues at the primary credit rate.
  • The interest on the JPMC subordinated loan accrues at the primary credit rate plus 450 basis points.
  • The distribution of proceeds realized on the ML LLC portfolio (including interest proceeds and proceeds from the maturity or liquidation of the asset portfolio) occurs on a monthly basis, unless otherwise directed by the New York Fed, and is made in the following order (each category must be fully paid before proceeding to the next lower category):

  • Exception: There was a 2-year accumulation period from June 26, 2008 (closing date) until June 26, 2010, during which any proceeds realized in the ML LLC portfolio, after the payment of certain fees and expenses and any payments made pursuant to the derivative contracts, was deposited into a reserve account and reinvested into eligible investments2. At the sole discretion of the New York Fed, repayment of the senior loan could have commenced during the 2-year accumulation period, but only if the ML LLC first paid in full the outstanding principal amount of the subordinate loan plus any accrued and unpaid interest.
  • Since the end of the accumulation period on June 26, 2010, distribution of the proceeds realized on the portfolio occurs on a monthly basis, unless otherwise directed by the Federal Reserve.
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Management of Portfolio Assets

The New York Fed retained BlackRock Financial Management Inc. (investment manager) to perform the day-to-day management of the assets held in the ML LLC portfolio.

The investment manager’s objective for ML LLC’s portfolio is to repay the New York Fed’s senior loan (including principal and interest), while refraining from investment actions that would disturb general financial market conditions. The sale of assets from ML LLC through Q2 2012 enabled the full repayment of its liabilities to the New York Fed. Proceeds from future sales in ML LLC will be used to retire the subordinated loan extended by JPMorgan Chase & Co., after which the New York Fed will receive all residual profits.

Key Investment Guidelines

1. The investment manager must manage portfolio proceeds in accordance with the objective described above, subject to the maintenance of sufficient liquidity to meet expected payments and obligations. Following the 2-year accumulation period, funds invested in short-term investments are limited to: Treasury securities and agency debt obligations with remaining maturity of a year or less; U.S. 2a-7 Treasury/Agency money market funds; and reverse repurchase agreements collateralized by U.S. Treasury and agency securities.

2. For purposes of managing interest rate risk the investment manager may enter into or purchase:

  • Interest rate swaps
  • Interest rate caps and floors
  • Swaptions
  • Treasuries
  • Agency TBAs
  • Eurodollar, Federal Funds and Treasury futures
  • Options on Treasury futures or Eurodollar futures

3. Transactions that create new exposures to credit derivatives, equities, commodities, foreign currency-denominated assets or sub-investment grade assets are expressly prohibited. For the avoidance of doubt, the termination of a credit derivative that results in a net non-zero exposure to a reference obligation is not considered a transaction that creates a new exposure.

4. For purposes of meeting the investment objective discussed above or to meet contractual obligations to derivative counterparties, the investment manager may take the following actions3:

  • Purchase any underlying assets sold in a collateralized debt obligation (CDO) liquidation where the CDO in the ML LLC portfolio has experienced an event of default
  • Purchase or accept delivery of any reference obligation underlying a credit default swap (CDS) in the ML LLC portfolio where the CDS has experienced a credit event.
5. The New York Fed, at its sole discretion, may add permissible categories for investment.

Vendors

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Periodic Releases

  • Weekly H.4.1 Federal Reserve Statistical Release
    ML LLC’s assets and liabilities are consolidated on the books of the New York Fed. As a result, the weekly H.4.1 statistical release of the Federal Reserve’s balance sheet includes ML LLC’s quarterly fair value (plus normal accounting entries largely related to interest accruals, senior loan repayments and expenses) and outstanding loan balance.
  • Report on Credit and Liquidity Programs
    The Federal Reserve prepares this report as part of its efforts to enhance transparency about the range of programs and tools that were implemented in response to the financial crisis.
  • Summary of Assets6
  • Holdings Report6
  • Year-end Financials
Asset Sales

As a normal course of business, ML LLC sells assets from its portfolio in order to meet its mandated investment objective. Asset sales have been conducted since the LLC’s inception and in a manner which refrains from disrupting general financial market conditions. The asset sales information provided below is intended to enhance the transparency around ML LLC portfolio asset sales. The New York Fed is providing the following information on the progress of the sales on a regular basis, taking care to preserve the effectiveness of the asset sales process:
  • Asset Sales Review6
  • Proceeds by Counterparty Review5, 6

The New York Fed welcomes and encourages small, veteran-, minority- and women- owned businesses to bid either individually or through meaningful partnership with others, on assets in the ML LLC portfolio. As the New York Fed is interested in better understanding and monitoring the diversity of those entities purchasing its assets, prospective and/or successful bidders, either bidding alone or in partnership with another bidder, may be asked to disclose information about their small, veteran-, minority- and women- owned business status as well as that of their business partners. Please note, however, that the fact that a bidder is a small, veteran-, minority- and women- owned business does not in any way impact the selection of a winning bidder. Inquiries related to ML LLC asset sales can be made at MLinquiries@ny.frb.org.

Glossary »


1Therefore, the New York Fed incurred the risk of the ML LLC asset portfolio from Bear Stearns as of March 14, 2008.
2Eligible investments included Treasury securities,Agency securities (mortgage-backed securities and debentures).
3These actions may require the purchase of reference bonds that are rated below investment grade (i.e. BBB- or below)
4The parties to these contracts are Deloitte & Touche and the Board of Governors of the Federal Reserve System. Inquiries regarding these contracts should be directed to the Board of Governors of the Federal Reserve System.
5Sales related to commercial whole loans and real estate owned are excluded from this report due to confidentiality provisions that govern these sales transactions.
6As of February 14, 2014, reports will be updated annually within 45 days of year end.

* As part of the close-out procedures for Maiden Lane II LLC, on August 22, 2012, the New York Fed sold eight residual securities that had been factored to zero and consequently dropped from the portfolio holdings report published by the New York Fed. There was no active notional balance associated with these positions as the securities were fully written down prior to the last ML II sale on February 28, 2012; thus, the subsequent sale of these zero-factor securities had no material impact on the net gain reported for the ML II portfolio.

1. Transaction Overview
2. Significant Transaction Terms
3. Management of Portfolio Assets
4. Vendors
5. Periodic Releases
6. Asset Sales

Charts

Source: FRBNY – Quarterly Summary of Assets and Outstanding Loan Balance, Federal Reserve Board H.4.1
Note: Unaudited. A cash balance remains in ML II LLC, reflecting residual receipts and reserves held to meet trailing expenses and other obligations.

Source: Federal Reserve Board H.4.1, Federal Reserve Bank of New York

Transaction Overview

Overview

In November 2008, the Federal Reserve Board and the U.S. Treasury announced the restructuring of the government's financial support to American International Group Inc. (AIG) in order to provide the company with more time and greater flexibility to sell assets and repay the government. The Federal Reserve Bank of New York (New York Fed) created Maiden Lane II LLC (ML II LLC) to alleviate capital and liquidity pressures on AIG associated with the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG.

For additional information on actions taken in support of AIG, please refer to Actions Related to AIG.

ML II LLC borrowed $19.5 billion5 from the New York Fed, which, together with $0.3 billion in principal and interest adjustments between October 31 and December 12, 2008, was used to purchase a portfolio of residential mortgage-backed securities (RMBS) from the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG. These same insurance subsidiaries agreed to defer the payment of an additional $1 billion of the purchase price (fixed deferred purchase price) until after the New York Fed loan is repaid in full.

The ML II LLC transaction closed on December 12, 2008 based on BlackRock Financial Management Inc.’s fair value of AIG’s RMBS assets as of October 31, 20086.

As of October 31, 2008, the ML II LLC portfolio of assets had an estimated fair value of $20.5 billion and a par value of approximately $39.3 billion.

Selection Criteria for Portfolio Assets

Under the terms of the agreement with the New York Fed, the assets purchased by ML II LLC had to be U.S. dollar-denominated, RMBS securities held by AIG’s insurance subsidiaries as part of AIG’s securities lending program. The review and selection of these assets was conducted by the New York Fed in conjunction with its advisor, BlackRock Financial Management Inc.

significant transaction terms

  • The New York Fed loan to ML II LLC is senior to the right of the AIG insurance subsidiaries to receive the fixed deferred purchase price. The New York Fed loan and the fixed deferred purchase price are secured by ML II LLC’s portfolio of assets. The New York Fed loan has a stated term of 6 years, and may be extended by the New York Fed at its discretion.
  • The interest rate on the senior loan is one-month LIBOR plus 100 basis points.
  • After the New York Fed loan has been repaid in full with interest, to the extent that there are sufficient remaining cash proceeds, the AIG insurance subsidiaries will be entitled to receive the fixed deferred purchase price, plus accrued interest at a rate of one-month LIBOR plus 300 basis points.
  • After repayment in full of the New York Fed loan and the fixed deferred purchase price (each including accrued interest), any remaining proceeds will be split 5/6th to the New York Fed and 1/6th to the AIG insurance subsidiaries.
  • The distribution of the proceeds realized on the ML II LLC portfolio (including interest proceeds and proceeds from the maturity or liquidation of the asset portfolio) occurs on a monthly basis, unless otherwise directed by the New York Fed, and is made in the following order (each category must be fully paid before proceeding to the next lower category):

Management of Portfolio assets

The New York Fed retained BlackRock Financial Management Inc. (investment manager) to perform the day-to-day management of the assets held in the ML II LLC portfolio.

The investment manager’s objective for ML II LLC’s portfolio was to repay the New York Fed’s senior loan (including principal and interest) while striving to maximize sales proceeds and refraining from disturbing general financial market conditions. The sale of ML II LLC’s securities in February 2012 enabled the full repayment of the LLC’s liabilities to the New York Fed and AIG.


Key Investment Guidelines

The investment manager managed portfolio proceeds in accordance with the objective described above, subject to the maintenance of sufficient liquidity to meet expected payments and obligations. Cash proceeds from the asset portfolio could only be invested in U.S. Treasury or agency securities with a remaining maturity of one year or less, U.S. 2a-7 government money market funds, reverse repurchase agreements collateralized by U.S. Treasury and agency securities and dollar-denominated deposits.

Vendors

Periodic Releases

  • Weekly H.4.1 Federal Reserve Statistical Releaseoffsite
    ML II LLC’s assets and liabilities are consolidated onto the books of the New York Fed. As a result, ML II LLC’s quarterly fair value (plus normal accounting entries largely related to interest accruals, senior loan repayments and expenses) and  outstanding loan balance are published in the weekly H.4.1 release of the Federal Reserve’s balance sheet.
  • Report on Credit and Liquidity Programsoffsite
    The Federal Reserve prepares this report as part of its efforts to enhance transparency about the range of programs and tools that were implemented in response to the financial crisis.
  • Quarterly Summary of Assets and Outstanding Loan Balance
  • Holdings Report
  • Year-end Financials


Asset Sales


On March 30, 2011, the New York Fed announced that through its investment manager, BlackRock Solutions, it would begin a process to sell the assets in the ML II LLC portfolio both individually and in segments over time as market conditions warrant through a competitive sales process. On February 28, 2012, Maiden Lane II LLC completed the sale of its remaining securities*.

New York Fed to Sell Maiden Lane II Assets in Competitive Process over Time »

New York Fed Sells $7.014 Billion in Face Value of ML II LLC Assets »

New York Fed Sells $6.2 Billion in Face Amount of Maiden Lane II LLC Assets »

New York Fed Sells Remainder of Maiden Lane II LLC Securities; Approximately $2.8 Billion Net Gain Generated for U.S. Public from the Portfolio* »

The New York Fed is providing the following information on the progress of the sales on a regular basis, taking care to preserve the effectiveness of the asset sales process:

  • Bid List Offering
    Timing and general information about bid lists circulated and sold.
  • Monthly Review

    Monthly report which includes a list of the assets sold during the month by current face amount.
  • Quarterly Review

    Quarterly report which includes a list of the total amount sold during the period by counterparty name. This report is released within 15 days of quarter end.

    A breakdown showing the proportion of the loan repayment attributed to asset sales proceeds is included in the Quarterly Summary of Assets and Outstanding Loan Balance under Periodic Releases as of quarter end with a 45-day delay8.
  • Transaction Data

    Asset level detail of transactions completed in Maiden Lane II.

The New York Fed welcomes and encourages small, veteran-, minority- and women- owned businesses to bid either individually or through meaningful partnership with others, on assets in the ML II LLC portfolio. As the New York Fed is interested in better understanding and monitoring the diversity of those entities purchasing its assets, prospective and/or successful bidders, either bidding alone or in partnership with another bidder, may be asked to disclose information about their small, veteran-, minority- and women- owned business status as well as that of their business partners. Please note, however, that the fact that a bidder is a small, veteran-, minority- and women- owned business does not in any way impact the selection of a winning bidder.

Glossary »


5The aggregate amount of interest and principal proceeds from RMBS received after the announcement date, but prior to the settlement date, net of financing costs, amounted to approximately $0.3 billion and therefore reduced the amount of funding required at settlement by $0.3 billion, from $20.8 billion to $20.5 billion.
6Therefore, the New York Fed incurred the risk of the ML II LLC asset portfolio from the AIG insurance subsidiaries as of October 31, 2008.
7The parties to these contracts are Deloitte & Touche and the Board of Governors of the Federal Reserve System. Inquiries regarding these contracts should be directed to the Board of Governors of the Federal Reserve System.
8Delays are necessary to allow operational reconciliations to be performed on the portfolio for the reporting period.

* As part of the close-out procedures for Maiden Lane II LLC, on August 22, 2012, the New York Fed sold eight residual securities that had been factored to zero and consequently dropped from the portfolio holdings report published by the New York Fed. There was no active notional balance associated with these positions as the securities were fully written down prior to the last ML II sale on February 28, 2012; thus, the subsequent sale of these zero-factor securities had no material impact on the net gain reported for the ML II portfolio.


1. Transaction Overview
2. Significant Transaction Terms
3. Management of Portfolio Assets
4. Vendors
5. Periodic Releases
6. Asset Sales

charts

Source: FRBNY – Quarterly Summary of Assets and Outstanding Loan Balance, Federal Reserve Board H.4.1
Note: Unaudited. A cash balance remains in ML III LLC, reflecting residual receipts and reserves held to meet trailing expenses and other obligations.


Source: Federal Reserve Board H.4.1, Federal Reserve Bank of New York

Transaction OVerview

Overview

In November 2008, the Federal Reserve Board and the U.S. Treasury announced the restructuring of the government's financial support to American International Group Inc. (AIG) in order to provide the company with more time and greater flexibility to sell assets and repay the government. The Federal Reserve Bank of New York (New York Fed) created Maiden Lane III LLC (ML III LLC) to alleviate capital and liquidity pressures on AIG associated with credit derivative contracts written by AIG Financial Products (AIGFP).

For additional information on actions taken in support of AIG, please refer to Actions Related to AIG.

ML III LLC borrowed $24.3 billion9 from the New York Fed, which, together with an equity contribution of $5.0 billion provided by AIG (equity interest), was used to purchase a portfolio of U.S. dollar denominated collateralized debt obligations (CDOs) from certain counterparties of AIGFP.

The counterparties agreed to sell CDOs to ML III LLC in exchange for a purchase payment from ML III LLC and their retention of collateral previously posted by AIGFP under the related credit derivative contracts, for an overall consideration of par. In connection with any such purchase, each AIGFP counterparty agreed to terminate the related credit derivative contracts between it and AIGFP.

In connection with the purchases of CDOs by ML III LLC and the termination of the related credit derivative contracts, ML III LLC paid AIGFP’s counterparties $26.8 billion and AIGFP $2.5 billion10.

The ML III LLC transaction closed in two stages with a portion of the portfolio settling on November 25, 2008, and the remaining portion settling on December 18, 2008. The value of the assets ML III LLC purchased was based on BlackRock Financial Management Inc.’s estimated fair value as of October 31, 200811. As of October 31, 2008, the ML III LLC portfolio had an estimated fair value of approximately $29.3 billion and a par value of approximately $62.1 billion.
Selection Criteria for Portfolio Assets

Under the terms of the agreement with New York Fed, the assets purchased by ML III LLC had to be CDO tranches referencing U.S. dollar-denominated cash bonds. 

The review and selection of these assets was conducted by the New York Fed in conjunction with its advisor, BlackRock Financial Management Inc.

significant transaction terms

  • The New York Fed loan to ML III LLC is secured by ML III LLC’s portfolio of assets. The loan has a stated term of 6 years, and may be extended by the New York Fed at its discretion.
  • The interest rate on the New York Fed loan is one-month LIBOR plus 100 basis points.
  • After the New York Fed loan has been repaid in full plus interest, to the extent that there are sufficient remaining cash proceeds, AIG is entitled to repayment of its equity interest, plus accrued interest at a rate of one-month LIBOR plus 300 basis points.
  • After repayment in full of the New York Fed loan and AIG’s equity interest (each including accrued interest), any remaining proceeds will be split 67 percent to the New York Fed and 33 percent to AIG (or its assignee).
  • The distribution of the proceeds realized on the ML III LLC portfolio (including interest proceeds and proceeds from the maturity or liquidation of the asset portfolio) occurs on a monthly basis, unless otherwise directed by the New York Fed, and is made in the following order (each category must be fully paid before proceeding to the next lower category):

Management of Portfolio Assets

The New York Fed retained BlackRock Financial Management Inc. (investment manager) to perform the day-to-day management of the assets held in the ML III LLC portfolio.

The investment manager’s objective for ML III LLC’s portfolio was to repay the New York Fed’s senior loan (including principal and interest), followed by AIG’s equity interest (including accumulated preferred distributions representing interest) for as long as the United States Treasury maintains an economic stake in AIG on behalf of the United States taxpayer, while also striving to maximize sale proceeds and refraining from disturbing general financial market conditions. The sale of securities from ML III LLC enabled the full repayment of the loan extended by the New York Fed on June 14, 2012 and the equity contribution made by AIG on July 16, 2012. On August 23, 2012, ML III LLC completed the sale of its remaining securities. The New York Fed received 67 percent of residual profits generated by proceeds from these sales.


Key Investment Guidelines

The investment manager managed portfolio proceeds in accordance with the objective described above, subject to the maintenance of sufficient liquidity to meet expected payments and obligations. Other than assets that were acquired by ML III LLC as part of a portfolio liquidation of one or more CDOs held by ML III LLC, cash proceeds from the asset portfolio could only be invested in U.S. Treasury or agency securities with a remaining maturity of one year or less, U.S. 2a-7 government money market funds, reverse repurchase agreements collateralized by U.S. Treasury and agency securities and dollar-denominated deposits.

Vendors

Periodic Releases

  • Weekly H.4.1 Federal Reserve Statistical Releaseoffsite
    ML III LLC’s assets and liabilities are consolidated onto the books of the New York Fed. As a result, ML III LLC’s quarterly fair value (plus normal accounting entries largely related to interest accruals, senior loan repayments and expenses) and  outstanding loan balance are published in the weekly H.4.1 release of the Federal Reserve’s balance sheet.
  • Report on Credit and Liquidity Programsoffsite
    The Federal Reserve prepares this report as part of its efforts to enhance transparency about the range of programs and tools that were implemented in response to the financial crisis.
  • Quarterly Summary of Assets and Outstanding Loan Balance
  • Holdings Report
  • Year-end Financials

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Asset Sales

In light of improving market conditions, ML III LLC’s investment objective was revised in April 2012 to allow for the exploration of sales of the assets held in the portfolio. There was no fixed timeframe for the sales; at each stage, the Federal Reserve sold an asset only if the best available bid represented good value for the public, while taking appropriate care to avoid market disruption. The asset sales information provided below is intended to enhance the transparency around ML III LLC portfolio asset sales. On August 23, 2012, ML III LLC completed the sale of its remaining securities.

New York Fed Solicits Bids for MAX CDO Holdings in Maiden Lane III LLC »

New York Fed Sells MAX CDO Holdings in Competitive Process »

New York Fed Solicits Bids for Triaxx CDO Holdings in Maiden Lane III LLC »

New York Fed Sells TRIAXX CDO Holdings in Competitive Process »

Statement on the Postponement of the Maiden Lane III Auction »

New York Fed Resumes Auction of Duke CDO Holdings in ML III »

New York Fed Sells Remainder of Maiden Lane III LLC Securities; Marks End of AIG-Related Assistance; Approximately $6.6 Billion Net Gain Generated for U.S. Public from the Portfolio »

The New York Fed is providing the following information on the progress of the sales on a regular basis, taking care to preserve the effectiveness of the asset sales process:

  • Security Offerings
    Timing and general information about securities offered and sold.

  • Monthly Review

    Monthly report which includes a list of the assets sold during the month by current face amount.
  • Quarterly Review

    Quarterly report which includes a list of the total amount sold during the period by counterparty name. This report is released within 15 days of quarter end.

    A breakdown showing the proportion of the loan repayment attributed to asset sales proceeds is included in the Quarterly Summary of Assets and Outstanding Loan Balance under Periodic Releases as of quarter end with a 45-day delay13.

  • Transaction Data

    Asset level detail of transactions completed in Maiden Lane III.

The New York Fed welcomes and encourages small, veteran-, minority- and women- owned businesses to bid either individually or through meaningful partnership with others, on assets in the ML III LLC portfolio. As the New York Fed is interested in better understanding and monitoring the diversity of those entities purchasing its assets, prospective and/or successful bidders, either bidding alone or in partnership with another bidder, may be asked to disclose information about their small, veteran-, minority- and women- owned business status as well as that of their business partners. Please note, however, that the fact that a bidder is a small, veteran-, minority- and women- owned business does not in any way impact the selection of a winning bidder.


Glossary »

9The aggregate amount of interest and principal proceeds from CDOs received after the announcement date, but prior to the settlement dates, net of financing costs, amounted to approximately $0.3 billion and therefore reduced the amount of funding required at settlement by $0.3 billion, from $29.6 billion to $29.3 billion.
10The $2.5 billion represented the amount by which the value of collateral surrendered by AIGFP for termination of the credit derivative contracts exceeded the contracts’ fair value as of October 31, 2008.
11Therefore, the New York Fed incurred the risk of the ML III LLC asset portfolio from AIGFP as of October 31, 2008.
12The parties to these contracts are Deloitte & Touche and the Board of Governors of the Federal Reserve System. Inquiries regarding these contracts should be directed to the Board of Governors of the Federal Reserve System.
13Delays are necessary to allow operational reconciliations to be performed on the portfolio for the reporting period.

* As part of the close-out procedures for Maiden Lane II LLC, on August 22, 2012, the New York Fed sold eight residual securities that had been factored to zero and consequently dropped from the portfolio holdings report published by the New York Fed. There was no active notional balance associated with these positions as the securities were fully written down prior to the last ML II sale on February 28, 2012; thus, the subsequent sale of these zero-factor securities had no material impact on the net gain reported for the ML II portfolio.

Timeline

Date Title
2014  
March 14, 2014 New York Fed releases annual financial statements
New York Fed Financial Statements »
March 14, 2014 Federal Reserve System publishes annual financial statements
Board of Governors Press Release offsite
2013  
March 15, 2013 New York Fed releases annual financial statements
New York Fed Financial Statements »
March 15, 2013 Federal Reserve System publishes annual financial statements
Board of Governors Press Release offsite
2012  
August 23, 2012 New York Fed sells remainder of Maiden Lane III LLC securities; marks end of AIG-related assistance; approximately $6.6 billion net gain generated for U.S. public from the portfolio
New York Fed Press Release »
June 14, 2012 New York Fed announces full repayment of its loans to Maiden Lane LLC and Maiden Lane III LLC
New York Fed Press Release »
May 21, 2012 New York Fed resumes auction of Duke CDO holdings in ML III
New York Fed Release »
May 18, 2012 Statement on the postponement of the Maiden Lane III auction
New York Fed Statement »
May 10, 2012 New York Fed sells TRIAXX CDO holdings in competitive process
New York Fed Press Release »
May 4, 2012 New York Fed solicits bids for Triaxx CDO holdings in Maiden Lane III LLC
New York Fed Press Release »
April 26, 2012 New York Fed sells MAX CDO holdings in competitive process
New York Fed Press Release »
April 18, 2012 New York Fed solicits bids for MAX CDO holdings in Maiden Lane III LLC
New York Fed Press Release »
March 20, 2012 New York Fed releases annual financial statements
New York Fed Financial Statements »
March 20, 2012 Federal Reserve System publishes annual financial statements
Board of Governors Press Release offsite
February 28, 2012 * New York Fed sells remainder of Maiden Lane II LLC securities; approximately $2.8 billion net gain generated for U.S. public from the portfolio *
New York Fed Press Release »
February 8, 2012 New York Fed sells $6.2 billion in face amount of Maiden Lane II LLC assets; New York Fed loan to be repaid in full
New York Fed Press Release »
January 19, 2012 New York Fed sells $7.014 billion in face value of ML II LLC assets
New York Fed Press Release »
2011  
March 30, 2011 New York Fed to sell Maiden Lane II assets in competitive process over time
New York Fed Press Release »
March 22, 2011 Federal Reserve System publishes annual financial statements
Board of Governors Press Release offsite
March 11, 2011 Statement related to offer by AIG to purchase Maiden Lane II LLC
New York Fed Press Release »
2010  
December 1, 2010 Federal Reserve releases detailed information about transactions conducted to stabilize markets during the recent financial crisis
Usage of Federal Reserve Credit and Liquidity Facilities offsite
June 26, 2010 Maiden Lane LLC accumulation period ends and paydown of New York Fed loan begins
June 9, 2010 New York Fed publishes website on actions related to AIG
New York Fed Press Release »
May 26, 2010 Joint Testimony: Thomas Baxter and Sarah Dahlgren on New York Fed's involvement with AIG
Baxter - Dahlgren Joint Testimony »
April 21, 2010 Federal Reserve System publishes annual financial statements
Board of Governors Press Release offsite
March 31, 2010 New York Fed releases the portfolio holdings detail for the Maiden Lane facilities
New York Fed Press Release »
January 27, 2010 New York Fed General Counsel Thomas C. Baxter testifies before the House Committee of Oversight and Reform on AIG counterparties
Baxter Testimony »
January 19, 2010 New York Fed releases second statement on public disclosures of AIG concerning Maiden Lane III LLC.
New York Fed Press Release on ML III Counterparties »
January 19, 2010 New York Fed releases statement supporting comprehensive U.S. Government Accountability Office (GAO) review on AIG and provides AIG-related documents to Congress.
New York Fed Press Release »
2009  
April 28, 2009 New York Fed publishes web page on Maiden Lane transactions.
New York Fed Press Release »
April 23, 2009 Federal Reserve System and the New York Fed publishes annual financial statements
Board of Governors Press Release offsite
March 15, 2009 AIG discloses counterparties to credit default swaps (CDS), Guaranteed Investment Agreement (GIA) and securities lending transactions.
AIG Press Release offsite
March 5, 2009 Vice Chairman Kohn testifies before Senate Committee on Banking, Housing and Urban Affairs on Federal Reserve Support of AIG
Kohn Testimonyoffsite
February 23, 2009 Federal Reserve Board launches new website on credit and liquidity programs
Board of Governors Press Release offsite
2008  
December 24, 2008 AIG announces purchase of additional $16 billion in par amount of collateralized debt obligations (CDOs) by ML III LLC.
AIG Press Release
offsite
December 16, 2008 New York Fed releases terms and conditions for ML II LLC.
New York Fed Press Release »
December 15, 2008 AIG sells residential mortgage-backed securities (RMBS) to Maiden Lane II LLC (ML II) as announced in November 10 restructuring. AIG also terminates domestic securities lending program.
AIG Press Release offsite
December 3, 2008 New York Fed releases terms and conditions for ML III LLC.
New York Fed Press Release »
December 2, 2008 AIG announces purchase of collateralized debt obligations (CDOs) by Maiden Lane III LLC (ML III).
AIG Press Release offsite
December 1, 2008 Chairman Ben S. Bernanke speech on Federal Reserve Policies in the Financial Crisis
Bernanke Speech offsite
November 10, 2008 Board of Governors and Treasury announce the restructuring of the government's financial support to AIG. 
Board of Governors Press Release offsite
October 8, 2008 Federal Reserve Board approves additional secured credit facility to support AIG
Board of Governors Press Release
offsite
September 29, 2008 Statement by the New York Fed regarding AIG transaction
New York Fed Press Release »
September 16, 2008 Federal Reserve Board of Governors authorizes New York Fed to lend $85 billion to American International Group (AIG)
Board of Governors Press Release
offsite
June 26, 2008 New York Fed completes financing arrangement related to JPMorgan Chase's acquisition of Bear Stearns
New York Fed Press Release »
May 29, 2008 Statement on financing arrangement related to JPMorgan Chase's acquisition of Bear Stearns
New York Fed Press Release »
April 3, 2008 New York Fed President testifies before U.S. Senate Committee on Banking, Housing and Urban Affairs on actions taken in response to liquidity pressures in the financial markets
Geithner Testimony »
April 3, 2008 Chairman Ben S. Bernanke testifies before the U.S. Senate Committee on Banking, Housing, and Urban Affairs on developments in the financial markets
Bernanke Testimony offsite
April 2, 2008 Chairman Ben S. Bernanke testifies before the Joint Economic Committee, U.S. Congress
Bernanke Testimony
offsite
March 24, 2008 Summary of Terms and Conditions Regarding the JPMorgan Chase Facility
New York Fed Press Release »
March 16, 2008 Federal Reserve Board authorizes the New York Fed to extend a $30 billon loan to facilitate the merger of Bear Sterns and J.P. Morgan Chase under section 13(3) of the Federal Reserve Act.
Board of Governors Press Release offsite

* As part of the close-out procedures for Maiden Lane II LLC, on August 22, 2012, the New York Fed sold eight residual securities that had been factored to zero and consequently dropped from the portfolio holdings report published by the New York Fed. There was no active notional balance associated with these positions as the securities were fully written down prior to the last ML II sale on February 28, 2012; thus, the subsequent sale of these zero-factor securities had no material impact on the net gain reported for the ML II portfolio.

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