Monthly Report on Credit and Liquidity Programs
and the Balance Sheet
|Federal Reserve Bank's Financial Tables||Appendix A||Appendix B|
Additional Information Provided Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008
In light of improved functioning of financial markets, on February 1, 2010, the Federal Reserve closed the Term Securities Lending Facility (TSLF), Primary Dealer Credit Facility (PDCF), the Commercial Paper Funding Facility (CPFF), and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF). As of that date, all loans under the TSLF, PDCF, and AMLF had been repaid in full, with interest, in accordance with the terms of each facility, and each of the facilities resulted in no loss to the Federal Reserve or taxpayers. All remaining commercial paper holdings of the CPFF matured on April 26, 2010, and the CPFF LLC was dissolved on August 30, 2010, following the payment of expenses and the termination or expiration of existing contractual agreements. The CPFF did not result in any loss to the Federal Reserve or taxpayers.
AIG, on September 30, 2010, announced a comprehensive recapitalization plan designed to restructure the assistance provided by the U.S. government to the company. The company completed the Recapitalization on January 14, 2011. At closing of the Recapitalization, AIG repaid in full the amount then outstanding under the revolving credit facility established by the FRBNY, including all accrued interest and fees. The FRBNY also received the full amount, including all accrued dividends, of the SPV Preferred Interests in AIA Aurora LLC and ALICO Holdings LLC, two SPVs formed as part of the March 2009 restructuring of the U.S. government’s assistance. The FRBNY received the SPV Preferred Interests as part of the March 2009 restructuring in exchange for an equivalent reduction of the amount of debt then outstanding on the revolving credit facility. As part of the Recapitalization, AIG redeemed a portion of the FRBNY’s SPV Preferred Interests with cash proceeds from asset dispositions, and purchased the remaining SPV Preferred Interests, valued at approximately $20 billion, from the FRBNY through a draw on the Treasury’s Series F preferred stock commitment. AIG then transferred the SPV Preferred Interests purchased from the FRBNY to the Treasury as consideration for the draw on the available Series F funds. At the time of the closing, the collateral backing the remaining SPV Preferred Interests received by the Treasury had an estimated value of more than $25 billion. The revolving credit facility, and the SPV Preferred Interests held by the FRBNY in connection with the revolving credit facility, did not result in any loss to the Federal Reserve or taxpayers.
On March 1, 2012, the loan from the FRBNY to Maiden Lane II LLC was repaid in full with interest, in accordance with the terms of the facility. This loan did not result in any loss to the Federal Reserve or taxpayers. The FRBNY has announced that the Maiden Lane II facility resulted a net gain of approximately $2.8 billion for the benefit of the U.S. public.
For the reasons discussed below, the Board does not anticipate that the Federal Reserve or taxpayers will incur any net loss on the loans provided by the FRBNY under the TALF or to Maiden Lane LLC or Maiden Lane III LLC (collectively, the “remaining Maiden Lane facilities”). In making these assessments, the Board has considered, among other things, the terms and conditions governing the relevant facility and the type, nature, and value of the current collateral or other security arrangements associated with the facility. As discussed earlier in this report, the Federal Reserve has established various terms and conditions governing the types of collateral that may be pledged in support of a loan under a facility in order to mitigate the risk of loss. In the case of the remaining Maiden Lane facilities, the Board also has considered analyses of the projected returns on the portfolio holdings of the respective SPV (the assets of which serve as collateral for the loan(s) extended to the SPV) conducted by the FRBNY or its advisors in connection with the most recent quarterly revaluation of the assets of each SPV.
Under the TALF, the FRBNY made loans on a collateralized basis to holders of eligible ABS and CMBS. The potential for the Federal Reserve or taxpayers to incur any net loss on the TALF loans extended by the FRBNY to the holders of ABS and CMBS is mitigated by the quality of the collateral, the risk assessment performed by the FRBNY on all pledged collateral, and the margin by which the value of the collateral exceeds the amount of the loan (the haircut). Potential losses to the Federal Reserve also are mitigated by the portion of interest on the TALF loans to borrowers transferred to TALF LLC and by the credit protection provided by the Treasury under the TARP (initially $20 billion and subsequently reduced to $4.3 billion in light of the $43 billion in TALF loans outstanding when the TALF closed to new lending on June 30, 2010), both of which are available to TALF LLC to purchase any collateral received by the FRBNY from a borrower in lieu of repaying a TALF loan or foreclosed upon due to a default by the borrower. All TALF loans were extended by the FRBNY and will mature over the next several years, with all loans maturing no later than March 30, 2015.
Loans to Maiden Lane LLC and Maiden Lane III LLC
The portfolio holdings of each of Maiden Lane LLC (Maiden Lane) and Maiden Lane III LLC (ML III) are revalued in accordance with GAAP as of the end of each quarter to reflect an estimate of the fair value of the assets on the measurement date. The fair value determined through these revaluations may fluctuate over time. In addition, the fair value of the portfolio holdings that is reported on the weekly H.4.1 statistical release reflects any accrued interest earnings, principal repayments, expense payments and, to the extent any may have occurred since the most recent measurement date, realized gains or losses. The fair values as of March 28, 2012—as shown in table 1 of this report and reported in the H.4.1 release for that date—are based on quarterly revaluations as of December 31, 2011.
Because the collateral assets for the loans to Maiden Lane and ML III are expected to generate cash proceeds and may be sold over time or held to maturity, the current reported fair values of the net portfolio holdings of Maiden Lane and ML III do not reflect the amount of aggregate proceeds that the Federal Reserve could receive from the assets of the respective entity over the extended term of the loan to the entity. The extended terms of the loans provide an opportunity to dispose of the assets of each entity in an orderly manner over time and to collect interest on the assets held by the entity prior to their sale, other disposition, or maturity. Each of the loans extended to Maiden Lane and ML III is current under the terms of the relevant loan agreement.
In addition, JPMorgan Chase will absorb the first $1.15 billion of realized losses on the assets of Maiden Lane, should any occur. Similarly, an AIG affiliate has a $5 billion subordinated position in ML#III, which is available to absorb first any loss that ultimately may be incurred. Moreover, under the terms of the agreements, the FRBNY is entitled to any residual cash flow generated by the collateral assets held by Maiden Lane after the loans made by the FRBNY and JPMorgan Chase are repaid, and two-thirds of any residual cash flow generated by the assets held by ML III after the senior note of the FRBNY and the subordinate position of the AIG affiliate are repaid.