The Federal Deposit Insurance Corp. (FDIC) has signed a bid confirmation letter with Fort Worth, Texas-based Residential Credit Solutions (RCS), the winning bidder in a pilot sale of receivership assets that the FDIC is conducting to test the funding mechanism for the Legacy Loans Program (LLP).
The pilot sale was conducted on a competitive bid basis, and final bids were received on Aug. 31. A total of 12 consortiums bid to purchase an ownership interest in a limited liability company (LLC), to which the FDIC will convey a portfolio of residential mortgage loans with an unpaid principal balance of approximately $1.3 billion owned by the FDIC as receiver of Houston's Franklin Bank.
The pilot sale involves financing offered by the receivership to the LLC using an amortizing note guaranteed by the FDIC. Bidders for the pilot sale were given the chance to bid two different leverage options, 6-to-1 or 4-1, or to submit a cash bid for a 20% ownership interest.
The bid received from RCS for the financed sale of assets to the LLC using 6-to-1 leverage was determined to be the offer that would result in the greatest return for the receivership of all competing bids, the FDIC says.
RCS will pay a total of almost $64.22 million in cash for a 50% equity stake in the LLC, and the LLC will issue a note of approximately $727.77 million to the FDIC as receiver. The note will be guaranteed by the FDIC in its corporate capacity.
Based on the FDIC's analysis and assumptions, the present value of this bid equals 70.63% of the outstanding principal balance of this portfolio. The FDIC anticipates selling the note at a future date. After the closing, which is expected to occur later this month, RCS will manage the portfolio and service the loans under the Home Affordable Modification Program guidelines.
‘RCS will actively manage the mortgage assets, contacting at-risk borrowers proactively to understand their financial situation and to offer them viable solutions," says Dennis Stowe, president and CEO of RCS. "We believe we can help more borrowers stay in their homes while enhancing the value of our significant joint investment with the receivership.’
The transaction is expected to close Sept. 30.