Maiden Lane II and III (AIG)

Maiden Lane II and III (AIG)

Loan repayment figures come directly from FRBNY website. Updated quarterly. Portfolio values updated weekly at FRBSTL website.

The Maiden Lane II and III (AIG)

Maiden Lane II and III were formed by the Federal Reserve, which funded it with loans, to purchase toxic assets off of AIG.

Funding agency and aid type
The funding agency was the Federal Reserve.

Loans allowing AIG to offload “toxic assets” – mortgage backed securities and credit default swaps - into separate entities.

Who benefits
AIG’s counter-parties were given full face value for the assets dumped into MLIII, far more than if FRBNY had not intervened. Also, AIG’s remaining shareholders and debt holders benefit from AIG not collapsing.

Background
FRBNY: "“Maiden Lane II LLC (ML II LLC) and Maiden Lane III LLC (ML III LLC) were formed to facilitate the restructuring of the New York Fed’s financial support to American International Group (AIG). The New York Fed extended credit to ML II LLC to purchase residential mortgage-backed securities from the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG. The New York Fed extended credit to ML III LLC to purchase multi-sector collateralized debt obligations from certain counterparties of AIG Financial Products Corp."

"“On November 10, 2008, the Federal Reserve Board and the U.S. Treasury Department announced the restructuring of the government’s financial support to American International Group, Inc. (AIG) in order to facilitate its ability to complete its restructuring process. As part of this restructuring, under section 13(3) of the Federal Reserve Act, the Federal Reserve Board authorized the Federal Reserve Bank of New York (New York Fed) to lend up to $22.5 billion to a newly formed Delaware limited liability company, Maiden Lane II LLC (ML II LLC), to fund the purchase of residential mortgage-backed securities (RMBS) from the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG (AIG Subsidiaries). ML II LLC was formed in the fourth quarter of 2008. On December 12, 2008, ML II LLC purchased RMBS with an estimated fair value of approximately $20.8 billion, determined as of October 31, 2008, (Asset Portfolio). ML II LLC financed this purchase by borrowing $19.5 billion (Senior Loan) from the New York Fed. The Senior Loan proceeds, after adjustments (totaling $0.3 billion between October 31, 2008, and December 31, 2008) including principal and interest payments received by the AIG Subsidiaries on the RMBS, were used to purchase the $20.8 billion Asset Portfolio. In addition to receiving the cash purchase price on the closing date, AIG Subsidiaries received a contingent right to collect the deferred portion of the total purchase price of $1.0 billion (Fixed Deferred Purchase Price) plus a one-sixth participation in the residual portfolio cash flow, if any, each following ML II LLC’s repayment of the Senior Loan and accrued interest thereon to the New York Fed. As of October 31, 2008, the Asset Portfolio had a par value of approximately $39.3 billion."

"“On November 10, 2008, the Federal Reserve Board and the U.S. Treasury Department announced the restructuring of the government’s financial support to the American International Group, Inc. (AIG) in order to facilitate its ability to complete its restructuring process. As part of this restructuring, under section 13(3) of the Federal Reserve Act, the Federal Reserve Board authorized the Federal Reserve Bank of New York (New York Fed) to lend up to $30 billion to a newly formed Delaware limited liability company, Maiden Lane III LLC (ML III LLC), to fund the purchase of certain multi-sector collateralized debt obligations (CDOs) from certain counterparties of AIG Financial Products Corp. (AIGFP). ML III LLC was formed in the fourth quarter of 2008. ML III LLC borrowed approximately $24.3 billion from the New York Fed in the form of a senior loan (Senior Loan). The Senior Loan proceeds, after adjustments (totaling $0.3 billion between October 31, 2008 and December 31, 2008) including principal and interest payments received by AIGFP counterparties on the CDOs, together with an equity funding of approximately $5.0 billion provided by AIG (Equity Contribution Amount), were used to purchase from certain third-party counterparties of AIGFP certain U.S. dollar denominated CDOs (Asset Portfolio) with an estimated fair value as of October 31, 2008, of approximately $29.6 billion. 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 such counterparty and AIGFP. The purchase of the Asset Portfolio took place in two stages, with a portion settling on November 25, 2008, and the remaining portion settling on December 18, 2008. In connection with the purchases of CDOs by ML III LLC and the termination of the related credit derivative contracts, AIGFP’s counterparties were paid $26.8 billion and AIGFP was paid $2.5 billion pursuant to an agreement between AIGFP and the New York Fed. The $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. As of October 31, 2008, the Asset Portfolio had a par value of approximately $62.1 billion.”"

SIGTARP: "“Maiden Lane II LLC and Maiden Lane III LLC (American International Group, Inc.) — Total Potential Support: $22.5 Billion and $30.0 Billion, Respectively. The Federal Reserve Board’s April 2009 Monetary Report to Congress states that “In November 2008, the Federal Reserve also announced plans to restructure its lending related to AIG by extending credit to two newly formed limited liability companies. The first, Maiden Lane II LLC, received a $22.5 billion loan from the Federal Reserve and a $1 billion subordinated loan from AIG and purchased residential mortgage-backed securities from AIG. As a result of these actions, the securities lending facility established on October 8 was subsequently repaid and terminated. The second new company, Maiden Lane III LLC, received a $30 billion loan from the Federal Reserve and a $5 billion subordinated loan from AIG and purchased multi-sector collateralized debt obligations on which AIG ha[d] written credit default swap contracts.” The Federal Reserve’s first quarterly report on its credit and liquidity programs shows a decline in fair value on the assets held in the AIG-related Maiden Lane facilities — a decline in fair value of $2.5 billion and $6.4 billion, respectively, for Maiden Lanes II and III.”"

Via Prins: "“Maiden Lane II LLC (ML II LLC) and Maiden Lane III LLC (ML III LLC) were formed to facilitate the restructuring of the New York Fed’s financial support to American International Group (AIG). The New York Fed extended credit to ML II LLC to purchase residential mortgage-backed securities from the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG.” “The New York Fed extended credit to ML III LLC to purchase multi-sector collateralized debt obligations from certain counterparties of AIG Financial Products Corp.”"

Prins: "“In 2008, the Fed authorized its New York branch to form three limited liability companies: Maiden Lane, Maiden Lane II, and Maiden Lane III. It provided $52.5 billion to Maiden Lane II and III to assist AIG.” Prins says $52.5 total. She may be including the amounts that came from AIG."

Related SourceWatch articles

 * SIGTARP Quarterly Report to Congress July 21, 2009
 * Troubled Asset Relief Program

External resources

 * FRBNY: http://www.newyorkfed.org/markets/maidenlane2.html
 * FRBSTL: portfolio accounting: http://www.research.stlouisfed.org/fred2/series/WMAIDEN2
 * FRBNY: http://www.newyorkfed.org/markets/maidenlane3.html
 * FRBSTL: portfolio accounting