Maiden Lane III LLC

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  • Holding company established by Federal Reserve Bank of New York and U.S. Treasury in late 2008
  • Holds portfolio of more than $62 billion in assets, including collateralized debt obligations and credit default swaps from American International Group Financial Products Corporation
  • Managed by BlackRock Financial Management Inc.

Maiden Lane III LLC is a holding company established on November 10, 2008 by the Federal Reserve Board and the U.S. Treasury Department as part of the U.S. government’s restructuring of American International Group, Inc. (AIG). 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).1

Overview

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. 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, were used to purchase from certain third-party counterparties of AIGFP certain U.S. dollar denominated CDOs 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.2

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.3

The New York Fed has all material control rights over the Asset Portfolio and is the managing member of ML III LLC.

Significant Transaction Terms

The senior loan is secured by the Asset Portfolio. The senior loan was issued with a stated term of six years, and may be extended at the New York Fed’s discretion.

The interest rate on the Senior Loan is one-month LIBOR plus 100 basis points.  After the Senior Loan to the New York Fed has been repaid in full plus interest, to the extent that there are sufficient remaining cash proceeds, AIG will be entitled to repayment of the Equity Contribution Amount, plus accrued interest at a rate of one-month LIBOR plus 300 basis points.

After repayment in full of the Senior Loan and the Equity Contribution Amount (each including accrued interest), any remaining proceeds will be split 67% to the New York Fed and 33% to AIG.4

According to the Federal Reserve Bank of New York, distribution of the proceeds realized by the Asset Portfolio (including interest proceeds and proceeds from the maturity or liquidation of the Asset Portfolio) will occur on a monthly basis, and will be made in the following order (each category must be fully paid before proceeding to the next lower category):

  • first, to pay any costs, fees and expenses of ML III LLC then due and payable;
  • second, to pay any amounts due and payable to any counterparty for any permitted hedging transactions;
  • third, to fund the expense reimbursement sub-account to $500,000 or such other amount as may be specified by the New York Fed;
  • fourth, to fund the investment reserve sub-account up to an amount determined by the New York Fed;
  • fifth, to pay the outstanding principal amount of the Senior Loan;
  • sixth, so long as the entire outstanding principal amount of the Senior Loan has been repaid in full in cash, to pay unpaid interest outstanding on the Senior Loan accrued at LIBOR plus 100 basis points;
  • seventh, so long as the entire outstanding  principal amount and all accrued and unpaid interest outstanding on the Senior Loan have been paid in full, to pay the outstanding principal amount of the Equity Contribution Amount;
  • eighth, so long as (i) the entire outstanding principal amount of and all accrued and unpaid interest outstanding on, the Senior Loan have been repaid in full and (ii) the Equity Contribution Amount has been repaid in full, to pay unpaid interest outstanding on the Equity Contribution Amount at LIBOR plus 300 basis points;
  • ninth, so long as the entire outstanding principal amount of and all accrued and unpaid interest outstanding on the Senior Loan and the Equity Contribution Amount have been paid in full to pay any amounts due and payable to any counterparty pursuant to any permitted hedging transactions to the extent not paid under clause second above;
  • tenth, so long as the entire outstanding principal amount of and all accrued and unpaid interest outstanding on the Senior Loan and Equity Contribution Amount have been paid in full and there are no outstanding amounts due and payable to hedge counterparties, to pay 67% of all remaining amounts to the New York Fed and 33% of all remaining amounts to the holder of the Equity Contribution Amount (each a Contingent Interest).

Management of Assets

BlackRock Financial Management Inc. has been retained by the New York Fed to manage the Asset Portfolio. 5

The Investment Manager’s objective in managing the Asset Portfolio is maximization of long-term cash flows to pay the Senior Loan (including principal, interest, and Contingent Interest) subject to the need to meet other obligations in the waterfall that are senior to the Senior Loan and refraining from investment actions that would disturb general financial market conditions.

Other than assets that may be 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 may be invested solely 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.

Assets and outstanding principal balance of the Senior Loan and Equity Contribution as of September 30, 2009

Outstanding Principal Balance of Senior Loan and Equity Contribution

(in Millions)
FRBNY Senior Loan

AIG Equity Contribution

Principal Balance at Closing $24,339 $5,000
Most Recent Quarter Activity
Principal Balance on 6/30/2009 (including accrued and capitalized interest) 22,614 5,108
Accrued and Capitalized Interest 6/30/2009 to 9/30/2009 66 43
Repayment during the period from 6/30/2009 to 9/30/2009 (2,825) -
Principal Balance on 9/30/2009 (including accrued and capitalized interest) $19,855 $5,151

Note: Unaudited

Summary of Portfolio Composition and Cash/Cash Equivalents

(in Millions)

Fair Value on 9/30/2009

Fair Value on 6/30/2009

High-Grade ABS CDO $16,001 $14,491
Mezzanine ABS CDO 2,099 1,882
Commercial Real Estate CDO 4,572 4,186
RMBS, CMBS, & Other 246 225
Cash & Cash Equivalents 547 1,645
Other Assets1 38 59
Other Liabilities2 (3) (4)
Total $23,500 $22,485

Note: Unaudited. Columns may not sum to totals because of rounding
1 Including interest and principal receivable and other receivables
2 Including accrued expenses

At September 30, 2009, the ABS CDO type/vintage/rating composition of the ML III LLC’s $22.9 billion portfolio, as a percentage of aggregate fair value of all securities in the portfolio, was as follows:

Rating1
Security Type/
Vintage1:
AAA
AA+ to AA-
A+ to A-
BBB+ to BBB-
BB+ and lower
NR

Total

High-Grade ABS CDO 0.0% 0.0% 0.0% 0.7% 69.1% 0.0% 69.8%
Pre-2005 0.0% 0.0% 0.0% 0.7% 23.9% 0.0% 24.6%
2005 0.0% 0.0% 0.0% 0.0% 30.1% 0.0% 30.1%
2006 0.0% 0.0% 0.0% 0.0% 7.5% 0.0% 7.5%
2007 0.0% 0.0% 0.0% 0.0% 7.6% 0.0% 7.6%
Mezzanine ABS CDO 0.0% 0.2% 0.0% 1.4% 7.3% 0.3% 9.2%
Pre-2005 0.0% 0.2% 0.0% 1.0% 4.0% 0.3% 5.5%
2005 0.0% 0.0% 0.0% 0.0% 2.9% 0.0% 2.9%
2006 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
2007 0.0% 0.0% 0.0% 0.4% 0.3% 0.0% 0.7%
Commerical
Real Estate CDO
1.9% 0.5% 17.6% 0.0% 0.0% 0.0% 20.0%
Pre-2005 1.9% 0.5% 2.8% 0.0% 0.0% 0.0% 5.2%
2005 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
2006 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
2007 0.0% 0.0% 14.8% 0.0% 0.0% 0.0% 14.8%
RMBS, CMBS and Other 0.2% 0.2% 0.1% 0.1% 0.5% 0.0% 1.1%
Pre-2005 0.0% 0.0% 0.0% 0.1% 0.1% 0.0% 0.2%
2005 0.2% 0.1% 0.1% 0.1% 0.4% 0.0% 0.8%
2006 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.1%
2007 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total 2.1% 0.8% 17.7% 2.2% 76.9% 0.3% 100.0%

pie chart

Note: Unaudited. Lowest of all ratings is used for purposes of this table. Rows and columns may not sum to totals because of rounding
1 The year of issuance with the highest concentration of underlying assets as measured by outstanding principal balance determines the vintage of the CDO.

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