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A mortgage-backed security (MBS) issued by a government-sponsored enterprise (GSE), including Fannie Mae and Freddie Mac.
AIG Financial Products Corp (AIGFP)
Subsidiary of American International Group, Inc. that engages as principal in a wide variety of financial transactions.
One one-hundredth of a percentage point, used to express the movement of interest rates or index pricing.
Collateralized Debt Obligations (CDO)
Investment-grade security backed by a pool of bonds, loans and other assets with varying levels of risk. CDOs bundle the various types of debt into tranches of distinct maturities and risk levels, including tranches made of subprime loans.
Commercial Mortgage-Backed Securities (CMBS)
A type of mortgage-backed security that is secured by a loan on a commercial property or pool of commercial loans.
Person or institution in a financial transaction. In regards to Maiden Lane, the term is used most commonly in reference to swap transactions.
A ratio that shows how much the fair value of the asset portfolio is greater or less than the outstanding balance of the New York Fed loan, including accrued interest.
Credit Default Swap (CDS)
A derivative that transfers the credit exposure of fixed-income products between parties. The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product.
The failure to meet required obligations according to schedule.
Securities contract between two or more parties whose price is derived from one or more underlying assets. The value is determined by fluctuations in the underlying asset.
The lending arm of the Federal Reserve Banks. The Discount Window typically provides short-term, collateralized loans to well-capitalized depository institutions. For the Maiden Lane facilities, the New York Fed Discount Window provided a loan to each of the LLCs under Section 13(3) of the Federal Reserve Act.
Ownership interest in a business entity. For ML III LLC, AIG parent made a $5 billion equity contribution to the LLC to become a member with the New York Fed in the LLC.
Event of Default (EOD)
Contractually specified events that allow lenders to demand immediate repayment of debt. For a collateralized debt obligation (CDO), an event of default may allow certain debt holders to proceed with an enforcement action to redirect cashflows and/or liquidate the securities underlying the CDO structure.
The estimated value of all assets obtained from available observable market prices or if a market value is not available for an asset, a value obtained based on modeling the cash flows of the asset.
Federal Reserve Board of Governors
The governing body of the Federal Reserve System.
Fixed Deferred Purchase Price
For ML II LLC, the AIG insurance subsidiaries sold a portfolio of RMBS to the LLC for fair value as of 10/31/09 less $1 billion. This deferred $1 billion purchase price became subordinated to the New York Fed's senior loan and interest and accrues interest in the LLC's waterfall.
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.
H.4.1 Factors Affecting Reserve Balances
The Federal Reserve's weekly release which details the balance sheet of the Federal Reserve System and includes asset and liability information on the Maiden Lane LLCs.
An investment to reduce the risk of adverse price movements in an asset.
Investment Grade "IG"
Securities that are rated BBB- or higher by at least one of the three principal rating agencies and no lower than that by the remaining two agencies.
LIBOR (London Inter-Banking Offer Rate)
Interest rate—officially fixed once a day by a small group of large London banks—that banks charge each other for loans. LIBOR is a widely used benchmark for short-term interest rates.
Limited Liability Company (LLC)
An LLC is a corporate structure whereby the lendors of the company have a limited liability to the company's actions. The Maiden Lane portfolios are held in 3 separate limited liability companies referred to as Maiden Lane LLC, Maiden Lane II LLC and Maiden Lane III LLC.
The face value of a bond.
For ML LLC, performing loans are defined as less than 30 days delinquent.
Primary Credit Rate (PCR)
The rate at which the Federal Reserve lends to strong, well-capitalized financial institutions through the Discount Window.
Residential Mortgage-Backed Securities (RMBS)
Type of mortgage-backed security composed of a pool of residential mortgage loans
The excess of the cashflow of the assets after netting against the LLC's liabilities
Section 13(3) of the Federal Reserve Act
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal Reserve Bank to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange: Provided, That such entity is unable to secure adequate credit accommodations from other banking institutions. Boad of Governors website
A loan that ranks below other loans with regard to claims on assets. For ML LLC, the New York Fed is the sole member of the LLC. JPMC provided a $1.15 billion subordinated loan to the LLC which acts as the first loss piece of the waterfall structure in an asset sale.
A derivative in which counterparties exchange the benefits of one party's financial instrument for those of the other's financial instrument.
The option to enter into a swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.
To Be Annouced (TBA)
A term used to describe a forward mortgage-backed securities trade. Pass-through securities issued by Freddie Mac, Fannie Mae and Ginnie Mae trade in the TBA market. The term TBA is derived from the fact that the actual mortgage-backed security that will be delivered to fulfill a TBA trade is not designated at the time the trade is made. The securities are "to be announced" 48 hours prior to the established trade settlement date.
A type of payment structure in which Senior Debt holders receive interest and principal payments first before all other parties. When the higher tiered creditors have received all interest and principal payments in full, the next tier of creditors begins to receive interest and principal payments.
In event of the event of losses, the lowest debt holders would incur these losses first.