Maiden Lane II removed from AIG’s balance sheet certain residential mortgage-backed securities (RMBS) that had become a drain on liquidity and a source of mounting losses. The Board of Governors authorized the New York Fed to lend up to $22.5 billion to a newly formed Delaware limited liability company (Maiden Lane II LLC) to purchase RMBS.
On December 12, 2008, the LLC borrowed $19.5 billion and used the proceeds to finance the purchase of RMBS with an estimated market value of approximately $20.8 billion and a face value of approximately $39.3 billion, determined as of October 31, 2008. This transaction allowed AIG to unwind its domestic securities lending program and to repay and terminate the $37.8 billion facility created in October.
Maiden Lane III facilitated the negotiated termination of credit default swap (CDS) contracts entered into by AIG with financial institutions through its AIG Financial Products Corp. (AIG FP) that were threatening the company’s liquidity.
Maiden Lane III LLC borrowed approximately $24.3 billion from the New York Fed to purchase credit default obligations (CDOs) with an estimated fair value of approximately $29.6 billion and a face value of approximately $62.1 billion, as of October 31, 2008.
The counterparties agreed to sell the CDOs in exchange for a payment from Maiden Lane III and their retention of collateral previously posted by AIG FP. In connection with any such purchase, the counterparties agreed to terminate the related CDS contracts with AIG FP.