Morgan Stanley became the fourth big financial firm to sell bonds backed by the FDIC’s Temporary Liquidity Program today, bringing $5.25 billion of 2-year and 3-year notes to market today, according to Thomson Reuters IFR.
“The bank will offer $2.25 billion of 2-year fixed-rate notes, with price guidance indicating a range of midswaps plus 80 basis points, said IFR.
It will offer a second tranche of $2.5 billion of 3-year fixed-rate notes, expected to be priced at midswaps plus 85 basis points. The bank will offer a third tranche of $500 million 3-year floating-rate notes at the 3-month London Interbank Offer Rate plus 85 basis points.”
They may end up raising even more than this amoung. Goldman Sachs had planned to sell $2 billion in bonds but found demand was so strong for these government backed notes that it wound up selling $5 billion. Bank of America and JP Morgan are also issuing debt under the program.
The TLGP, which we’re pronouncing as Tillgup, is a huge government bailout of our banking industry, albeit one that has gotten very little attention. Under the Tillgup, the Federal Deposit Insurance Corp will guarantee new debt issued by a bank, which allows them to raise money at something close to a risk-free rate.
How big will the Tillgup be? No one knows. As a recent report from Dow Jones revealed, estimates vary widely.
“Bank of America estimates that as much as $350 billion of debt could be issued under the program.
Scott MacDonald, director of research at Aladdin Capital Holdings in Stamford, Conn., anticipates that the total could be much higher, at $600 billion of government-guaranteed issuance. This is because financing arms of such companies as GE and General Motors Corp. (GM) have also sought to participate in this program.”
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