AIG, BlackRock make way for big Tilden Park Countrywide payout

08 September 2017

Some of the biggest players in residential mortgage securities had a rare meeting of the minds on Thursday as they agreed on the payment terms of nearly a half-billion dollars of the USD 8.5bn Countrywide RMBS settlement, according to court documents and analysts at Nomura Securities.

 

AIG, BlackRock and AEGON agreed on a proposed judgment that would free up most of the settlement cash owed Tilden Park Asset Management, Prosiris Asset Management and BlueMountain, according to a letter from all parties to New York Supreme Court Judge Saliann Scarpulla. The payments will be made in the manner that largely benefits the hedge funds, as approved by Judge Scarpulla in April (see article, 5 April).

 

The hedge funds had correctly argued that their less senior bonds with unpaid realized losses should get payments ahead of the most-senior debt. AIG and BlackRock argued that payments were intended to flow to senior investors first to compensate for not just past losses but also future losses.

 

The senior support bonds held by the hedge funds were due several hundred million more than the senior bondholders, Steven Molo, a lawyer for the hedge funds, said during a hearing in August 2016.

 

Thursday’s agreement addresses 13 of 14 disputed trusts. They are CWALT 2005-69, CWALT 2005-72, CWALT 2005-76, CWALT 2005-IM1, CWALT 2006-OA3, CWALT 2006-OA7, CWALT 2006-OA8, CWALT 2006-OA10, CWALT 2006-OA14, CWALT 2007-OA3, CWALT 2007-OA8, CWMBS 2006-3 and CWMBS 2006-OA5.

The institutional investors and the hedge funds have yet to agree on distribution terms for CWALT 2005-61, which is due approximately USD 14.6m, according to allocation amounts calculated in January 2016. One other trust involving different parties remains in dispute.

Payouts were delayed as the institutional investors are appealing Judge Scarpulla’s decision and were fighting the hedge fund efforts to have payments made retroactively as of February 2016, when the row over distribution methods began, as reported. Judge Scarpulla had instructed the parties to work out a proposed final judgment that would activate payment.

 

The hedge funds, both run by former Goldman Sachs Group mortgage executives, apparently agreed to drop their effort to have distributions made as of the earlier date, according to the judgment. Each month of delay was reducing the potential payout for the hedge funds because realized losses were creeping up to the senior bonds held by AIG, BlackRock and AEGON, as reported.

 

As of April, the payments due the institutional investors had already increased by USD 50m because losses were rising.

 

The payouts will likely be made in the October or November remittance periods depending on when the court stamps the agreement, Nomura analysts said in a 8 September report.

 

by Al Yoon