First Public Offerings May Be near for Securities Backed by Auto Loans, but Success May Require Exemptions from Fed's Reserve Requirements

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WASHINGTON -- The first publicly offered securities backed by automobile loans are slated to be sold in the near future, but the success of such deals may hinge on exemptions now under consideration by the Federal Reserve Board.

The two leading mortgage-backed securities firms, Salomon Brothers Inc. and the First Boston Corp., are competing to be the first to go to market and have filed prospectuses with the Securities and Exchange Commission, which has not yet approved either deal.

Salomon's deal, a $60 million offering for MM Car Finance Inc., is for pass-through securities backed by loans originated and serviced by Marine Midland Bank Inc. The securities are known as Certificates for Automobile Receivables, or CARs.

First Boston is planning a $100 million offering of Valley National Financial Corp., a finance subsidiary of Valley National Corp., a Phoenix bank holding company. Officials at First Boston said they expect the deal to be priced within the next week.

Both deal have been structured to avoid running afoul of Fed reserve requirements. In the case of Salomon and Marine, a last-minute restructuring was needed that will cause the deal to be less profitable than originally planned. Salomon Brothers has written the Fed, sources at the firm said, seeking assurances that other, more profitable structures will be permitted, but the Fed has not yet responded.

The Fed's reserve reqirements call for a certain percentage of deposits to beset aside as nonyielding, "sterile" funds to assure safe bank operations. Capital reqirements are designed to insure liquidity and call for about 6% of the bank's assets to be available as low-yielding, liquid investments.

According to a prospectus of last March, Marine Midland proposed to insure an offering of its own subsidiary, based on the bank's creditworthiness. The Fed, however, indicated that it would impose reserve requirements on the full amount of the borrowing and would consider the car loans to be on the bank's books as assets for computing capital. …