Citigroup Asset Sale of Grenadier Funding Drawing Strong Demand (NYSE: C)

The first phase of Citigroup’s $.15 billion liquidation of its Grenadier Funding affiliate drew strong demand on Tuesday morning, according to Dow Jones News Wires.

The auction of a portfolio of residential-sub-prime mortgage-backed securities was reflective of rising prices in the bond market and strong demand for the bonds.

“The bonds traded very well,” said Keith Lind, managing director of asset-backed trading at RBS, which purchased some of the debt sold by Citigroup. Lind said that the prices of the assets rained from 30 cents to 90 cents on the dollar depending on the overall health of the collateral on the loan.

Prices on sub-prime mortgage bonds have improved during the last few weeks and Citigroup’s sale is an indication of the average prices that investors are willing to pay to purchase the distressed assets. Prices on bonds backed by sub-prime mortgages were as low as 20 cents on the dollar as late as last month.

Risk premiums in other asset classes have narrowed during the last month and investors are looking to make higher yields have been buying distressed debt. Other big investors have raised funds specifically to buy distressed assets and have also been waiting for opportunities to make significant purchases of said assets.

Citigroup’s liquidation sale includes five portfolios of assets from Grenadier Funding issued in July 2003. The collateralized debt obligation, managed by ACA Management LLC, contains 46% sub-prime residential mortgage-backed securities, 22% prime residential mortgage backed securities, 14% other collateralized debt obligations, 13% asset-backed securities and 0.2% commercial mortgage backed securities, according to Fitch ratings.

Bank of New York Mellon Corp (NYSE: BK), a trustee of the funds, filed a notice of default on the CDO on December 28^th, 2009, and the trustees decided to liquidate the assets shortly afterward.