Fannie Issues Final Risk-Sharing Bonds Transaction of 2014

Mortgage & Real Estate

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Fannie Mae priced its final risk-sharing offering for this year of Connecticut Avenue Securities bonds for $1.45 billion.

This Series 2014-C04 reference pool contains over 235,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $54 billion. The loans were acquired by Fannie in July and August 2013.

The transaction contains loans that are fixed-rate with most having 30-year terms, amortizing mortgages and loan-to-value ratios between 60% and 97%, according to a press release.

The 1M-1 tranche was priced at a spread of one-month Libor plus 195 basis points, while the 1M-2 tranche was priced for one-month Libor plus a spread of 40 basis points. Additionally, the 2M-1 tranche and 2M-2 tranche were priced with one-month Libor plus spread of 210 basis points and 500 basis points, respectively.

Moody’s Investors Service is projected to give the 1M-1 tranche a Baa3 rating and a Baa2 rating for the 2M-1 tranche. Furthermore, the 1M-2 and 2M-2 tranches were not rated.

Fannie said it expects to close this transaction on Nov. 25.

Fannie’s credit risk sharing initiatives are intended to reduce the company’s mortgage default risk by offering new opportunities for financial institutions to invest in the credit performance of the government sponsored enterprises’ single-family portfolio business.

The GSE made four previous risk-sharing offerings to debt investors. The first note was priced last October for $675 million; the second offering for $750 million was made in January; a $1.6 billion transaction was made available in May; and the largest credit risk-sharing transaction, at roughly $2.1 billion, was offered in July.

“We have been actively working to generate additional new interest and expand the investor base and liquidity of the program” said Laurel Davis, the vice president for credit risk transfer at Fannie Mae. “We plan to continue a regular program of benchmark issuance, and in 2015 we anticipate that we will be in the market on a quarterly basis, subject to market conditions.”

Barclays Capital acted as the lead structuring manager and joint bookrunner, while Credit Suisse served as the co-lead manager and joint bookrunner for this final transaction. Bank of America Merrill Lynch, JP Morgan Securities, Citigroup and Nomura Securities International were co-managers. Drexel Hamilton participated as a selling group member.

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