Fannie Mae Prices Second Capital Markets Risk Sharing Transaction

Fannie Mae has priced its second credit risk sharing transaction under its Connecticut Avenue Securities (C-deals) series.

According to Fannie Mae, the Series 2014-C01 transaction provides an additional avenue to manage the credit risk on the company's guaranty book of business. The $750 million note offering is scheduled to settle on Jan. 27.

‘We've learned that the market has an appetite for consistency, and we plan to respond by bringing regular C-deals to the market this year," comments Laurel Davis, vice president for credit risk transfer for the government-sponsored enterprise (GSE). C-deal notes are bonds issued by Fannie Mae that protect the company against credit risk, says Fannie Mae.

According to GSE, the amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool. The reference pool for the Series 2014-C01 transaction includes more than 122,000 single-family mortgage loans with an outstanding unpaid principal balance of $29.3 billion.

This reference pool comprises a random selection of eligible loans acquired in the fourth quarter of 2012 – part of Fannie Mae's new book of business underwritten using strong credit standards and enhanced risk controls, says the GSE.

Fannie Mae says the loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages with loan-to-value ratios between 60% and 80%.

Pricing for the M-1 tranche was one-month LIBOR plus a spread of 160 basis points; pricing for the M-2 tranche was one month LIBOR plus a spread of 440 basis points.

Fannie Mae expects the M-1 tranche to receive investment grade ratings of BBB-sf by Fitch Ratings – and (P) Baa2 (sf) by Moody's Investor Service. The M-2 class was not rated. Fannie Mae says it retained the first loss and senior piece of the structure, as well as a vertical slice of the M1 and M2 tranches in order to align its interests with investors throughout the life of the deal.

About 50 investors participated in the offering, including asset managers, mutual funds, pension funds, hedge funds, insurance companies, banks and real estate investment trusts.

Bank of America Merrill Lynch was the lead structuring manager and joint bookrunner on this transaction. Barclays was the co-lead manager and joint bookrunner. Credit Suisse, Morgan Stanley and Nomura were co-managers, and The Williams Capital Group LP participated as a selling group member.


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