Fannie Mae Prices Fourth Capital Markets Risk Sharing Transaction

Growing Deal Size Trend Continues with Latest Offering

Callie Dosberg

202-752-3117

WASHINGTON, DC – Fannie Mae (FNMA/OTC) today announced that it priced its fourth, and largest, credit risk sharing transaction under its Connecticut Avenue Securities (C-deals) series.  The $2.05 billion note offering priced today and is scheduled to settle on July 25.  This deal (Series 2014-C03) is consistent with prior transactions, and includes reference loans with original loan-to-value ratios (LTV) of up to 97 percent.    

“We’ve continued to see strong investor demand in our Connecticut Avenue Securities transactions and the size of this deal reflects the ongoing market appetite and interest,” said Laurel Davis, vice president for credit risk transfer at Fannie Mae.  “As planned, we have been coming to market with new issuance on a regular, quarterly basis.  We plan to come to market again next quarter, likely in November.”

C-deal notes are bonds issued by Fannie Mae.  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-C03 transaction contains over 330,000 single-family mortgage loans with an outstanding unpaid principal balance of $78.2 billion.  This reference pool consists of eligible loans acquired in the second quarter of 2013, part of Fannie Mae’s new book of business underwritten using strong credit standards and enhanced risk controls.  The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and the reference pool is subdivided into two loan groups by original LTV.  Group one includes loans with original LTV ratios between 60.01 percent and 80.00 percent.  Group two includes loans with original LTV ratios between 80.01 percent and 97.00 percent.

Pricing for the 1M-1 tranche was one-month LIBOR plus a spread of 120 basis points. Pricing for the 1M-2 tranche was one month LIBOR plus a spread of 300 basis points. Pricing for the 2M-1 tranche was one-month LIBOR plus a spread of 120 basis points. Pricing for the 2M-2 tranche was one month LIBOR plus a spread of 290 basis points. The deal included a broad distribution of diverse investors, including asset managers, hedge funds, insurance companies, depository institutions, and REITs. The 1M-1 tranche is expected to receive ratings of BBB-sf by Fitch Ratings and BBB (high) (sf) by DBRS, Inc. The 2M-1 tranche is expected to receive ratings of BBBsf by Fitch Ratings and BBB (low) (sf) by DBRS, Inc. The 1M-2 tranche and 2M-2 tranche were not rated. Fannie Mae retained the first loss and senior piece of the structure, as well as a vertical slice of the M1 and M2 tranches in both groups in order to align its interests with investors throughout the life of the deal.

Morgan Stanley was the lead structuring manager and joint bookrunner on this transaction.  Nomura was the co-lead manager and joint bookrunner. Bank of America Merrill Lynch, Credit Suisse, JP Morgan and Wells Fargo Bank, N.A. were co-managers, and Great Pacific Securities participated as a selling group member.

For more information on this transaction and Fannie Mae’s approach to credit risk transfer, visit https://www.fanniemae.com/portal/funding-the-market/credit-risk/index.html.