Fannie Mae Prices Second Capital Markets Risk Sharing Transaction

Callie Dosberg

202-752-3117

WASHINGTON, DC – Fannie Mae (FNMA/OTC) today announced that it priced its second credit risk sharing transaction under its Connecticut Avenue Securities (C-deals) series. 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 priced today and is scheduled to settle on January 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,” said Laurel Davis, vice president for credit risk transfer at Fannie Mae. “We are pleased to continue the momentum and strong investor interest of our inaugural transaction by reducing taxpayer risk and attracting additional private capital, while preserving an efficient TBA market.”

C-deal notes are bonds issued by Fannie Mae that protect the company against credit risk. 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 consists of 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. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages with LTV ratios between 60 percent and 80 percent.

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. About 50 broadly-diversified investors participated in the offering, including asset managers, mutual funds, pension funds, hedge funds, insurance companies, banks, and REITs. The M-1 tranche is expected 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 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.

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, L.P. 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