February 05, 2019Fannie Mae Prices Second Connecticut Avenue Securities (CAS) REMIC Deal
$960 Million Transaction Marks Continued Innovation in Benchmark Credit Risk Transfer Program
WASHINGTON, DC – Fannie Mae (FNMA/OTCQB) priced its first credit risk transfer transaction of the year, Connecticut Avenue Securities® (CAS) Series 2019-R01, a $960 million note offering that represents Fannie Mae's second CAS REMIC™ transaction. CAS is Fannie Mae's benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business.
Fannie Mae's CAS program is the most actively traded credit risk transfer product in the market, and the new CAS REMIC structure marks the continued evolution of the CAS program. Enhancements to the program allow CAS notes to be issued as REMICs, making the product more attractive to market participants, including real estate investment trust (REIT) investors and international investors. Going forward, all CAS offerings will be issued as CAS REMICs.
"We were pleased with our first transaction of the year, which was met with high demand from a deep base of investors, including first-time participants," said Laurel Davis, vice president of credit risk transfer, Fannie Mae. "We expect to return to the market with our next deal, CAS 2019-R02, at the end of February."
The reference pool for CAS Series 2019-R01 consists of more than 115,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $28 billion. The reference pool will include one group of loans comprised of collateral with loan-to-value ratios of 80.01 percent to 97.00 percent acquired from May through August 2018. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls.
Fannie Mae will retain a portion of the 2M-1, 2M-2, and 2B-1 tranches in order to align its interests with investors throughout the life of the deal. Fannie Mae will retain the full 2B-2H tranche.
|Class||Offered Amount ($MM)||Pricing Level||Expected Rating (Fitch/Morningstar)|
|2M-1||$186.724||1-month Libor plus 85 bps||BBB–sf / A|
|2M-2||$586.848||1-month Libor plus 245 bps||Bsf / BBB–|
|2B-1||$186.724||1-month Libor plus 435 bps||This class will not be rated|
Bank of America Merrill Lynch ("BofA Merrill Lynch") is the lead structuring manager and joint bookrunner and Citigroup Global Markets Inc. ("Citigroup") is the co-lead manager and joint bookrunner. Co-managers are Barclays Capital Inc. ("Barclays"), Morgan Stanley & Co. LLC ("Morgan Stanley"), Nomura Securities International ("Nomura"), and Wells Fargo Securities, LLC ("Wells Fargo Securities"). Selling group members are Drexel Hamilton, LLC and Siebert Cisneros Shank & Co., L.L.C.
With the completion of this transaction, Fannie Mae will have brought 31 CAS deals to market since the program began, issued $37 billion in notes, and transferred a portion of the credit risk to private investors on over $1.2 trillion in single-family mortgage loans as part of the CAS program. Since 2013, Fannie Mae has transferred a portion of the credit risk on approximately $1.6 trillion in single-family mortgages through all of its risk transfer programs.
Fannie Mae's deliberate issuer strategy works to build the CAS program in a sustainable way to promote liquidity and to build a broad and diverse investor base. To promote transparency and to help investors evaluate our program, Fannie Mae provides ongoing robust disclosure data to help credit investors evaluate the program, as well as access to news, resources, and analytics through its credit risk sharing webpages. This includes Fannie Mae's innovative Data Dynamics® tool, which enables market participants to analyze CAS deals that are currently outstanding.
In addition to our flagship CAS program, Fannie Mae continues to reduce risk to taxpayers through its Credit Insurance Risk Transfer™(CIRT™) reinsurance program and other forms of risk transfer.
About Connecticut Avenue Securities
CAS REMIC notes are issued by a bankruptcy-remote trust. The amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool. For more information on individual CAS transactions and Fannie Mae's approach to credit risk transfer, visit our credit risk sharing website.
Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/FannieMae.