Fannie Mae officially announced recently its new subordinated Benchmark Note program for 2001, which will be issued on a quarterly basis in 2001, the first year of a three-year phase in, and on a semi-annual basis thereafter.

Fannie Mae expects to raise $15 billion through issuance of the notes over the period. Following a three-year phase-in period, the sum of core capital and outstanding subordinated debt will equal or exceed 4% of on-balance-sheet assets, after setting aside capital sufficient to support off-balance-sheet mortgage-backed securities.

Individual new deal sizes will be $1 billion to $2 billion deep, but the program will also utilize reopenings of existing issues. The new sub notes from the program will rank subordinated to senior debt and existing sub debt but will rank senior to Fannie Mae preferred stock.

Initial maturities will be in a range such that the weighted average maturity on outstandings will be five years. Morgan Stanley Dean Witter serves as advisor and arranger and is included among the three joint leads for the inaugural transaction early next year. Goldman, Sachs & Co. and Salomon Smith Barney are the other two desks involved in the deal.

Moody's Investor's Service assigned a prospective Aa2 rating to the sub debt under Fannie Mae's new Universal Debt Facility. In brief, the credit agency cited strong operational and financial fundamentals combined with its subordinated ranking for the rating.

Moody's noted the sub notes "have a mandatory deferral of interest if the firm's capital falls below 125% of critical capital (as defined by OFHEO), or if capital falls below minimum capital levels (defined of OFHEO) and, at Fannie Mae's request, the Secretary of the Treasury exercises its discretionary authority to purchase Fannie Mae obligations."

However, the credit agency calls the possibility of capital falling below 125% of critical capital "extremely remote." - IFR Mortgage Data

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