Fannie Mae is marketing its second offering of notes designed to offload some of the risk of default on mortgages that it insures to private investors.
The Connecticut Avenue Securities, Series 2014-C01 are unsecured obligations of Fannie Mae, but they are subject to the credit and principal payment risk of a reference pool of mortgage bonds.
Fitch Ratings has assigned a preliminary BBB- rating to the $375 million M-1 tranche with a 10-year maturity. Fannie will also issue a $375 million M2 tranche that is not rated by Fitch.
As loans in a $29 billion reference pool become 180 day delinquent or other credit events occur, the outstanding principal balance of the Connecticut Avenu notes will be reduced by a pre-defined, tiered loss severity percentage.
The notes will have a 10-year legal final maturity as well as an early redemption option once the aggregate unpaid principal balance of the reference pool is less than or equal to 10% of the original balance.
Fannie Mae's first issue of Connecticut Avenue Securities, for $671 million, priced in October 2013. The company is expected to issue notes from the program on a regular basis, at least once a quarter.