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Freddie Mac offers deal that helps pave the way for life without LIBOR

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Freddie Mac launched a groundbreaking multifamily structured pass-through deal that includes a class of floating rate bonds indexed to the Secured Overnight Financing Rate for the first time ever.

The mortgages collateralizing the bonds have 10-year terms and are currently indexed to the London interbank offered rate, an index that is being phased out and that SOFR is considered likely to succeed. The transaction consists of roughly $765 million in K certificates that are expected to settle on Dec. 20.

The deal, K-F73, has one class of bonds that is indexed to SOFR. Another class is indexed to LIBOR. Freddie Mac is providing a guarantee on the SOFR-indexed class that covers any basis mismatch if the SOFR index exceeds the LIBOR index.

The mortgages and bonds indexed to LIBOR would be converted to an alternative index, which possibly could be SOFR, once LIBOR ceases publishing. LIBOR is on track to be phased out by the end of 2021.

“Freddie Mac multifamily is proud to have brought to market its first multifamily real estate securitization with bonds indexed to SOFR,” said Robert Koontz, senior vice president of multifamily capital markets, in a press release. “With the successful execution of K-F73, Freddie Mac is helping to ease the transition to LIBOR from SOFR. This transaction further underscores our commitment to providing market liquidity and stability.”

Morgan Stanley and Goldman Sachs were co-lead managers and joint book runners for the transaction. Amherst Pierpont Securities, BofA Securities, CastleOak Securities and Wells Fargo Securities were co-managers.

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