Freddie Mac paid up to unload all but the riskiest tranche of its latest risk-sharing latest transaction.
The $950 million Structured Agency Credit Risk (STACR) Series 2015-DNA2 transfers exposure to credit losses on a pool of single-family loans acquired by Freddie between August 2014 and November 2014 with an unpaid principal balance over $31.9 billion.
Buyers of the unrated B tranche, which transfers the first 100 basis points of losses when homeowners default, will be paid a spread of 755 basis points over one-month Libor; that’s 40 basis points inside the Libor plus 795 Freddie pays on the same tranche of its previous STACR.
A big difference between the two deals is that the latest one offers exposure to actual losses. In the previous deal, 2015-HQ2, losses are calculated using a “fixed severity approach.” Investors incur the loss when loans referenced in the pool are delinquent for more than 180 days. At that point, Freddie assumes that the loans will default and calculates what it expects to recover, dinging STACR investors for the remainder.
The B class notes also pay significantly less than the same tranche of another deal offering exposure to actual losses. That deal, Series 2015-DNA1, was completed in April and the B class pays Libor plus 920 basis points.
All of the other tranches of Freddie’s latest deal have spreads wide of its two previous deals, 2015-HQ and 2015-DNA1. The M-3 class, which absorbs the next layer of losses after the B class, pays Libor plus 390 basis points, wide of 325 and 330 basis points, respectively.
The next-riskiest M-2 class pays Libor plus 260 basis points, wide of 195 and 185 basis points in the two previous deals.
And the senior, M-1 tranche of the latest deal pays Libor plus 115 basis points, wide of 110 and 90 basis points.
Merrill Lynch Pierce, Fenner and Smith Inc. and JP Morgan Securities are joint bookrunners on the latest deal; Deutsche Bank and Jefferies will serve as co-managers.
Freddie holds the senior loss risk, a portion of the risk in the M-1, M-2, and M-3 classes, and the first loss in the junior Class B tranche.
Moody’s Investors Service and Kroll Bond Ratings Agency are expected to rate the deal; it is expected to settle on June 29.