Freddie prices its first CRT bonds backed by tax-exempt rental loans
Freddie Mac has priced its first offering of credit risk transfer securities backed partially by tax-exempt loans made by state or local housing agencies and secured by affordable rental housing.
The agency plans to settle the multifamily securities trades by the end of the month.
The $310.5 million of floating-rate certificates are backed by fixed-rate pools of tax-exempt and taxable loans. Those loans are in turn secured by completed, occupied and stabilized properties.
Freddie is offering the ML series structure for tax-exempt and certain taxable multifamily loans as an alternative to Low Income Housing Tax Credit financing. There has been concern that tax reform could jeopardize LIHTC financing.
The first transaction includes a series of $292 million in ML certificates backed by tax-exempt loans on 25 properties, and another series of $18.5 million in certificates backed by taxable subordinate loans on three of the same properties.
The first series of Class-A certificates have a weighted average life of 11.52 years and were par-priced at a spread of 50 basis points over one-month Libor. The second series of Class-A certificates have an average life of 6.82 years and were par-priced at a spread of 45 bps over one-month Libor. Each series also included a second tranche that was not offered to the market.
Citigroup Global Markets Inc. and Wells Fargo Securities served collectively as lead manager and bookrunners on the transaction. Barclays Capital Inc., Jefferies LLC and Stern Brothers & Co. were co-managers.
"Eight years after our first modern K-deal, Freddie Mac multifamily continues to expand our securitization series and offload risk to private investors," said Robert Koontz, vice president of multifamily capital markets, in a press release.
Freddie Mac first began transferring risk in the multifamily sector through the K certificate structures. In K deals, Freddie purchases and guarantees senior bonds issued through a third-party trust. That trust also issues subordinate and mezzanine bonds with a guarantee that they are sold to private investors.
Freddie also resecuritizes the senior bonds through its own trust and publicly sells the resecuritization using a pass-through structure.
During the financial crisis, banks began funding affordable housing projects with tax-exempt rather than private-placement bond structures to get more favorable accounting and Community Reinvestment Act treatment.