Fannie Mae priced its third offering of Connecticut Avenue risk-sharing notes at significantly tighter spreads than its previous offering in February.
The $1.6 billion Connecticut Avenue Securities, Series 2014-CO2 are general senior unsecured obligations, but are subject to the credit and principal payment risk of a pool of residential mortgage loans guaranteed by Fannie Mae. By at least one measure, the loans in this pool are riskier than those backing the previous transaction: they represent as much as 97% of the value of a home. Previous C-deal offerings included reference loans with loan-to-value ratios of up to 80%.
Pricing for the 1M-1 tranche, which is rated triple-B-minus by both Fitch Ratings and Standard & Poor’s, was one-month LIBOR plus 95 basis points, 65 basis points tighter than the same tranche of its previous offering.
Pricing for the unrated 1M-2 tranche was LIBOR plus 260 basis points.
Pricing for the 2M-1 tranche , which is rated BBB+’ By Fitch and BB’ by S&P, was LIBOR plus 95 basis points.
Pricing for the unrated 2M-2 tranche was LIBOR plus 260 basis points.
All of the notes have a final legal maturity of 10 years.
The latest deal attracted more investors, over 60 asset managers, mutual funds, pension funds, hedge funds, insurance companies, banks, and REITs, compared with 50 for the previous deal.
Fannie Mae retained the first loss and senior piece of the structure, as well as a vertical slice of the M1 and M2 tranches in both groups in order to align its interests with invest
“As the market moves from a refinance market to a purchase money market, it is more common to see loans with higher LTVs,” Laurel Davis, vice president for credit risk transfer at Fannie Mae, stated in a press release.
“Loans with LTVs over 80 have always been part of Fannie Mae’s business and adhere to our strong underwriting and credit standards. We expect to keep coming to the market with ongoing, regular issuance under the Connecticut Avenue Securities program.”