Fannie Mae priced its second offering of Connecticut Avenue risk-sharing notes at spreads that were significantly tighter than those of its inaugural issue in October of last year.
The $375 million M1 tranche, which is expected to be rated BBB- by Fitch Ratings and Baa2 by Moody’s Investors Service, priced at a spread of one-month Libor plus 160 basis points, 40 basis points tighter than the 200 basis point spread on the same tranche of its first offering.
The $375 million unrated M2 tranche priced at 440 basis points, compared with 525 basis points for the same tranche of the first offering.
Bank of America Merrill Lynch was the lead structuring manager and joint bookrunner; Barclays was the co-lead manager and joint bookrunner.
Connecticut Avenue securities are designed to protect Fannie Mae, and, by extension, U.S. taxpayers, from the risk that homeowners will default on mortgages insured by the government sponsored enterprise. The notes are unsecured debt but they act like credit-linked notes because the amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool.
The reference pool for the Series 2014-C01 transaction includes more than 122,000 single-family mortgage loans with an outstanding unpaid principal balance of $29.3 billion acquired in the fourth quarter of 2012. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages with LTV ratios between 60% and 80%.
In a press release, Fannie Mae said that about 50 investors participated in the offering, including asset managers, mutual funds, pension funds, hedge funds, insurance companies, banks, and real estate investment trusts.
“We’ve learned that the market has an appetite for consistency and we plan to respond by bringing regular C-deals to the market this year,” Laurel Davis, vice president for credit risk transfer at Fannie Mae, stated in the press release.
Dutch Treasury Unloading Last of ING RMBS Portfolio
The Dutch State Treasury Agency (DSTA) was readying its final, $2.1 billion auction of private label residential mortgage backed (RMBS) securities from the bailout of ING as ASR went to press.
Analysts at structured finance analytics firm Interactive Data described the quality of the final iteration as “quite high.”
For bonds that are backed by fixed-rate collateral, pricing talk averaged in the mid to high $90 of $100 face value across all vintages.
The Treasury held two earlier auctions totaling $8 billion. The weighted average evaluated price of the 360 securities sold in January was estimated to be approximately $81 of $100 face value and for the Dec. 11th sale the price $60 of $100 face value, according to Interactive Data.
The DSTA said it would release detailed results of the auction once the entire total portfolio has been sold. At that time the total proceeds for the Dutch State will also be clear and presented to the public.
The previous, $4.27 billion sale was readily absorbed by buyers, according to research published by Barclays. The analysts noted that RMBS prices closed higher in the secondary market that week.
“We have previously argued that the overall non-agencies supply-demand conditions remain balanced and such sales should have only a limited effect on pricing,” the report stated.
European Issuance to Rise
Standard & Poor’s forecasts a modest rise in investor-placed securitization in Europe this year. But the continent is not out of the woods, with “significant downside risks” still dogging the industry.
Issuance last year was fairly broad-based in terms of asset classes. The overall volume placed with investors, rather than used in central funding, slipped, however, to 63 billion from 67 billion in 2012. Notably, just 20 billion of RMBS was issued in the first 11 months of 2013, the lowest figure for more than a decade. S&P said that this drop was largely attributable to a sharp drop in activity out of the U.K., which has accounted for a large swath of the market.
U.K. banks retreated from the mortgage securitization market as they deleveraged and found cheaper sources of funding through the Bank of England’s Funding for Lending Scheme. But 2014 could be different.
“We anticipate that the revised terms of the
Funding for Lending Scheme, and the ongoing rebound in mortgage lending volumes, could lead U.K. RMBS issuance to rise,” the agency stated in its report.
Other major drivers of issuance this year will potentially be German auto ABS and U.K. credit card ABS.
The rating agency believes that regulation and regulatory uncertainty represent the greatest risk to issuance.