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 on this transaction. Barclays was the co-lead manager and joint bookrunner. Credit Suisse, Morgan Stanley, and Nomura were co-managers, and The Williams Capital Group participated as a selling group member.
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.
The $750 million note offering priced is scheduled to settle on January 27.
“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, said in the press release.