The global sale of mortgage bonds has now become a reality, with the creation of a Web-based system designed by Warburg Dillon Read LLC and Freddie Mac's initiative to position itself on the electronic threshold.

Freddie Mac's upcoming sale of its five-year reference notes is the first for Freddie Mac this year. The total amount of notes being sold will range between $4 billion and $6 billion, and will use the Internet to reach a global market. The January reference notes will be underwritten by WDR, Merrill Lynch & Co. and Salomon Smith Barney.

WDR has created a system known as DebtWeb, which will enable WDR to market the bonds to investors. The system, according to Stuart Clenaghan, head of e-commerce products for fixed income at WDR, is completely different than other Internet-based systems. "We're actually filing for patents on three parts of our system, which gives an indication that it's not a regular Internet site," he said.

The site includes all the resources investors may use when contemplating the purchase of a bond. Included are the prospectus of the issuer, the pricing supplement, market commentary, rules of engagement, swap terms which change as investors put in their orders, and comparables, which is the price history of bonds. "It consolidates all the sources of information that someone may use when they're making a judgement about a bond issue," said Clenaghan.

Freddie Mac is the first issuer to be using DebtWeb, and the company is always talking to dealers about the newest ways they are trying to reach investors. "We're just taking advantage of a new technology that the dealers have installed in their overall underwriting system," said Douglas Robinson, spokesman for Freddie Mac.

"Freddie Mac has had a commitment to want to use the Internet to increase the attractiveness and the marketing of their reference notes and other products," added Clenaghan. Other issuers have recently become interested in DebtWeb.

Investors will be able to purchase the Freddie Mac notes on the WDR system in three ways. They can either put an order in at market (a non-competitive bid); they can submit a bid at a certain price; or they can put orders in against the bonds that out of which WDR is proposing to sort them.

Furthermore, WDR allows the investor to have the option of selling the underlying benchmark against it for the first two methods of purchasing. That can be done either on a one-to-one basis or on a duration-ratio basis.

The orders are then submitted into WDR's central order book, which is integrated with client management system, "so we know exactly who the order is coming from," said Clenaghan.

The system is set up so that the investors are able to change their order at any time until the deal closes, and receive their allocations over the Internet. "It's a very dynamic system," Clenaghan added.

Since this is the first time Freddie Mac's reference notes will be sold using the Internet, the company is still contemplating whether future sales will be conducted in this manner. "We certainly have a great deal of confidence with the underwriters here and we'll see what we do with the next issuance," Robinson said.

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