WASHINGTON, DC-Fannie Mae priced its first C-deal offering this week, a $675 million transaction. C-deals are a new series in which the GSE farms out some of the risk in its portfolio to private investors. In short, with a C-deal investors may experience a full or partial loss of their initial principal investment.
GlobeSt.com spoke with Vice president at Fannie Mae, Laurel Davis, about the C-series and why investors would opt for these securities.
First, some background about the series' launch. Pricing for the M-1 tranche was one-month LIBOR plus a spread of 200 basis points. Pricing for the M-2 tranche was one month LIBOR plus a spread of 525 basis points. About 75 investors participated in the offering, including asset managers, mutual funds, pension funds, hedge funds, insurance companies, banks, and REITs.
GlobeSt.com: Why the high interest in this offering?
Davis: A couple of reasons. First, there haven't been a lot of new issuances of mortgage credit related securities in the residential space. The Sequoia deals have been relatively smalls and there have been few other prime jumbo deals. So investors with a mandate to invest in the US residential market have had to trade in the secondary market for the most part. Also the yields on the Libor floaters in the M-1 and M-2 tranches were attractive for investors.
GlobeSt.com: Where these new investors to the market, perhaps drawn to the residential housing markets' recovery?
Davis: I don't think so. We did an extensive roadshow and the sense I got was that these were old hands at this type of credit risk. Historically, there have been a lot of investors that like to focus on US residential credit risk. But it is also true that especially since the crisis a lot of funds have moved into this space.
GlobeSt.com: So will these be a regular feature for Fannie going forward? What is next?
Davis: A lot will depend on the FHFA's Scorecard for 2014. This deal was well received and we are working on another C-deal for early next year. We hope to be in the market with regular transactions in 2014.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
