McLEAN, VA-Freddie Mac has launched its counterpart to Fannie Mae's C-Series product—a $1 billion offering of Structured Agency Credit Risk (STACR) debt notes. The STACR offering (pronounced stacker) is one of the largest subordinate mortgage credit securitizations ever brought to market, Freddie Mac says. It also is the GSE's first STACR deal of the year after introducing the product in 2013.
This makes Freddie Mac's third STACR deal and the GSE expects to issue them on a regular quarterly basis, Mike Reynolds, director of Portfolio Management at Freddie Mac, tells GlobeSt.com.
STACRs are very similar to Fannie Mae's C-Series product--intentionally so, according to Reynolds, as they have been coordinated through the GSEs' regulator. Essentially the STACR bonds transfers risk to private investors with Freddie Mac retaining the first loss position and a vertical slice of the bond.
More than 65 investors participated in the latest offering with pricing for the M-1 class set at a one-month LIBOR plus a spread of 100 basis points. Pricing for the M-2 class was one month LIBOR plus a spread of 220 basis points and pricing for the M-3 class was one month LIBOR plus a spread of 450 basis points. The offering was oversubscribed and is scheduled to settle on or around Feb. 12, 2014.
The three-bond structure is an enhancement for 2014, compared to the two tranches that comprised 2013 offerings. Kevin Palmer, vice president of single-family strategic credit costing and structuring for Freddie Mac, noted that this third bond attracted even more investors than last year, roughly 20, as it enhanced the product mix.
In another change, Freddie Mac increased the subordination to 4.5% from 3% last year. After issuance the subordination reaches 5%, Reynolds explains.
"We got tremendous support for this last offering," Reynolds says, including from a new class of investor. Before, hedge funds and money managers were primarily interested in the STACR deals, he says. "Now we are seeing more pension funds, insurance companies, banks and credit unions playing a larger role." Overseas money as well as expressed interest, he also says.
The offering, STACR 2014 DN1, is based on a reference pool of almost 140,000 residential loans, representing an unpaid principal balance of approximately $32.4 billion. This pool consists of a subset of 30-year fixed-rate single-family mortgages acquired by Freddie Mac in the second quarter of 2013. Freddie Mac holds the senior risk and the first loss risk in reference pool, and a portion of the risk in the M-1, M-2 and M-3 classes.
The notes were offered to the market by Credit Suisse and Bank of America Merrill Lynch as co-lead managers and joint bookrunners. BNP Paribas, JP Morgan and Nomura served as co-managers, and Mischler Financial as a selling group member.
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