North America MBS Issue: Fannie Mae’s US$473m multi-family risk-transfer bond

IFR Awards 2019
3 min read
David Bell

Family values

Fannie Mae generated a stunning amount of investor interest for its debut multi-family risk transfer trade in October, Multifamily Connecticut Avenue Securities Trust 2019-01.

Building on the success of the US$41bn of residential credit risk transfer – or CAS – bonds that Fannie Mae has sold, the agency took a similar structure and technology to transfer risk on a portfolio of multi-family loans for the first time and was rewarded with a huge order book.

Fannie Mae’s aim with the debut deal was to build as broad and diverse an order book as possible as it looked to get the new bond programme off the ground.

The US$472.7m deal was as much as 40 times oversubscribed at the peak of bookbuilding process. After moving pricing tighter three times, final books were seen over US$10bn with 60 unique investors.

Credit Suisse was sole structuring agent, with Bank of America on the deal as joint bookrunner.

The bonds were priced with a blended coupon of 5.436%.

The transaction gives Fannie Mae another way of transferring multi-family risk off its balance sheet as it eyes a future outside of conservatorship, as well as giving investors what is hoped to be a very liquid way of investing in multi-family property credit risk.

“It was the biggest success story in US structured finance this year,” said Harris Trifon, portfolio manager at Western Asset Management, who participated in the deal.

The debt transfers a portion of the risk on a US$17.1bn portfolio of multi-family mortgages, which are typically secured on apartment buildings.

Under the bond structure, Fannie Mae will absorb the first 65bp of losses in the pool, and investors holding the four tranches would then absorb up to 4.43% of losses.

“This was multiple years in the making in terms of what it would look like and how it would be marketed,” said Michael Dryden, global head of securitised products finance at Credit Suisse.

“It was unbelievable looking at the number of buyers and their buying capacity in the deal.”

One of the reasons the deal stands out was that the structure appealed to both traditional CMBS and RMBS investors. There is usually little crossover.

That is expected to boost the liquidity of the bonds. This is another key aim for Fannie Mae, which is aiming for the MCAS programme to become a highly liquid way for investors to express views on the multifamily market – a role that its US$41bn of issued CAS bonds play in the residential space.

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