Freddie Mac prices first 2015 STACR risk-sharing deal

Offered first-loss position for first time

Freddie Mac announced the pricing of its first Structured Agency Credit Risk transaction of 2015, which marked the first time that investors were offered the opportunity to purchase the first-loss position in a risk-sharing deal.

According to Freddie Mac, STACR 2015 DN-1 priced as follows:

The M-1 class priced at one-month LIBOR plus a spread of 125 basis points.

Pricing for the M-2 class was one month LIBOR plus a spread of 240 basis points.

Pricing for the M-3 class was one month LIBOR plus a spread of 415 basis points.

Pricing for the B class was one month LIBOR plus a spread of 1150 basis points.

Freddie Mac also reported that the STACR deal was upsized from the initial estimate. When Freddie announced STACR 2015 DN-1, the government-sponsored enterprise said that the offering was for $775 million.

Now that the offering has priced, Freddie said that the offering increased to $880 million.

J.P. Morgan and Citigroup served as co-lead managers and joint bookrunners for STACR Series 2015-DN1, which Freddie said has a reference pool of recently originated single-family mortgages with an unpaid principal balance of more than $27.6 billion. STACR 2015 DN1 Class M-1, Class M-2 and Class M-3 Notes will be listed on the Global Exchange Market of the Irish Stock Exchange.

When Freddie announced the new STACR offering, it also said that the STACR program 2015 features “program enhancements such as transferring a portion of the first loss STACR credit risk tranche to the private capital markets,” adding that the enhancements reduce credit risk and promote program liquidity and provide diverse investment options for investors.

"Freddie Mac is shifting its credit risk business strategy from a buy-and-hold company to a buy-and-sell company, so it is natural that we would further reduce our credit risk exposure by selling the first-loss piece," Freddie Mac’s vice president of credit risk transfer, Mike Reynolds, said when the new offering was announced. "We have heard from numerous investors who have an appetite for more risk and higher yields like those found in the first loss piece."

Reynolds said that the deal was indeed well received by investors looking for more risk.

"This is a great start to the year," Reynolds said upon the pricing of STACR 2015 DN-1. "This is the first time we sold a share of the first loss through STACR and we think it's a step forward in the development of the credit risk transfer market. The benchmark 2015-DN1 transaction had very strong demand with several new domestic and foreign investors."

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