Investments

Market demand causes Freddie Mac to upsize first actual loss STACR deal

STACR Series 2015-DNA1 increased from $720 million to $1.01 billion

Citing market demand, Freddie Mac increased the size of its latest Structured Agency Credit Risk series offering, which gives investors the opportunity to secure actual loss positions for the first time and offloads some of the credit risk the GSE holds.

According to a release from Freddie, STACR Series 2015-DNA1 was upsized from $720 million to $1.01 billion due to market demand. This STACR deal is different from the previous STACR offerings, some of which offered the first-loss position

The previous STACR offerings also allocated losses using a fixed severity approach, as opposed to offering investors the actual loss position.

"We see actual loss-based risk transfer as more sustainable over the long run than calculated loss risk transfer deals, and we are very happy with the initial positive demand from investors," said Mike Reynolds, Freddie Mac vice president of credit risk transfer. "We look forward to integrating actual loss into future transactions."

STACR Series 2015-DNA1 has a reference pool of seasoned single-family mortgages originated in the fourth quarter of 2012 with an unpaid principal balance of more than $31.9 billion. Freddie Mac holds the senior loss risk in the reference pool, and a portion of the risk in the Class M-1, M-2, M-3 and the first loss Class B tranche.

Additionally, Freddie announced that it priced STACR Series 2015-DNA1. The pricing was:

  • M-1 class was one-month LIBOR plus a spread of 90 basis points
  • M-2 class was one month LIBOR plus a spread of 185 basis points
  • M-3 class was one month LIBOR plus a spread of 330 basis points
  • B class was one month LIBOR plus a spread of 920 basis points

According to Freddie, this transaction also marks the first time the first-loss Class B tranche will be issued as book-entry notes.

Credit Suisse (CS) will act as the structuring lead manager for the new STACR offering, with Citigroup (C) as a co-lead manager and joint bookrunner.

The offering is scheduled to settle on or around April 28, 2015, Freddie said.

Freddie Mac has issued $7.8 billion in STACR bonds to date, representing reference pools of $249.6 billion, through 11 issuances, not including this most recent offering.

Freddie noted that it began making loan-level loss data available to investors in November. At the time, Freddie said that it was making the data available in an effort to increase investor transparency, and expected the loan-level data to help investors build more accurate credit performance models in support of Freddie’s credit risk-sharing offerings.

According to Freddie, loan-level actual loss data was added to its single-family loan-level historical dataset, which covers approximately 17 million 30-year, fixed-rate, single-family mortgages originated between Jan. 1, 1999, and June 30, 2013.

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