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Freddie Mac unveils offer for up to $2.2B in CRT notes

The tender offer is part of the agency’s efforts to meet its risk-management goals

Freddie Mac has announced a cash tender offer for some $2.2 billion in outstanding notes across eight vintage credit-risk transfer (CRT) transactions conducted through the agency’s Structured Agency Credit Risk, or STACR, program.

The offering price for the notes outstanding in the current offering, STACR 2022-TO2, ranges from $1,000.63 to $1,017.81 per thousand dollars of outstanding principal amount, depending on the series vintage. The notes are linked to five credit-risk transfer (CRT) securitization deals completed in 2019 and three from 2018. 

Freddie Mac has conducted two prior tender offers for STACR series notes. The first, STACR 2021-TO1, was announced in September 2021 and resulted in the $1.6 billion worth of notes being validly tendered and accepted by the agency. The second tender offer, STACR 2022-TO1, took place in February of this year, with $2.1 billion worth of notes being properly tendered and accepted.

Through the STACR note offerings, private investors participate with Freddie Mac in sharing a portion of the mortgage credit risk in the reference loan pools retained by the agency. Investors receive principal and interest payments on the CRT notes they purchase, but if credit losses exceed a predefined threshold per the security issued, then investors are responsible for absorbing the losses exceeding that mark.

“The purpose of a STACR tender offer is to manage Freddie Mac’s costs related to credit risk transfer by repurchasing STACR notes that have substantially deleveraged (due to decreases in credit risk of related reference pools and increases in credit enhancements to STACR securities) and that no longer provide Freddie Mac with an economically sensible means of transferring credit risk,” states a Freddie Mac explanation of its tender transactions. “Following a tender offer transaction, any notes that are tendered and accepted in the tender offer will be retired and cancelled. 

“… STACR notes included in a tender offer generally do not provide any meaningful capital relief to Freddie Mac. Freddie Mac considers, among other things, the macroeconomic environment, overall CRT market condition and Freddie Mac risk management objectives.”

The offer period for Freddie Mac’s most recent tender offer starts Tuesday, June 7, and will expire at 5 p.m. Eastern Standard Time on Monday, June 13. The settlement date is slated for Wednesday, June 15.

“Freddie Mac has engaged BofA Securities Inc. and Citigroup Global Markets Inc. as lead dealer managers and CastleOak Securities L.P. as co-dealer manager for the offer,” the agency’s announcement of the tender offer states.

Freddie Mac, year to date through early June 2022, has transferred a total of $10.9 billion in risk from reference pools valued at $300.9 billion via five STACR and three Agency Credit Insurance Structure (ACIS) CRT deals. For all last year, Freddie transferred $19.3 billion in risk on loan pools valued in total at $845.6 billion via 10 STACR securities offerings and 8 ACIS insurance-coverage CRT deals, data from Freddie shows.

Freddie earlier this year announced that it expects issuance volume of at least $25 billion in 2022 for its CRT program, including STACR and ACIS transactions. Since inception in 2013 to date, Freddie has transferred risk from reference loan pools valued at $3 trillion via its CRT program, with $98 billion in risk coverage active, according to an accounting on the agency’s website.

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