MCLEAN, VA--(Marketwired - Jul 24, 2013) - Freddie Mac ( OTCQB : FMCC ) today announced that it has achieved one of its key corporate objectives by successfully offering a single-family credit-risk sharing transaction. The $500 million offering of Structured Agency Credit Risk (STACR(SM)) Debt Notes, Series 2013-DN1, priced yesterday and is scheduled to settle on July 26. STACR debt, the first in a series of such offerings, provides Freddie Mac with an additional means of reducing credit exposure and taxpayer risk by bringing more private capital to the mortgage market.
Through Freddie Mac's new STACR initiative, the company is reducing taxpayers' exposure to some single-family mortgage credit risk for recently-acquired residential loans and transferring a portion of that risk to private investors who invest in the notes (bonds), which are not guaranteed by Freddie Mac.
"This debt issuance is an important step forward in reducing our exposure to residential credit risk by transferring a portion of it to private sector investors," said Freddie Mac CEO Donald H. Layton. "Our intent is to create a product that will be well-received by investors and can become repeatable and scalable over time.
"We're pleased with the market's response to STACR, which is a new asset class in the market. Due to investor demand, the size of the offering was increased from $400 million to $500 million, and about 50 broadly-diversified investors participated in the offering, including mutual funds, hedge funds, REITS, pension funds, banks, insurance companies and credit unions."
STACR debt notes are different than other Freddie Mac securities and debt issuances. STACR debt notes are bonds issued by Freddie Mac that protect it against credit risk. The amount of periodic principal and ultimate principal paid by Freddie Mac is determined by the performance of a very large and diversified reference pool of more than 96,000 loans, representing a $22.5 billion residential mortgage loan balance. This pool consists of a subset of 30-year fixed-rate single-family mortgages acquired by Freddie Mac in the third quarter of 2012.
STACR debt notes are distinctive in that they don't impact the To Be Announced (TBA) market, and limit investor uncertainty by utilizing a pre-defined calculated severity feature. In addition, most other industry securities that transfer mortgage credit risk are based on a smaller pool of mortgages, generally less than 1,000 loans. A large and highly-diversified reference pool may provide more stable and predictable performance.
Freddie Mac is reducing its risk exposure to unexpected losses by placing the STACR debt notes with investors. Freddie Mac retains control of the servicing of the loans in the reference pool which allows the loans to follow Freddie Mac's loss mitigation practices and programs. Freddie Mac maintains investor alignment by retaining a share of losses on every loan in the reference pool.
STACR Debt Notes, Series 2013-DN1 were offered to the market by Credit Suisse as co-lead manager and sole bookrunner; Barclays Capital as co-lead manager; and Citigroup, Morgan Stanley and CastleOak Securities as co-managers. Freddie Mac holds the senior risk and the first loss risk in reference pool.
Pricing for the M-1 tranche was one-month LIBOR plus a spread of 340 basis points. Pricing for the M-2 tranche was one month LIBOR plus a spread of 715 basis points.
The credit securities initiative supports the Federal Housing Finance Agency's goals for the Government Sponsored Enterprises to demonstrate the viability of multiple types of risk transfer transactions involving single family mortgages.
This announcement is not an offer to sell any Freddie Mac securities. Offers for any given security are made only through applicable offering circulars and related supplements, which incorporate Freddie Mac's Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission ("SEC") on February 28, 2013; all other reports Freddie Mac filed with the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934 ("Exchange Act") since December 31, 2012, excluding any information "furnished" to the SEC on Form 8-K; and all documents that Freddie Mac files with the SEC pursuant to Sections 13(a), 13(c) or 14 of the Exchange Act, excluding any information "furnished" to the SEC on Form 8-K.
Freddie Mac's press releases sometimes contain forward-looking statements. A description of factors that could cause actual results to differ materially from the expectations expressed in these and other forward-looking statements can be found in the company's Annual Report on Form 10-K for the year ended December 31, 2012, and its reports on Form 10-Q and Form 8-K, filed with the SEC and available on the Investor Relations page of the company's Web site at www.FreddieMac.com/investors and the SEC's Web site at www.sec.gov .
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four homebuyers and is one of the largest sources of financing for multifamily housing. www.FreddieMac.com . Twitter: @FreddieMac
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