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Freddie Mac Sells $1 Billion of Securities Sharing Default Risks

businessweek.com | February 9, 2014

By Jody Shenn

Freddie Mac sold $1 billion of securities in the government-controlled mortgage-finance company’s largest offering of bonds whose buyers share in its risks from homeowner defaults.

A $360 million portion of the deal yields 2.2 percentage points more than a borrowing benchmark, the McLean, Virginia-based firm said in an e-mailed statement. The bonds, rated Baa1 by Moody’s Investors Service and BBB by Kroll Bond Rating Agency, were marketed at a spread of about 2 percentage points, a person with knowledge of the matter said yesterday.

Freddie Mac’s offering, which is tied to $32.4 billion of loans, almost matched the size of its two 2013 sales. The larger amount partly reflected that today’s deal included a portion with more protection against the underlying loans souring. Issuance of risk-sharing securities by the company and competitor Fannie Mae began last year and is accelerating as policy makers seek to reduce their role in the market and assess whether they’re charging enough to guarantee their traditional home-loan bonds.

“We are pleased with the investor interest and demand for this product as more investors are buying the bonds,” Donna Corley, a Freddie Mac (FMCC:US) senior vice president, said in the statement. “We plan regular and consistent issuances this year so that the amount of risk transferred to private investors will increase over time.”

More than 65 investors participated in the deal, including at least 20 new buyers, the company said. Adding a third class to the deal, up from two, provides Freddie Mac with more loss protection and broadens the “product mix for investors,” Kevin Palmer, a vice president, said in the statement.

The $240 million of safer notes received ratings of A1 from Moody’s and A from Kroll, and pay 1 percentage point more than the one-month London interbank offered rate, Freddie Mac said. That was the same spread offered earlier this week. A riskier $408 million unrated portion pays a spread of 4.5 percentage points. That compares with guidance of 4.5 percentage points to 4.65 percentage points.


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