Fannie Mae is preparing to issue a credit-risk transfer (CRT) transaction as a REMIC, and will float about $44.2 million in notes to bondholders through the Connecticut Avenue Securities Trust 2022-R02 (CAS 2022-R02).
The Collateral Administration Agreement (CAA) and the Capital Contribution Agreement (CCA) between the issuer and Fannie Mae, will govern the offered notes, in part. The CAA and CCA represent Fannie Mae’s unsecured contractual obligations, according to Kroll Bond Rating Agency, which plans to assign ratings to select notes.
Among positive aspects to the deal is the payment priority and cash flow structure, says Fitch Ratings, which will also rate select notes. Principal will be allocated pro rata, generally, between the senior 2A-H tranche and the subordinate classes, as long as the credit enhancement (CE) and delinquency tests are both satisfied, the rating agency said. If the minimum CE test or the delinquency test is not satisfied, then 100% of the scheduled and unscheduled principal will be allocated to the senior tranche, and then to the subordinate tranches.
Fitch notes that the payment priority of the class 2M-1 notes will result in a shorter life and more stable CE than the mezzanine classes in private-label RMBS, giving the transaction a relative credit advantage.
Fitch expects to assign ratings of ‘BBB’ to ‘B+’, and KBRA’s ratings are expected to range from ‘BBB’ to ‘B’.
The deal is slated to close on February 9.
The transaction is subject to very low operational risk, due to its sponsor, Fannie Mae. That Fannie Mae will retain some credit risk in the transaction by holding the 2A-H senior reference tranche, which has an initial loss protection of 3.3%, and hold the first-loss 2B-3H reference tranche, sized at 0.35%, is another credit positive.
Morgan Stanley & Co., Nomura Securities International are lead managers on the deal. BofA Securities, Citigroup Global Markets, StoneX Financial, and Wells Fargo Securities.