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Freddie Mac prices $765M offering of structured pass-through certificates

Freddie Mac priced an offering of about $765 million in structured pass-through certificates, which are multifamily mortgage-backed securities.

The offering includes a class of floating-rate bonds indexed to the secured overnight financing rate, or Sofr. The K-F73 certificates are backed by floating-rate multifamily mortgages with 10-year terms indexed to the London interbank offered rate. The certificates are expected to settle on or about Dec. 20.

Freddie Mac is using this offering to support the Sofr bond market prior to a Sofr multifamily mortgage offering and to assist in the eventual transition away from Libor. The offering includes one class of senior bonds indexed to Libor and another class indexed to Sofr. The government-sponsored enterprise will guarantee on the Sofr-indexed class to cover any basis mismatch if the Sofr-based index exceeds the Libor-based index. The underlying Libor-based multifamily mortgages and the bonds indexed to Libor will convert to another index, which may be Sofr, if Libor stops being published.

The certificates are guaranteed by Freddie Mac and backed by corresponding classes issued by the FREMF 2019-KF73 Mortgage Trust. The trust will also issue class B, C and R certificates, which will not be guaranteed by the GSE. The certificates include two senior principal-and-interest classes, one interest-only class, and one class entitled to static prepayment premiums.

Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC are co-lead managers and joint book runners for the offering. Amherst Pierpont Securities LLC, BofA Securities Inc., CastleOak Securities LP and Wells Fargo Securities LLC are the co-managers.