Dechert Advises Fannie Mae on Novel Tax Structure for Credit Risk Transfer Deal

November 30, 2018

Dechert LLP advised The Federal National Mortgage Association (“Fannie Mae”) on a new tax structure for its benchmark Connecticut Avenue Securities® (CAS) credit risk transfer program. The offering, CAS Series 2018-R07, is a US$922 million note that provides credit protection with respect to a reference pool of mortgage loans with an outstanding balance of approximately US$24.3 billion. The tax structure, a first of its kind, provides for the domestic issuance of credit linked notes in a manner that is expected to expand the investor base for CAS securities by addressing certain tax constraints that exist for real estate investment trusts and foreign persons in more traditional credit risk transfer structures.

Under the new structure, the CAS notes are issued by a trust that qualifies as a real estate mortgage investment conduit (REMIC), and the CAS notes offered under the new structure will qualify as REMIC regular interests for federal income tax purposes. More detail about the tax analysis of the structure can be found here.

This representation was led by Washington, DC-based tax partner Will Cejudo.

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