Tax-Exempt Bond Securitization (TEBS)

Offers the efficiencies of our Capital Markets Execution^SM to tax-exempt bond holders in the multifamily affordable housing market

At-a-Glance

Tax-Exempt Bond Securitization (TEBS)
Product Description	The TEBS structure is a proprietary execution offered by Freddie Mac through which a Sponsor transfers privately placed tax-exempt multifamily housing revenue bonds and related taxable bonds or mortgages to Freddie Mac in exchange for Freddie Mac senior Class A Certificates that are sold to investors and Subordinate Class B Certificates that are retained by the Sponsor and pledged to Freddie Mac. Freddie Mac’s Class A Certificates are fully guaranteed tax-exempt or taxable securities supported by pools of unenhanced tax-exempt multifamily housing revenue bonds or related taxable bonds or mortgages. In the event that the senior certificates bear interest at a variable rate, Freddie Mac may also provide a liquidity facility in the form of a guarantee of the purchase price of the senior certificates if tendered for purchase by an investor.
Benefits to Sponsor	Off-balance-sheet option with portfolios of unenhanced multifamily bonds Enhanced yields through Class B Certificates Reduction of risk with risk capped at subordination level of the Class B Certificates
Minimum Pool Size	Generally $100 million
Subordination Level (Size of B Piece)	On average 15% of total pool size, but can be customized based on collateral quality and Sponsor needs
Eligible Sponsors	Freddie Mac Program Plus® Seller/Servicers with demonstrated expertise in bond transactions and Targeted Affordable Housing Seller/Servicers; other well-capitalized financial institutions on a case-by-case basis
Eligible Properties	Multifamily properties; all assets will be underwritten by Freddie Mac
Minimum Debt Coverage Ratio/Maximum Loan-To-Value Ratio (of each asset)	1.05x / 95% per Freddie Mac underwriting
Documentation/Due Diligence Required During Freddie Mac Underwriting (Complete list of documentation available in TEBS Underwriting Checklist, provided upon request)	Appraisal or market study for each property Current rent roll of each property Current and historical financial statements of each property Sponsor organizational documents Ground lease information, if applicable HAP contracts and amendments, if applicable LURA or Regulatory Agreement Evidence of tax credits awarded or tax credit application As-built surveys Title policy analysis Bond amortization schedules Insurance review Seismic reports (if applicable) Terms of subordinate debt (if applicable)
Upfront Fees (Approximately 50 bps for a $100 million transaction)	Underwriting fees Legal fees Execution fees Modeling fee Rating agency fee Liquidity facility fee (if applicable)
Ongoing Fees (Based on underlying collateral and subordination level)	Freddie Mac guarantee fee Servicing fee Remarketing fee (if Class A Certificates are variable-rate certificates) Liquidity facility fee (if Class A Certificates are variable-rate certificates)
Liquidity Facility Options	In the event that the senior certificates bear interest at a variable rate, Freddie Mac may also provide a liquidity facility; several options exist, depending upon the preference of Sponsor
Hedging	If the Class A Certificates are variable-rate certificates, the Sponsor must purchase an interest rate hedge from an approved Freddie Mac counterparty

How TEBS Works

Sponsor delivers bonds to Freddie Mac, which are registered in the name of Freddie Mac.
Freddie Mac delivers rated Class A and unrated Class B Certificates to the Sponsor.

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Class A Certificates are marketed and sold to investors; Freddie Mac guarantees the payment of scheduled principal on the bonds and all interest on the Class A Certificates.
Class B Certificates are issued to Sponsor but pledged back to Freddie Mac as collateral for Sponsor’s obligation to reimburse Freddie Mac for any credit or liquidity guarantee payments; monthly interest payments on the Class B Certificates are made on a subordinate “if available” basis only after all Class A Certificate interest and pool expenses have been paid in full.

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Contact Us

Clayton Davis, Senior Director, at (703) 714-2837
Curtis Melvin, Analyst, at (703) 714-2624

PDF Version

Download the Tax Exempt Bond Securitization (TEBS) term sheet.

The information provided here is not a replacement or substitute for information found in the Multifamily Seller/Servicer Guide. Terms set forth herein are subject to change without notice.