Credit Suisse Group AG (CSGN) issued securities tied to $425.7 million of new jumbo U.S. home loans without government backing, its first sale of the type of debt this year, according to Fitch Ratings.
The credit grader assigned top ratings to $393.4 million of bonds, which had a loss buffer of 7.05 percent, New York-based Fitch said yesterday in an e-mailed statement. The so-called credit enhancement, created by other classes of securities that are first in line for losses, was increased from 6.75 percent when the debt was first marketed earlier this month.
Credit Suisse had been considering increasing the cushion, potentially reducing its profits on the transaction, to win ratings from Fitch along with Standard & Poor’s and DBRS Ltd., Dow Jones Newswires reported earlier.
Fitch released a report on Feb. 20 saying it was concerned with changes to mortgage-securitization contracts being sought by issuers looking to protect themselves against forced repurchases of misrepresented debt. For the Credit Suisse deal, Fitch said yesterday it accounted for “weaker” representations and warranties as part of its analysis, without explaining how.
While the deal contained some “notable” improvement to such terms over a November deal by Credit Suisse, it also allows the bank’s backstop on lenders’ promises to buy back faulty loans to lapse after 36 months and be “conditional” in some ways, Fitch said. Credit Suisse’s obligations would cover investors if the lenders collapse.
The transaction also doesn’t have an “automatic breach review trigger,” Fitch said. Deals by Redwood Trust Inc. (RWT), the only other issuer in the market since it revived in 2010, have required reviews of any loans that go more than 120 days delinquent, though in certain cases only Redwood can then demand repurchases by lenders, according to its offering documents.
In the Credit Suisse deal, “senior and subordinate investors can direct the trustee to initiate loan reviews and enforce put-back rights,” Fitch said.
Credit Suisse planned to team with Two Harbors Investment Corp. (TWO) on the securitization, people familiar with the matter said this month, asking to not be named because the transaction is private. The real-estate investment trust was set to buy junior-ranked debt and provide some of the underlying loans.
Drew Benson, a spokesman in New York for Credit Suisse, declined to comment on the deal.
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