never say never again – bonds are back current market update and financing observations

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Never Say Never Again Bonds are Back Current Market Update and Financing Observations. Texas Housing Conference Tuesday, July 29, 2014 Hilton Hotel Austin, TX. Disclaimer. - PowerPoint PPT Presentation

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The IIS Booklet | 2004

Never Say Never Again Bonds are BackCurrent Market Update and Financing Observations

Texas Housing ConferenceTuesday, July 29, 2014Hilton HotelAustin, TX

10DisclaimerRBC Capital Markets, LLC (RBC CM) is providing the information contained in this document for discussion purposes only and not in connection with RBC CM serving as Underwriter, Investment Banker, municipal advisor, financial advisor or fiduciary to a financial transaction participant or any other person or entity. RBC CM will not have any duties or liability to any person or entity in connection with the information being provided herein. The information provided is not intended to be and should not be construed as advice within the meaning of Section 15B of the Securities Exchange Act of 1934. The financial transaction participants should consult with its own legal, accounting, tax, financial and other advisors, as applicable, to the extent it deems appropriate. This presentation was prepared exclusively for the benefit of and internal use by the recipient for the purpose of considering the transaction or transactions contemplated herein. This presentation is confidential and proprietary to RBC Capital Markets, LLC (RBC CM) and may not be disclosed, reproduced, distributed or used for any other purpose by the recipient without RBCCMs express written consent. By acceptance of these materials, and notwithstanding any other express or implied agreement, arrangement, or understanding to the contrary, RBC CM, its affiliates and the recipient agree that the recipient (and its employees, representatives, and other agents) may disclose to any and all persons, without limitation of any kind from the commencement of discussions, the tax treatment, structure or strategy of the transaction and any fact that may be relevant to understanding such treatment, structure or strategy, and all materials of any kind (including opinions or other tax analyses) that are provided to the recipient relating to such tax treatment, structure, or strategy.The information and any analyses contained in this presentation are taken from, or based upon, information obtained from the recipient or from publicly available sources, the completeness and accuracy of which has not been independently verified, and cannot be assured by RBC CM. The information and any analyses in these materials reflect prevailing conditions and RBC CMs views as of this date, all of which are subject to change. To the extent projections and financial analyses are set forth herein, they may be based on estimated financial performance prepared by or in consultation with the recipient and are intended only to suggest reasonable ranges of results. The printed presentation is incomplete without reference to the oral presentation or other written materials that supplement it.IRS Circular 230 Disclosure: RBC CM and its affiliates do not provide tax advice and nothing contained herein should be construed as tax advice. Any discussion of U.S. tax matters contained herein (including any attachments) (i) was not intended or written to be used, and cannot be used, by you for the purpose of avoiding tax penalties; and (ii) was written in connection with the promotion or marketing of the matters addressed herein. Accordingly, you should seek advice based upon your particular circumstances from an independent tax advisor.Table of ContentsSection AInterest Rate Overview

Section BMultifamily Housing 10 year comparison

Section CCase Studies

12Section AInterest Rate Overview 13110-Year US Treasury/10-year AAA MMD Comparison (2004 to Present)

Source: Bloomberg230-Year US Treasury/30-year AAA MMD Comparison (2004 to Present)

Source: Bloomberg

3Down 95.47% to 90.59% on 7/16/2014Peaked at 186.06% on 12/18/200810-year AAA MMD as a % of 10-year US Treasury (2004 to present)Source: Bloomberg

4Down 109.50% to 100.30% on 7/16/2014Peaked at 209.88% on 12/18/200830-year AAA MMD as a % of 30-year US Treasury (2004 to present)Source: Bloomberg

5MMD Yield Curves (7/15/2004 and 7/15/2014)Down 141 bpsDown 143 bpsDown 165 bpsDown 157 bpsDown 145 bpsDown 155 bpsSource: Bloomberg

US Treasury Yield Curve (7/15/2004 and 7/15/2014)6Down 215 bpsDown 194 bpsDown 201 bpsDown 214 bpsDown 185 bpsDown 200 bpsSource: BloombergHousing Bonds: Spreads to MMD (2004 to present)7

Source: RBCCM Indicative Housing Rates and BloombergAMTNon-AMT7/30/2008HERA Legislation enacted. PAB Housing Bonds become Non-AMTHousing Bonds: Spreads to MMD (2004 to present)8

Source: RBCCM Indicative Housing Rates and BloombergAMTNon-AMT7/30/2008HERA Legislation enacted. PAB Housing Bonds become Non-AMTSection BMultifamily Housing Finance 10 year Comparison11292004Public offerings (AAA rated) Fannie/Freddie/FHA enhanced long term bonds (15 to 40 years)Variable rate executions with Fannie Mae and Freddie Mac Swapped to FixedPrivate Placements with large institutional investors (Charter Mac and MuniMae)-High LTVs, low DSCR, 40 year amortization (45 year amortization in some cases)S&P Affordable Housing Program, publicly rated sub debt.Few CRA bank placements2014Long-term (Fannie/Freddie/FHA enhanced) publicly offered bonds are rareLong term variable rate executions from Fannie/Freddie no longer existPrivate Placements with institutional investors are back after a large dip following the Charter Mac/MuniMae disappearance in 2008/2009. Stricter underwriting.S&P Affordable Housing Program remains, sub debt is less prevalent. New criteria released. CRA bank placements are very prevalent in large CRA markets (FL, DC metro, NY, CA) Multifamily Housing Finance - 10 year comparison11310Multifamily Housing Financing OptionsMultifamily Rated Conduit ExecutionsAgency (Fannie Mae and Freddie Mac) and FHA tax-exempt bond structures including 221(d)(4) and 223(f). Private PlacementsSale of unrated bonds directly to institutional investors, and both local and national banks as CRA motivated investors. Freddie Mac has a new direct placement programTax-Exempt Bonds/ Conventional Loan HybridThis hybrid structure requires the sale of short-term cash collateralized bonds (collateralized with FHA, Fannie/Freddie or conventional loan proceeds).FHA Risk ShareSale of tax-exempt bonds enhanced by FHA under the Risk Share Program. Many State HFAs and a few local issuers have FHA risk share programs. Typically requires LOC during construction/substantial rehab phaseS&P Affordable Housing ProgramUnenhanced debt supported by the Real Estate. A- ratings. New criteria recently released by S&PPublic Housing AuthoritiesS&P Issuer Ratings. Typically A rating category114Section CMultifamily Case Studies11511Other FactsBonds were issued for permanent financing only. Conventional construction loan from Bank of America was used for the 2-year rehab. Rehab was completed in November 2012.Use of a conventional construction loan provided lower rate and construction interest than could be realized in a construction/perm tax-exempt bond.All NJ HMFA bond transactions are required by state statute to pay NJ Prevailing Wages which would add approximately 25% to 30% to rehab costs. Conventional construction loan eliminated the Prevailing Wage requirement.2012F-2 Cash Collateral invested in 1 year Treasury maturing 12/31/13 with an interest rate of .125% reducing negative arbitrage on 2012F-2 bonds to .375%Multifamily Case Study: New Jersey HFMA Washington Dodd Apartments$19,755,000New Jersey Housing and Mortgage Finance AgencyMultifamily Conduit Revenue Bonds(Washington Dodd Apartments Project), Series 2012F-1 & 2012F-2Pricing Date:December 13, 2012Delivery Date:December 20, 2012Bond Ratings:Moodys: AaaRBC Role:Sole ManagerPrivate Activity Bonds with 4% LIHTC issued through NJ HFMA as a conduit issuer. Two Series: 2012F-1: $18,540,00, 2012F-2: $1,215,000Aaa rated Freddie Mac credit enhanced bonds. 2012F-1 structured with 35-year amortization, 15 year term. All-in-rate was 4.84%2012F-2 bonds required to satisfy 50% aggregate basis test for 4% LITHC. Bonds have 1 year maturity (1/1/14) and interest rate of .50%. Bonds were fully cash collateralizedCapital Stack included LIHTC equity, deferred developer fee, existing project reserves, and a Seller Note.

Transaction Summary

11612Other FactsBonds were issued for the acquisition and moderate rehabilitation of 116 apartments located in East Orange, NJ. Rehabilitation will be tenant-in-place.Project receives rental subsidy for 115 of the units from a project-based Section 8 Housing Assistance Payments contract which has an expiration date of September 29, 2029.Project is entitled to PILOT Agreement which permits the Borrower to make payments in lieu of taxes in an amount that is anticipated to be less than the amount of real estate taxes that otherwise would be due for a period of 25 years. Multifamily Case Study: New Jersey HFMA Hampshire House Apartments$6,400,000New Jersey Housing and Mortgage Finance AgencyMultifamily Conduit Revenue Bonds(Hampshire House Apartments Project), Series 2012DPricing Date:January 9, 2013Delivery Date:January 11, 2013Bond Ratings:Moodys: AaaRBC Role:Sole ManagerPrivate Activity Bonds with 4% LIHTC issued through NJ HFMA as a conduit issuer. Aaa rated Fannie Mae credit enhanced bonds structured with 35-year amortization, 18-year term. All-in-rate was 5.30%Utilized two term bond structure with term bonds maturing on January 15, 2023 (2.375%) and January 15, 2031 (3.35%) to take advantage of steep yield curve Capital stack included LIHTC equity and deferred developer fee

Transaction Summary

11713Other FactsBonds were issued for the acquisition and rehabilitation of 125 apartments located in Maplewood, MN. Rehabilitation will be tenant-in-place.Project will receive the benefit of a Section 8 Housing Assistance Payments Contract coverin