With TEBS, investors transfer privately placed tax-exempt bonds to Freddie Mac in exchange for:

• Freddie Mac Senior Class-A M Certificates (typically sold to investors)

• Subordinate Class-B M Certificates (typically retained by the Sponsor)

Class-A M 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 loans".

Maximum LTV/Minimum DSCR:  95%/1.05x (per each asset, with Freddie Mac underwriting) 

Variable-Rate Certificates:  For variable-rate Class-A M Certificates, Freddie Mac may provide a liquidity facility, which guarantees the purchase price of the certificates if they are sold to an outside investor 

Advantages:

• Helps Sponsors manage their balance sheets by reducing the concentration of multifamily assets

• Reduced risks for sponsors, as they're replacing higher-risk multifamily bonds with risk-capped Class-B M Certificates (if they decide to retain them)

• Class-B M Certificates may also provide increased profitability

• Class-A M Certificates can be sold for cash, making monetization faster and easier for Sponsors

Disadvantages:

• Upfront fees, including underwriting fees, legal fees, execution fees, tax opinion fees, modeling fees, rating agency fees, and liquidity facility fees (when applicable), typically totaling 0.5% of transaction amount

• Ongoing fees, including Freddie Mac guarantee fees, servicing fees, and re-marketing agent fees/liquidity facility fees (if Class-A M Certificates are variable-rate)

• Each property requires significant documentation, including:

  • Appraisals or Market Studies

  • Current rent rolls

  • Current and historical financial statements

  • Sponsor organizational documents

  • Ground lease information (if applicable)

  • HAP contracts and amendments (if applicable)

  • LURA or Regulatory Agreements

  • Evidence of tax credits awarded or tax credit application

  • As-built surveys

  • Title policies

  • Bond amortization schedules

  • Insurance reviews

  • Seismic reports (if applicable)

  • Terms of subordinate debt (if applicable)

In this article:
1. Freddie Mac Tax Exempt Bond Securitization (TEBS) for Large-Scale Investors
2. Sample Freddie Mac Terms for Tax Exempt Bond Securitization (TEBS) in 2024
3. Get Financing