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Moody's Investors Service Inc.

Moody's Assigns Aa1 Rating to San Jose Multifamily Housing Revenue Bonds

Strategic Insights

— 2 min read

The City of San Jose has issued $39.030 million in Multifamily Housing Revenue Bonds (Fannie Mae MBS Secured) (Arcade) Series 2025 A-1. Moody's Investors Service has assigned an Aa1 rating to these bonds based on the high credit quality of the Federal National Mortgage Association (FNMA) mortgage-backed security (MBS) and the strong legal structure of the transaction. The rating takes into account the forward commitment provided by Fannie Mae to guaranty the permanent financing, as well as the cash flow projections that demonstrate sufficient revenues to pay debt service through and including the MBS delivery deadline and through final bond maturity upon conversion.

Key Takeaways:

  • The Aa1 rating is based on the high credit quality of the FNMA MBS and the strong legal structure of the transaction.
  • The transaction is forward MBS secured, with Fannie Mae providing a commitment to guaranty the permanent financing.
  • Cash flow projections demonstrate sufficient revenues to pay debt service through and including the MBS delivery deadline and through final bond maturity upon conversion.
  • Prior to the acquisition of the MBS, bond proceeds will be invested in U.S. Treasuries and other eligible investments.
  • The structure of the transaction reduces the potential for administrative error by the Trustee.
  • A positive net revenue and a build-up of funds in the revenue account will be generated on each MBS payment date.
  • Debt service never relies on residual funds from prior periods.
  • Additional features that reduce deal complexity include assuming a 0% interest rate, surplus moneys cannot flow out of the trust absent Moody's reviewing cash flows, and all fees associated with the deal are paid outside of the trust accounts.
  • The bond program maintains a minimum 100% asset-to-debt ratio and is expected to increase through maturity.
  • The principal methodology used in this rating was US Standalone Housing Bonds Secured by Credit-Enhanced Mortgages, published in October 2024.

Statistics:

  • $39.030 million: The amount of Multifamily Housing Revenue Bonds (Fannie Mae MBS Secured) (Arcade) Series 2025 A-1 issued by the City of San Jose.
  • Aa1: The rating assigned by Moody's Investors Service to the San Jose Multifamily Housing Revenue Bonds.
  • 2025: The year in which the bonds are expected to be delivered.
  • 0.00%: The assumed interest rate for projections.
  • 100%: The minimum asset-to-debt ratio maintained by the bond program.

Sources:

  • Moody's Investors Service, "Moody's Assigns Aa1 Rating to San Jose Multifamily Housing Revenue Bonds (Fannie Mae MBS Secured) (Arcade) Series 2025 A-1," (Source: Moody's website, no date)
  • Moody's Investors Service, "US Standalone Housing Bonds Secured by Credit-Enhanced Mortgages," October 2024 (Source: Moody's website, https://ratings.moodys.com/rmc-documents/430702)
  • Moody's Investors Service, "US Pre-refunded and Escrow-backed Transactions," October 2024 (Source: Moody's website, https://ratings.moodys.com/rmc-documents/430703)

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