JPMorgan markets the first high-quality residential mortgage securitization that relegates some of its AAA-rated bonds to the New York Fed's fledgling Secured Overnight Financing Rate.
According to rating agency presale reports, you can cite three Class A debt tranches of pass-through mortgage certificates (as well as an interest tranche) SOFR as the reference rate for the new JPMorgan Mortgage Trust (JPMTT) 2020-8 of $ 342.2 million are lower than the weighted average collateral pool coupon after applying a basis point spread.
A term SOFR rate is first used according to a benchmark decision waterfall published by the rating agencies, however the deal could use a composite SOFR index of previous daily rates.
The transaction will not contain any Libor-linked bonds that are expected to cease to be published by the UK regulator, the Financial Conduct Authority, by the end of 2021. The inclusion of Libor means that the deal sponsor does not need any so-called "fallback" plans to replace the benchmark after Libor expires.
SOFR is recommended by the New York Fed's Alternative Reference Rates Committee as the preferred replacement rate for Libor for many securitization and derivative contracts, although the ARRC has not yet introduced a temporary SOFR rate with overnight transaction rates published daily.
The floating / inverse floating rate tranches that use SOFR are each senior subordinate offer: a class A-9-B tranche of USD 33.34 million, a class A-11 tranche $ 34.41 million and an interest tranche tied to the A-11 Notes.
Most of the other notes on offer are Fixed Income Notes, including the $ 160.57M Class A-6-A Notes which have the highest priority in terms of payment priority. A fixed interest rate of 2.5% is expected.
"JPMMT 2020-8 is the first high-quality RMBS (Residential Mortgage Backed Security) transaction where coupon rates for certain certificates are based on the Secured Overnight Financing Rate (SOFR), while coupon rates for earlier transactions are based on Libor," the report said by DBRS Morningstar.
All certificates are secured by 403 loans with a total amount of around USD 342.17 million. All loans are top quality fixed rate mortgages (with a borrower's weighted average FICO of 768), sourced from various mortgage lenders and serviced among various other service providers according to presale reports from JPMorgan Chase Bank.