Blackstone rental bond gets triple-A rating

A controversial new bond backed by rental income from foreclosed houses owned by private equity group, Blackstone, has been given an unexpected triple-A credit rating.

Blackstone and Deutsche Bank have long been working on the new asset-backed security, which bundles together the cash flows generated from a portfolio of rental properties that the private equity group has been snapping up since 2012.

The bonds, which bankers believe could usher in a whole new asset class, are a way for opportunistic investors, such as private equity firms and hedge funds, to refinance the cheap homes they purchased in the aftermath of the subprime crisis.

Blackstone's deal has secured credit ratings from agencies including Kroll, Morningstar and Moody's, according to people familiar with the matter. At least one agency has given the top slice of the deal a triple-A rating, these people said.

The $500m deal, known as a "real estate owned [Reo] to rental" or "single-family rental" securitisation, is now expected to be marketed to investors in the coming weeks.

The top credit rating is a major coup for Blackstone and its bankers, since securing the designation means the deal can be sold to a much wider array of investors. At the same time, the prime rating is likely to make the deal even more contentious among people who say bankers are engineering a risky new type of securitisation.

The triple-A credit rating was not at all expected by market participants, many of whom had speculated that the deal would be lucky to achieve a single-A rating, if any credit ratings at all. Rating agencies had initially been slow to back the new rental bonds given there is little data to demonstrate historical cash flows and costs.

A triple-A rating indicates that the bonds should carry almost no credit risk at all, while a single-A rating indicates that they carry relatively low credit risk.

Agencies had said that while many big institutional investors might be experienced owners and operators of apartment blocks, managing tens of thousands of individual houses across different cities and multiple income streams is tougher.

Blackstone's bonds will be marketed by Deutsche, Credit Suisse and JPMorgan Chase.

Deutsche Bank led a syndicate of banks, including JPMorgan, Credit Suisse, Bank of America and Goldman Sachs, to issue up to $3.6bn in loans to Blackstone as it accelerated purchases of potential rental properties amid growing competition and rising house prices.

Ακολουθήστε το Euro2day.gr στο Google News!Παρακολουθήστε τις εξελίξεις με την υπογραφη εγκυρότητας του Euro2day.gr

FOLLOW USΑκολουθήστε τη σελίδα του Euro2day.gr στο Linkedin

The private equity giant is now spending about $100m a week on properties in some of the states hit hardest by the housing bust such as California, Arizona, Florida and Nevada. The company said in its third-quarter earnings call last week it had spent just over $7bn on approximately 40,000 homes.

Blackstone, Deutsche Bank and Moody's declined to comment.

Kroll and Morningstar did not return requests for comment.

© The Financial Times Limited 2013. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation