Wednesday, January 14, 2015

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Blackstone Group LP (BX) is offering the first securities of 2015 tied to rental homes, the start of what Morgan Stanley analysts predict may be a more than doubling of issuance this year in the nascent market for such debt.
Blackstone’s Invitation Homes is planning a $513.8 million deal backed by 3,072 properties, a person with knowledge of the matter said. A total of $227.8 million of top-rated securities may be sold at yields that float about 1.35 percentage points above a borrowing benchmark, said the person, who asked not to named without authorization to speak publicly. That compares with the 1.3 percentage point-spread to the one-month London interbank offered rate at which it sold similar bonds in its last offering in November.
Sales of the securities, after totaling about $7.1 billion since Blackstone’s inaugural transaction in late 2013, could reach $15 billion this year, according to Morgan Stanley analysts Richard Hill,James Egan and Jeen Ng. The next frontier will be issuance tied to loans to smaller single-family rental investors and bundled together, the analysts said in a report, a market being targeted by firms including Blackstone’s B2R Finance LP and Cerberus Capital Management LP’s FirstKey Holdings LLC.

‘Significant Growth’

“Successful issuance of a multi-borrower deal could serve as a catalyst for significant growth of the sector,” the New York-based analysts said in the Jan. 6 report.
Denise Dunckel, a spokeswoman for Dallas-based Invitation Homes, declined to comment on the company’s planned offering.
While the biggest institutional landlords, led by Invitation Homes andAmerican Homes 4 Rent (AMH), have been more visible in gobbling up properties in the wake of the U.S. foreclosure crisis, they own fewer than 500,000 homes, compared with the more than 14 million owned by smaller investors, according to the report. Investors with small enough pools of properties can also turn to taxpayer-backed Fannie Mae and Freddie Mac for financing.
Seven different issuers sold about $6.5 billion of rental-home bonds last year, according to data compiled by Bloomberg. Investors have been demanding to be paid more to buy the securities than at the market’s start after supply rose and yield premiums climbed on competing debt such as speculative-grade corporate bonds.
Invitation Home sold the AAA rated securities in its first deal in November 2013 at a spread of 1.15 percentage points over one-month Libor, and the riskiest portion at a spread of 3.65 percentage point. The most-junior-ranking debt it’s offering this week may sell at a spread of 4.5 percentage point, the person said.
Libor, the rate at which banks say they can borrow from one another, was set today at 16.8 basis points for one month. A basis point is 0.01 percentage point.

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