Blackstone (BX) Rental Bond: Rents Fall Slightly In First
Meaningful Data
By Nat Rudarakanchana
on February 20 2014 12:14 PM
The first test of rental income
behind the Blackstone Group LP’s (NYSE:BX)
closely-watched rental-backed bond saw collected rents fall 7.6 percent over
the last quarter of 2013.
Investment adviser Morningstar Inc. (NASDAQ:MORN) noted
that renewals on rent leases exceeded its expectations, however, Bloomberg
reported Wednesday.
The bonds, the centerpiece of a
$480 million offering of a new type of financial product, were marketed by
Blackstone and major Wall Street banks late last year. They allow investors to
capitalize on Blackstone’s ownership of tens of thousands of single-family
homes in the U.S.,
snapped up at bargain foreclosure prices after the financial crisis.
Regulators and lawmakers have
worried about the fallout if tenants fail to pay rent or if Blackstone abruptly
sells back significant real estate onto the market.
A Blackstone spokeswoman declined
comment to Bloomberg.
Falling rental rates, as housing
supply expands, may factor into the complex mechanics behind the bond, finance
blog Naked Capitalism noted.
“The big test for Blackstone will
be the first quarter, the peak period for rent renewals in this transaction,”
the blog stated.
One issue with the bonds involves
the different risk levels accepted by investors. If rental income from the
homes decline, investors suffer to a greater or lesser degree, depending on
their risk appetite and the bond’s tranche structure.
“The prices on the riskier
tranches which are the first to take the hit if cash flow comes up short fell
after the Morningstar news was made public,” the blog noted. “And that alone
could prove fatal to this type of deal.
“Dealers do not want to wind up
stuck with the riskiest inventory from securitizations, so the ability to sell
these deals is constrained by the ability to place the more speculative
tranches.”
The bond has an initial two-year
term, with extension options. The number of vacant homes among the 3,207 homes
backing Blackstone’s security is a key metric for investors and analysts.
Morningstar Inc.
Joseph D.
Mansueto is the chairman & founder & CEO for Morningstar, Inc., and a member of the Commercial Club of Chicago.
Note: Commercial Club of Chicago,
Members Directory A-Z (Past Research)
Tuesday, December 17, 2013
Rahm
I. Emanuel is a member of the Commercial
Club of Chicago, the Chicago (IL) mayor,
Ari Emanuel’s brother, and was the
White House chief of staff for the Barack
Obama administration.
Ari
Emanuel is Rahm I.
Emanuel’s brother, and a founding member of the Core club.
Stephen A. Schwarzman
is a founding member of the Core club,
and the chairman & CEO & co-founder for the Blackstone Group.
John J.
Studzinski is a senior managing director at the Blackstone Group, a director at the Atlantic Council of the United
States (think tank), and a director at
the Human Rights Watch.
Wesley
K. Clark is a director at the Atlantic
Council of the United States
(think tank), and a senior adviser for the Blackstone Group.
Open
Society Foundations was a funder for the Atlantic Council of the United
States (think tank), the Human Rights Watch, and the Committee for Economic Development.
George
Soros is the founder & chairman for the Open Society Foundations, was a benefactor for the Human Rights Watch, and the chairman
for the Foundation to Promote Open
Society.
Foundation
to Promote Open Society was a funder for the Human Rights Watch, the International
Rescue Committee, the Brookings
Institution (think tank), the New
America Foundation, and the Committee
for Economic Development.
Jeffrey E. Garten
is an overseer at the International
Rescue Committee, and was a managing director for the Blackstone Group.
Glenn
H. Hutchins is a trustee at the Brookings
Institution (think tank), and was a general partner at the Blackstone Group.
Committee
for a Responsible Federal Budget was housed at the New America Foundation.
Paul
H. O'Neill is a special adviser at the Committee
for a Responsible Federal Budget, and was a special adviser for the Blackstone Group.
David A. Stockman
is a director at the Committee for a
Responsible Federal Budget, and was a partner at the Blackstone Group.
Peter G. Peterson
is a director at the Committee for a
Responsible Federal Budget, a trustee at the Committee for Economic Development, and was the chairman &
co-founder for the Blackstone Group.
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