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Colony Capital markets industry's second-ever REO-to-rental bond

(adds background, other deals in market)

By Adam Tempkin and Charles Williams

NEW YORK, March 19 (IFR) - Colony Capital on Wednesday began marketing the second-ever bond backed by rental income from foreclosed US properties bought up after the financial crisis and now rented to single families.

The first-ever so-called REO-to-rental or single-family rental (SFR) bond, Invitation Homes 2013-SFR1, was priced by Blackstone in November, and American Homes 4 Rent, another bulk buyer of distressed properties, is expected to launch a similar deal in the next couple of months, according to market sources.

The new USD500m securitization deal from Colony, a California-based private real estate firm, is being led by JP Morgan and Credit Suisse, investors told IFR.

No official mandate has yet been announced, but the investors said the roadshow will begin on Thursday and carry on into next week.

With a nascent recovery in home prices, REO-to-rental has become a big business over the last two years.

It has attracted investment from private equity firms, REITs and others who snapped up distressed residential properties - many foreclosed due to the financial crisis - in bulk at rock-bottom prices.

Given the increased demand for rentals, the properties are refurbished and then rented out, and those rental cashflows then provide the income for holders of the SFR bonds.


The latest deal, to be issued by Colony subsidiary Colony American Homes, comes as real estate capital markets industry experts debate the viability and longevity of the REO-to-rental trade and the new class of bonds associated with it.

Some say rising home prices in recent months have made the premise of buying distressed residential properties and holding onto them less attractive than it was a year or two ago, and believe that this is just a short term trade.

Selling the properties instead as the real estate market heats up may be more lucrative, they say.

And that means there is a shrinking pool of rental properties that can be used for securitizations, and thus could put a lid on the size of the REO-to-rental market.

Several institutional buyers - including Colony - have already slowed their pace of acquisitions.

"Despite all the attention it's getting, I don't see this (REO-to-rental) as being a long-term trade," said the head of consumer ABS at a top investment bank.

Institutional buyers will likely transition their business from large-scale home acquisitions to making smaller loans to mom-and-pop SFR investors, he told IFR.

In February, B2R Finance (B2R stands for Buy to Rent), a Blackstone subsidiary, closed its first residential mortgage loan to a small-scale US investor who buys up multiple single-family homes to rent out.

Blackstone's Tactical Opportunities Fund developed B2R last November to write loans to mom-and-pop SFR investors for USD50m or less, and Cerberus and Colony are developing similar lending businesses, according to sources.


Elsewhere in the securitized-product primary market, new issues continued to garner attention as a USD255m credit card deal from hunting and fishing-gear store Cabela's priced tighter than guidance at Libor plus 35bp, and a USD223m prime auto ABS from California Republic Bank priced just as expected via underwriter Credit Suisse.

The bank, a relative newcomer to the auto-finance industry, has been able to achieve regulatory capital relief through its handful of off-balance-sheet bank auto ABS deals. Its first deal surfaced in late 2012, with two more in June and November of 2013.

This week's trade and the bank's prior offering in November were able to garner Triple A ratings, which is quite a feat for an issuer that is less than three years into its auto-finance program.

Also today, price guidance was received for the USD700m CCCIT 2014-A1, a credit card transaction from Citi, and the USD1bn GCCT 2014-1/2 bonds from RBC's credit card shelf.

In addition, a USD592m personal consumer-loan ABS from Springleaf was upsized and launched.



SLFT 2014-A: Springleaf priced its US$559.26m Springleaf Consumer Loan (SLFT) 2014-A. The class A slice was rated A/AA (S&P/Kroll) and sized at US$500m. Guidance was shown at interpolated swaps plus 180bp-190bp before tightening to 175bp at pricing. It was also upsized from US$347.2m. Credit Suisse and Bank of America were joint leads.

CCCIT 2014-A1: Citigroup has re-opened its CCCIT 2014-A1 fixed-rate credit card transaction. The original size was US$850m. The size of the re-opening was US$700m, which brought the total deal size to US$1.550bn. The 6.82-year Triple A slice was talked and priced at interpolated swaps plus 48bp.

GCCT 2014-1/2: RBC priced its US$1bn 144A/REG S RBC Golden Credit Card Trust 2014-1/2. The 2.97- and 4.97-year Triple A floaters were sized to demand. Price guidance was disseminated at three-month Libor plus 24bp-26bp and one-month Libor plus 45bp area with final spreads set at 24bp and 45bp. The transaction was also upsized from US$700m.


AVERY POINT CLO IV: Morgan Stanley priced the US$727.5m CLO for Sankaty Advisors. The transaction has a two-year non-call period and a four-year reinvestment. The 5.5-year Triple A (S&P/Fitch) priced at three-month Libor plus 152bp. The 9.2-year B- slice(S&P) printed with a coupon of three-month Libor plus 500bp with a discount margin of plus 700bp.


ORES 2014-LV3: Wells Fargo has released guidance on the US$341.8m 144A/REG S CRE NPL securitization, Oaktree Real Estate Investments/SABAL, Series 2014-LV3. The transaction offers a 0.74-year Triple B minus tranche (Kroll) and a 1.69-year unrated class. Guidance is being shown at a 3% area yield and a 6.50-6.75% area yield. The top three property types consist of CRE (69.7%), Land (26.8%) and Residential (2.9%). The trade has a total of 569 assets (REO & Loans). Pricing is expected later this week.

(Reporting by Adam Tempkin and Charles Williams; Editing by Marc Carnegie and Natalie Harrison)