Bloomberg News

Prima Capital Pulls Commercial Real Estate CDO Amid Pullback

August 01, 2011

Aug. 1 (Bloomberg) -- Prima Capital Advisors LLC withdrew a $670 million collateralized debt obligation tied to property loans as investors pulled back from securities linked to commercial-mortgage debt.

Deutsche Bank AG And Wells Fargo & Co. planned to sell the CDO, which slices loans and securities into new bonds of varying risk, last week, said a person familiar with the offering, who declined to be identified because terms aren’t public.

The Prima deal was to be the first sale of such debt in more than three years as banks tried to revive a market that reached $70 billion of issuance during 2006 and 2007. The offering was halted after Standard & Poor’s suspended ratings on commercial-mortgage bonds and fiscal crises in the U.S. and Europe roiled the $700 billion market for debt tied to hotels, shopping centers and offices.

S&P withdrew rankings last week it had assigned to a $1.5 billion offering from Goldman Sachs Group Inc. and Citigroup Inc., forcing the banks to scuttle the deal after it was placed with investors.

The extra yield investors demand to hold top-ranked securities linked to commercial mortgage debt rose 17 basis points to 226 basis points, or 2.26 percentage points in July, the third consecutive increase, according to a Barclays Plc index.

The Prima transaction didn’t have S&P rankings, the person said.

Sales of CDOs linked to commercial real estate climbed to $35 billion in 2006 from $16.1 billion in 2005, according to Credit Suisse Group AG data. Another $35 billion was arranged in 2007, the data show. Issuance dried up in 2008 losses on subprime mortgages spread across credit markets.

More than $22 billion of commercial-mortgage bonds have been sold this year, compared with $11.5 billion in all of 2010, according to data compiled by Bloomberg.

JPMorgan Chase & Co. reduced its forecast for issuance of the bonds to between $30 billion and $35 billion, the New York- based lender said in a July 22 report. It had projected in November as much as $45 billion in new offerings for this year.

--Editors: Pierre Paulden, Alan Goldstein

To contact the reporters on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net; Christopher DeReza at cdereza1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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