JPMorgan Chase & Co. (JPM:US) and Wells Fargo & Co. (WFC:US) are marketing $132 million of commercial mortgage bonds tied to debt including soured loans as Wall Street wagers on demand for riskier assets.
The offering, done on behalf of Rialto Capital Management LLC, is linked to 282 loans, according to people familiar with the transaction who declined to be identified because the terms aren’t public. Of the mortgages, 224 are deemed non-performing.
Banks are offering troubled debt packaged as securities as lenders look to clear their books of bad loans with delinquencies on commercial mortgages close to record highs. Late payments on property loans bundled into bonds jumped 42 basis points in February to 9.85 percent after holding below 9.5 percent the preceding three months, according to Jefferies Group Inc. A record 9.97 percent rate of delinquencies was recorded in June.
About 60 percent of the pool from Rialto is considered non- performing, which means the borrower is more than 60 days late on payments, according to deal documents. An additional 15.9 percent of the debt is in foreclosure, while 18.5 percent of the properties have already been seized by lenders.
Commercial-mortgage bond sales have been reviving, even as volatile prices and a dearth of suitable properties to lend against are limiting a recovery. Banks issued about $28 billion of the securities in 2011, up from $11.5 billion the prior year, according to data compiled by Bloomberg. More than $4 billion has been sold this year, compared with a record $232.5 billion in 2007.
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