Bloomberg News

Leverage Increasing in Commercial-Mortgage Bonds, Moody’s Says

April 16, 2012

Landlords are borrowing more against their properties in commercial-mortgage bond deals planned through June, according to Moody’s Investors Service.

Transactions slated to be marketed during the second quarter include pools with average loan sizes approaching or exceeding the value of the building as calculated by Moody’s, the New York-based rating company said in a report today. Underwriters will probably have to boost credit protections to compensate for the rising leverage, Moody’s said.

“Should the adverse credit drift continue in future quarters, it will be met with further subordination increases,” Tad Philipp, director of commercial real estate research at Moody’s, said in the report.

The size of deals is poised to increase by about 40 percent to $1.3 billion, compared with transactions completed in the first quarter, according to Moody’s.

Commercial-mortgage bond sales have been reviving, with banks arranging about $28 billion of the securities last year, up from $11.5 billion in 2010, according to data compiled by Bloomberg. More than $4 billion has been sold this year compared with a record $232.5 billion in 2007.

JPMorgan Chase & Co. is marketing about $1.1 billion of bonds backed by property loans in the bank’s first sale of the debt in 2012, according to a person familiar with the offering. The deal is linked to 49 loans on 118 properties across the U.S., with holdings in Texas accounting for more than 20 percent of the pool, said the person.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

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


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