Courtesy of Mish.
Blackstone Group LP, the world’s largest private equity firm, became the largest owner of rental homes in the U.S. , acquiring 41,000 homes in the past two years. In October, Blackstone offered the first-ever “rental-home-backed” security on Wall Street. The bond is backed by just a fraction — 3,207 — of the rental properties owned by Blackstone. Monthly rent checks from the properties will be used to service the $479.1 million security.
See Bloomberg’s Blackstone’s Big Bet on Rental Homes for a giant infographic.
Inquiring minds may also be interested in a related Bloomberg article, Wall Street Is My Landlord.
Let’s focus on the credit aspect of what’s in the Blackstone/Deutsche “Invitation Homes“, first-ever rent-based bond offering. Here is a snip from the gigantic infographic in the first link above.
Invitation Homes Bond Offering
What do investors get for their money?
A Bond Credit Rating Table courtesy of Wikipedia will help explain.
| Moody’s | S&P | Fitch | Rating Description | |||
| Long-term | Short-term | Long-term | Short-term | Long-term | Short-term | |
| Aaa | P-1 | AAA | A-1+ | AAA | F1+ | Prime |
| Aa1 | AA+ | AA+ | High grade | |||
| Aa2 | AA | AA | ||||
| Aa3 | AA- | AA- | ||||
| A1 | A+ | A-1 | A+ | F1 | Upper medium grade | |
| A2 | A | A | ||||
| A3 | P-2 | A- | A-2 | A- | F2 | |
| Baa1 | BBB+ | BBB+ | Lower medium grade | |||
| Baa2 | P-3 | BBB | A-3 | BBB | F3 | |
| Baa3 | BBB- | BBB- | ||||
| Ba1 | Not prime | BB+ | B | BB+ | B | Non-Investment Grade Speculative |
| Ba2 | BB | BB | ||||
| Ba3 | BB- | BB- | ||||
| B1 | B+ | B+ | Highly Speculative | |||
| B2 | B | B | ||||
| B3 | B- | B- | ||||
| Caa1 | CCC+ | C | CCC | C | Substantial Risks | |
| Caa2 | CCC | Extremely Speculative | ||||
| Caa3 | CCC- | Default Imminent with Little Prospect for Recovery | ||||
| Ca | CC | |||||
| C | ||||||
| C | D | / | DDD | / | In Default | |
| / | DD | |||||
| / | D | |||||
Whether or not one really belies the Aaa tranche truly deserves that rating, all those investors get is a coupon rate of 1.314%.
Those buying the class “D” offering, rated Baa2, get a “lower medium grade” bond, two steps above junk (again assuming the class really deserves that rating). Those investors get a 2.314% return.
Classes E and F, both “unrated” are highly likely to be pure garbage in my estimation. …
