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Investors eye SFR bond exit due to Blackstone IPO

NEW YORK, Jan 24 (IFR) – Some investors started trying to shrink their exposure Monday to the single-family rental bond market in advance of the Blackstone Group‘s planed IPO of its home rental company.

About US$213m of SFR bonds appeared on a bid list for sale Monday after investors learned some Blackstone bonds would be repaid as part of the Invitation Homes IPO.

According to data provider Empirasign, it was the biggest day of bid list activity for SFR bonds since October 2015.
Blackstone said in its IPO filing that proceeds from the listing would repay some credit facilities that underpin the Invitation Homes SFR bond issuance program.

Invitation Homes grew out of the foreclosure crisis to become the nation’s largest institutional landlord, with a portfolio of 48,000 rental properties.

The company snapped up homes at foreclosure auctions to fix up and rent, and in November 2013 inaugurated the SFR bond sector with the industry’s first trade backed by rental home payments.

Now the company appears to be turning the page by tapping other funding sources.

The company said Fannie Mae had agreed to lend US$1bn to fully repay the mortgage backing the first Invitation Homes SFR bond, called IHSFR 2013-SFR1, and a partial US$275m repayment of its IHSFR 2014-1 loan.

The move is a first for Fannie in terms of lending to an institutional borrower in the single-family rental business.
If Fannie Mae were to expand its footprint beyond big-name borrowers such as Blackstone and refinance other rental home aggregators, that could have a far-reaching impact.

For now, however, Fannie told IFR that its Blackstone financing was a test case and not yet part of a broader lending initiative to institutional landlords.

“This transaction helps us gather data and test the market to ensure we are delivering the right solutions that meet the increasing demand for single-family rental housing across all demographics,” Fannie said in a statement.

One of the bonds meanwhile that traded on Monday – a US$68.6m senior portion – was pegged by Blackstone as slated for repayment.

About 50% of the bid list traded after being talked at par or a slight premium, according to Empirasign.

The IPO filing raised concerns that Fannie might be signaling a broader push to refinance other SFR debt and cause a broad swath of senior bonds trading at 102 and 103 prices to be called at par, said one bond analyst at a Wall Street bank.

“I guess some people feel it could change the dynamic,” the analyst said. “If Fannie can offer more attractive funding, then all those SFR deals probably end up just being called.”

Fannie’s plans for now are limited to Blackstone.

The US$1bn loan will be funded through the sale of government-guaranteed mortgage certificates as well as non-guaranteed subordinate notes, according to IPO documents.

Gary Greenberg, a portfolio manager at Payden & Rygel, said the big list of SFR bonds traded at aggressive levels in an environment of limited supply for high-quality credit assets and no future supply of SFR transactions.

SFR bond issuance dropped by more than 25% to US$4.4bn last year after two years in a row of more than US$6bn of supply, according to JP Morgan data.

“The sector is not as big as it was advertised on day one,” Greenberg said. “From a big money-manager point of view, the sector is more fringe than mainstream.”