The Wall Street Journal and Bloomberg, among other outlets, reported last week that the Royal Bank of Scotland Group Plc is in the process of placing a multi-borrower securitization – the first such issuance to come to market since June 2008. Of course, RBS is facing several hurdles as it trailblazes once-familiar territory. The offering, variously reported to be between $300 and $500 million, would represent a significant tool for other banks in determining pricing for future multi-borrower deals. The offering will also serve as a measuring stick for investor demand in the post-TALF world.
While the pooled loans undoubtedly represent the strict underwriting and low-leverage that has come to define commercial real estate lending in this market (similar to the successful offerings issued by Bank of America and J.P. Morgan Chase & Co. at the end of last year), some investors are nevertheless troubled by continuing increases in CRE delinquencies as the slow, "jobless" economic recovery continues to pressure borrowers.
RBS will reportedly seek to close the underlying loans substantially simultaneously with the securitization in an effort to avoid warehousing risk – an effort that will burden internal and legal resources.
The offering may also be of interest to high-yield investors, as reports indicate that the non-investment grade portion of the deal will be sold as mezzanine debt (and not as b-piece). Mezzanine investors, many of whom are still facing significant difficulties in achieving workouts of existing mezzanine positions, will certainly be looking to buttress their investments by negotiating more favorable terms in the accompanying intercreditor agreements.
As we welcome the promise of Spring, this green shoot, especially when coupled with Good Friday’s positive jobs report, represents a critical step as the industry seeks to find funding for the billions of dollars of commercial loans set to mature in the next 72 months.
Photo: Flickr user clrcmck