Blackstone Hits A Home Run!

Includes: BX, CS, DB, JPM
by: John M. Mason

On Wednesday I wrote about how hedge funds and others are taking advantage of the low interest rates and the push to get the housing sector going again to buy up houses at low prices, especially in the housing markets that have been hit the hardest during the recent economic unpleasantness.

The post focused on Blackstone Group LP and its efforts to buy up a large number of properties, rent them, and then issue securitized bonds that are backed by the cash flows coming from the leases connected with the properties.

Now we read that the "top slice" of these bonds will be given a triple A rating by at least one agency rating the bonds. See "Blackstone Rental Bond Receives Triple A Rating."

Kroll, Morningstar, and Moody's are three rating agencies that have rated the issue and at least one of them have given the highest rating possible for the cash flow stream coming from the bonds that have the least credit risk, indicating that its believes that there is almost no credit risk to this tranche.

Many had expected that the credit rating for the "top slice" would go no higher than a single A. So, it looks as if Blackstone and Steve Schwarzman its CEO, have pulled it off!

Blackstone and Deutsche Bank (NYSE:DB) have put together the deal and Deutsche, Credit Suisse (NYSE:CS) and JPMorgan Chase (NYSE:JPM) will market it.

"The bonds, which bankers believe could usher in a fresh asset class, are a way for opportunistic investors, such as private equity firms and hedge funds, to refinance the cheap homes they purchased in the aftermath of the subprime crisis."

The new asset class is called "real estate owned to rental" or "single-family rental".

Here is your federal government and its Federal Reserve System at work creating more and more credit inflation. Credit inflation always, one way or another, results in new instruments or new institutions being developed. Now that the rating agencies are on board, everything seems to be a go.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.