Colony American Homes priced the five-year triple-A tranche of its second single family rental securitization in line with the first four deals in this asset class.
The five-year AAA’ tranche priced at 95 basis points over Libor, according to a Barclays report.
By comparison, a similar tranch of the $480 million deal completed by American Homes 4 Rent in mid May priced at 100 basis points over Libor. That tranche has an initial maturity of two years and fully extended maturity of 4.9 years and is triple-A rated by all three major rating agencies.
Barclays stated in the report that pricing on the both deals compares favorably with pricing of recent floating-rate commercial mortgage bonds. For example, the xx-year, triple-A tranche of JPMCC 2014-FL4, completed in mid-May, priced at swaps plus 95 basis points.
“Risks should be comparable for tranches with the same credit rating, which takes into consideration credit enhancement among other factors,” the report states.
While the first five single family rental securitizations were backed by a single mortgage to a single landlord that owns all of the underlying properties, future deals could be multi-borrower, conduit-like structures.
Barclays believes that this type of structure could reduce risk by virtue of having a greater diversity of propety type and geographic location. However, conduits would also have greater operational risk since, since such deals would be exposed to several property operators.
Barclays also thinks it's possibile that issuers may look to call deals before the edn of the initial loan term should home values continue to rise. Although issuer would pay a spread maintenance penalty to do so, (two years for all deals except CAH 2014-1 for which it is three years), home price appreciation would allow issuers to “refinance to a higher balance while actual occupancy consistently bettering the current expectations would likely improve the valuation terms, with both events creating a cash-out incentive for the issuer who is also the equity holder,” the report states.