(Adds details, comments and background)
By Al Yoon
NEW YORK, Nov 19 (Reuters) - Bank of America Corp is preparing to sell a $460 million commercial mortgage-backed security next month after the first new issue of the debt since the 2008 market crisis sold briskly this week, according to a term sheet obtained by Reuters.
Properties owned by private equity giant Fortress Investment Group FIG.N will back the seven-year fixed-rate issue, according to the loan summary distributed on Thursday.
By its maturity, it will be ineligible for the Federal Reserve’s emergency lending program, expanded just five months ago to restart the CMBS market.
The trickle of CMBS signals some thawing to the credit markets whose seizure has been especially harsh to commercial real estate in 2009. Without CMBS issuance, new lending has ground to a near halt and is pushing borrowers to default even if properties are weathering the recession.
The Fortress issue follows firm demand for a $400 million CMBS from mall owner Developers Diversified Realty Corp (DDR.N) on Monday. The CMBS offer encouraged the market since most was sold without lending from the Fed program.
The Fed’s Term Asset-Backed Securities Loan Facility, or TALF, was extended to CMBS in June amid concern fallout from the sector could derail a fragile economic recovery.
TALF offers investors low-cost loans to buy commercial mortgage and other asset backed securities. It has sparked a surge of issuance in auto loan and credit card-backed bonds.
The Fortress CMBS exceed the Fed’s allowed five-year maturity, which was seen as a compromise with the industry that wanted the program to cover loans maturing in seven years.
“While many investors chose not to fund their purchases of Developers Diversified via TALF, having that ‘seal of approval’ helped,” said Scott Buchta, a strategist at Guggenheim Capital Markets in Chicago.
“I would expect that a non-TALF deal would come at wider levels,” he added.
Last month, Commercial Mortgage Alert reported that Fortress would aggregate $650 million in commercial mortgages in a new issue. It would help refinance a loan used to fund Fortress’ $3.7 billion buyout of Florida East Coast Industries, operator of railway and property firm Flagler Development, the trade publication said.
CMBS before the financial crisis were a major funding source for buyouts. Annual U.S. issuance tripled in the four years through 2007 to a record $233.7 billion.
A Bank of America spokeswoman declined to comment. A Fortress spokeswoman was not available for comment.
Properties backing the Fortress bonds will include Miami, Orlando and Jacksonville real estate, including right-of-way and excess rail parcels that are atypical in a commercial mortgage bond, investors said.
“It will be interesting to gauge investor receptivity to such a deal in that it presents them with unusual valuation considerations,” said Chris Sullivan, chief investment officer at the United Nations Federal Credit Union in New York.
The issue will feature $350 million in debt with AAA ratings and three other portions, including a BBB- class.
Editing by Andrew Hay