NEW YORK: Deutsche Bank and Citigroup have teamed up to offer a new US$975m CMBS they hope will satisfy new risk-retention rules that take effect next month, two sources told IFR.
The banks plan to keep at least 5% of each class of the securitization, from the top Triple A tranche to the bottom unrated notes, the sources said.
The so-called vertical strip is one way that commercial mortgage bond issuers hope to comply with new rules aimed at making sure they are sharing risk with their investors.
The two banks plan to serve as the deal's initial risk retention consultation parties, according to deal documents filed with the Securities and Exchange Commission.
Consultation parties, a new feature in some CMBS deals, aim to reassure bond buyers that their interests will be better represented if and when any underlying loans go sour.
One of the largest loans underpinning the new deal is a US$67.5m slice of 10 Hudson Yards, the first building erected at the sprawling new Hudson Yards development site in Manhattan. Bank of America Merrill Lynch, Morgan Stanley and Wells Fargo have also teamed up on two CMBS deals this year with a retained vertical strip.
But the new offering from Deutsche and Citigroup is the first in which retained notes are structured as exchangeable securities, according to Kroll Bond Rating Agency.
That would make them eligible to be rated in future.
The deal is expected to price this week.
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