According to Bloomberg, The Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) are planning to market commercial mortgage-backed securities (CMBS) worth $1.7 billion, after the deal was scrapped in July. The transaction was valued at $1.5 billion in July.
The primary reason for pulling the planned deal of bonds issue in July was due to Standard & Poor’s (S&P) halt over rating the bonds. S&P refrained from rating the transaction as it decided to reconsider the criteria for assessing risks associated with such bonds offering. The agency wanted to reassess the banks’ joint offering with multiple borrowers. Therefore, Goldman and Citi closed the deal for the time being.
Last month, Goldman and Citi strategize to regenerate CMBS offering. The banks hired Moody’s Investors Service, a credit rating arm of Moody’s Corp. (MCO), to rate the bonds sale.
CMBS are the mortgage-backed securities backed by the loan on a commercial property. Contrasting most other mortgage-backed securities, the structure of a CMBS is not standardized and therefore, it is difficult to evaluate its risk. A CMBS can provide liquidity to real estate investors and commercial lenders. As with other types of mortgage-backed securities, the increased use of CMBS can be attributable to the rapid rise in real estate prices over the years.
The bond package, known as GC4, became an unwanted burden for the banks. Therefore, with the motive of reviving the deal, Moody’s was appointed to rate the bond package.
Considering the current market turmoil with increased uncertainty over the commercial real estate market, it is doubtful whether the deal will be successful as expected by Goldman and Citi.
Both Goldman and Citi currently retain a Zacks #5 Rank, which translates into a short-term Strong Sell rating.
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
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