According to a Dow Jones Newswires report, The Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) plan to regenerate commercial mortgage-backed securities (CMBS) offering next month, which was scraped in July by the investment banks. The banks have 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 secured 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 MBS, the increased use of CMBS can be attributable to the rapid rise in real estate prices over the years.
The primary reason for pulling the planned deal of bonds issue was due to Standard & Poor’s (S&P), the credit rating agency, halt over rating the bonds. In July, 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.
According to sources, Goldman and Citi plan to add additional loans to the transaction, which is valued $1.5 billion in July. 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 valued at the same price of $1.5 billion, as previously expected by Goldman and Citi.
Shares of Goldman and Citi currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment