JPMorgan Chase & Co. plans to sell $1 billion of commercial mortgage-backed bonds, giving control of soured loans to a holder of the riskiest portion.
JPMorgan Chase's sale, the largest this year of the debt, would grant hedge fund H/2 Capital Partners LLC, the buyer of the bottom $50 million slice, primary authority over troubled loans, according to people familiar with the transaction who declined to be identified because negotiations are private.
Goldman Sachs Group Inc. and Citigroup Inc. gave those rights to investors of the highest-rated portions in a $788.5 million offering on Aug. 4. Concern that holders of the riskiest pieces may make decisions favoring their own interests prompted Goldman Sachs to switch from the traditional structure of securities backed by hotels, shopping malls and skyscrapers.
Spreading control among numerous senior bondholders may create confusion in the event of defaults, according to NewOak Capital LLC's Ron D'Vari. "It's very difficult to come to terms with delinquent borrowers as it is," said D'Vari, the chief executive of the New York advisory and asset management firm, and previously head of structured finance at BlackRock Inc. "If you multilayer that with additional bureaucracy, it becomes more difficult."
H/2, the Stamford, Conn., commercial real estate fixed-income manger, will receive a yield of more than 1% on its 10-year investment, assuming the loans take no losses, one of the people said.
Banks arranged $3.4 billion of CMBS last year, and about $2.4 billion has been issued in 2010.