Capital America, the real estate lending unit of Nomura Holding America, canceled a $1.3 billion bond offering Monday because of lackluster demand.
To get investors to bite, Capital America would have had to offer spreads over the London interbank offered rate as wide as 55 basis points on the AAA-rated portion of the deal, said a trader familiar with the situation.
By contrast, the AAA piece from a similarly structured floating-rate offering Nomura sold in May was priced to yield 23 basis points over Libor, according to the industry newsletter "Commercial Mortgage Alert."
"Given current market conditions, Capital America officials determined that there are more attractive alternatives for leveraging their commercial real estate portfolio," the company said in a statement.
"We couldn't proceed with a transaction that no longer makes economic sense," co-chief executive officer Boyd Fellows said in the same release.
Capital America could keep the loans as collateral for a warehouse line or simply hold them on its balance sheet, the trader said. The majority of the pool is floating-rate loans, which carry less interest rate risk than fixed-rate ones, he added.
The cancellation comes after a series of setbacks for Capital America, the top originator of securitized commercial real estate loans. Since late August commercial mortgage-backed securities prices have fallen sharply. Lenders such as Capital America, which had been originating loans with securitization in mind, found themselves unable to sell those loans at a profit.
Two weeks ago Ethan Penner, Capital America's vice chairman and one of the inventors of commercial mortgage securitization, resigned. Shortly afterward the firm announced $275 million in losses. Last week Nomura Securities propped up its U.S. unit with $380 million of equity and $150 million of debt, and two top U.S. Nomura executives resigned.