Newcomer Circles B-Piece of Wells-BofA Deal

A new player in the B-piece market - Rialto Capital - has circled the junior classes of an upcoming $850 million commercial MBS deal led by Wells Fargo and Bank of America.

Rival investors said that Miami-based Rialto won the bidding contest by agreeing to pay a price that translated into a pre-loss yield of 14%. That was 2-3 percentage points lower than the yields accepted by B-piece buyers in other recent deals. Market players said Rialto, a subsidiary of homebuilder Lennar, had to pay a premium for being relatively unknown to issuers and senior investors.

Rialto, which was formed in 2007, is indeed a new entrant, but the firm's chief executive, Jeffrey Krasnoff, is a seasoned B-piece player. In the 1990s, he worked in Lennar's high-yield-debt group. In 1997, Lennar spun off the business to form LNR Partners. Krasnoff ran LNR from 1997 to 2007, during which time the firm became the leading buyer of B-pieces. But LNR took a big hit when the CMBS market turned down.

Rialto's chief investment officer is former Deutsche Bank managing director Bill Landis. At Deutsche, Landis ran the syndicated and principal-side financing business for the commercial real estate group.

Last year, Rialto teamed up with AllianceBernstein and Greenfield Partners to win designation as a qualified asset manager for the U.S. Treasury Department's Public-Private Investment Partnership.

Also, Rialto joined forces with Miami-based Lennar this year to buy two structured-loan pools from the FDIC that had a cumulative unpaid balance of $3.1 billion.

The Wells-BofA deal will be only the fifth structured with a B-piece since CMBS issuance resumed last November following a 17-month lockdown, including one other transaction that has not yet priced. Fund shop BlackRock, a seasoned player in the B-piece space, bought the junior classes of two of the transactions. The other two B-pieces were placed with newcomers to the sector: Elliott Management, a hedge-fund shop in New York, and H/2 Capital, a Stamford, Conn., high-yield investment shop.

The Wells-BofA deal, which will include loans originated by Basis Investment, is expected to hit the market this month.

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