Deutsche Bank Said to Repackage Post-Crisis CMBS

Deutsche Bank AG (DBK) is planning to repackage lower-ranking commercial-mortgage bonds into new securities carrying higher grades, using a technique similar to those that fueled sales of risky debt before mortgage values collapsed five years ago.

The bank may offer investors yields of about 4 percent on as much as $300 million of debt linked to securities created from property loans within the past year, according to three people familiar with the offering who asked not to be identified because talks are preliminary.

Amanda Williams, a spokeswoman for Deutsche Bank in New York, declined to comment.

The proposed deal would transform commercial-mortgage bonds rated BBB-, the lowest investment-grade ranking, into securities rated four levels higher at A. That mirrors how some collateralized debt obligations were created during the boom years.

“The ability to transform newly rated BBB- bonds into A rated bonds suggests that the rating agencies continue to place significant value in the diversity created by packaging multiple bonds together,” Richard Hill, a debt strategist at Royal Bank of Scotland Group Plc said in an e-mail. “This methodology wasn’t particularly successful in older vintage CDOs as the performance of bonds proved to be highly correlated despite the perceived diversity.”

CDOs, which parcel bonds or loans into new securities of varying risks and return, helped fuel the shoddy lending leading to the crash in property values starting in 2006, the U.S. Senate’s Permanent Subcommittee on Investigations said in a bipartisan report last year.

Investor demand for commercial real-estate debt is soaring as the Federal Reserve measures to boost economic growth push investors toward riskier assets to generate higher returns. Sales have surged to the most in almost five years, with $7.9 billion of bonds linked to shopping malls, skyscrapers and hotels issued this month, according to data compiled by Bloomberg.

To contact the reporter on this story: Sarah Mulholland in New York at

To contact the editor responsible for this story: Alan Goldstein at

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