American Homes Said to Seek Lower Spreads on Rental-Bond Deal

American Homes 4 Rent, the largest publicly traded U.S. single-family landlord, may pay the least yet to sell bonds backed by rental properties in the market’s third-ever deal, according to a person with knowledge of the transaction.

The company may sell $270.4 million of top-rated notes at 110 basis points to 115 basis points more than benchmarks, said the person, who asked not to be identified, citing a lack of authorization to speak publicly. Colony American Homes Inc. sold similar securities at 120 basis points in April, after Blackstone Group LP (BX)’s Invitation Homes issued debt at a 115 basis-point spread in November in the first deal of its type.

Bundling homes into bonds is an attractive source of financing for such landlords because it gives them the opportunity to free up capital and provides borrowed money that’s more stable than credit lines, according to Jade Rahmani, a New York-based analyst at Keefe, Bruyette & Woods Inc.

The $482.7 million offering, which may be completed this week, is being managed by Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo & Co., and graded by Moody’s Investors Service, Kroll Bond Rating Agency and Morningstar Inc., the person said.

American Homes 4 Rent (AMH) would recoup 83 percent of the money that the Agoura Hills, California-based firm invested in buying and improving the homes, and may generate continuing returns in excess of 20 percent on the remaining amount, KBW analyst wrote in a May 7 report, citing rating-company reports.

“Assuming the transaction is successfully executed, we view the deal and its terms as positives for the sector,” the analysts including Rahmani wrote.

The $32.7 million portion of the American Homes 4 Rent deal first in line for losses may be sold at a margin of 360 basis points, or 3.6 percentage points, more than the one-month London interbank offered rate, the person said.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Richard Bravo

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