Wells Fargo & Co. sold $28.5 million of notes tied to Lennar Corp., the largest such offering in at least three and a half years.
The one-year securities, issued June 27, yield 8 percent a year plus 65 percent of any gains if Lennar rises more than 16.8 percent, according to a prospectus filed with the Securities and Exchange Commission. If the stock fails to climb at least 11.5 percent, investors can lose as much as 28.25 percent of their principal.
Lennar, the third-biggest U.S. homebuilder by revenue, fell 9.5 percent this year to $34.99 as of the close of trading today.
Increasing mortgage rates could affect home sales, said David Williams, equity research analyst at Williams Financial Group Inc. in Dallas. The average cost of new 30-year, fixed-rate home loans has climbed to 4.34 percent from a record low 3.36 percent in December, according to Bankrate.com data.
“The concern for us isn’t the rising rates and what that does to monthly payments,” he said in a telephone interview. “It’s more about the appreciation combined with the interest rates that make the qualifying income out of reach for some buyers.”
Elise Wilkinson, a spokeswoman for Wells Fargo, declined to comment on the securities.
Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.