Road to "Reo" paved with prime ratings A controversial new bond backed by rental income from foreclosed houses owned by private equity group, Blackstone Group, has been given a surprise triple-A credit rating. Blackstone and Deutsche Bank have long been working on the new asset-backed security, which bundles together the cash flows generated from a portfolio of rental properties that the private equity group has snapped up since 2012. The bonds, which bankers believe could usher in a new asset class, are a way for opportunistic investors, such as private equity groups and hedge funds, to refinance the cheap homes they purchased in the aftermath of the subprime crisis. Blackstone's deal has secured credit ratings from agencies including Kroll, Morningstar and Moody's, according to people familiar with the matter. At least one agency has given the top slice of the deal a triple A rating, these people said. The $500m deal, known as a "real estate owned [Reo] to rental" or "single-family rental" securitisation, is expected to be marketed to investors in the coming weeks. The top credit rating will come as a big surprise to market participants who had speculated that the deal would be lucky to achieve a single-A rating, if any credit ratings at all. Credit rating agencies had initially been slow to back the new rental bonds given there is little data to demonstrate historical cash flows and costs. A triple A rating indicates that the bonds should carry almost no credit risk at all, while a single-A rating indicates that they carry relatively low credit risk. Rating agencies had said that while many institutional investors might be experienced owners and operators of apartment blocks, managing tens of thousands of individual houses across geographies and multiple income streams is tougher. In a piece of research published this year, Moody's said that key risks in any single-family rental securitisations include the performance of the operator of the rental properties, as well as the potential for income to vary substantially. Deutsche Bank is among several financial services companies that have extended credit lines to investment groups this year as they seek to buy distressed houses to convert into rental properties. The bank led a syndicate of banks, including JPMorgan, Credit Suisse, Bank of America and Goldman Sachs, to issue up to $3.6bn in loans to Blackstone as it accelerated purchases of potential rental properties amid growing competition and rising house prices.