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Section 8 Checks Secure New Bond Issue

Section 8 Checks Secure New Bond Issue

Tricon American Homes (TAH) has issued a new bond offering which is partially backed by rents received from Section 8 tenants. TAH made its first securitization of single family rental homes in 2015, but that bond was secured by traditional rentals. The new issue is unique in that the income generated by the secured properties is federal money under the Section 8 program. Local governments have oversight authority over Section 8 programs and make distribution of Section 8 dollars directly to landlords. Therefore, federal and local governments play a direct role in assuring that privately issued securities do not default. The TAH bond therefore has features of a municipal bond, though, of course, payments are not guaranteed by any governmental agency.

Section 8 properties come with risk. And, this tranche is not unique in that regard. Many of the properties are month-to-month tenancies. This leaves gaps in the occupancy and therefore, the rental stream more frequently than with signed leases. Additionally, although Section 8 covers a portion of rent, it often does not cover the entire rental obligation. The fact that the tenant is in the Section 8 program indicates that the tenant’s credit history is not lengthy, increasing risk of default. Notwithstanding these risks, both Kroll and Moody’s have given the bond a preliminary AAA rating.

The securitization contains 3,444 properties, 60% of which are located in Texas, California and Florida. TAH will use proceeds to continue to acquire properties, as it has done with its prior securitization.

David Blattner

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