According to Trepp, JPMorgan’s $716.3-million CMBS issue, the second conduit package to go on the market this year, closed on June 24. The $416-million Class A1, representing 58% of the issue with an average expected life of 4.5 years, carried a coupon of 3.85%. The $131-million Class A2, representing 18% of the issue with an average expected life of 6.75 years, carried a coupon of 4.61%, and the $61-million Class A3, representing roughly 9% of the issue with an average expected life of 9.5 years, carried a coupon of 5.06%. These CMBS classes were rated AAA and Aaa by Fitch Ratings and Moody’s, respectively. In total, 85% of the issue was rated AAA/Aaa. Classes B through H carried ratings of AA/Aa2 through B-/B3. The $11.6 million of CMBS that was not rated represented 1.625% of the issue. This class will absorb the first losses incurred by loans that default and are liquidated at less than the loan amount. Should losses on the underlying loans over the life of the issue exceed $11.6 million, then class H will begin to experience losses.
The issue contains 36 loans with a weighted average debt-service coverage of 1.64x and a weighted average loan-to-value ratio of 61.5%. The loans in the pool have a weighted average interest rate of 6.40%. Although there was indication of some slow selling, particularly Class B (rated AA/Aa2), all the classes eventually sold, according to dealers.
“According to our calculations, the weighted average coupon paid to bondholders was about 5%,” noted Michael D. Sneden, Executive Vice President at ValueXpress. “This represents a healthy spread of 140 basis points between the rate paid the bondholders and the 6.40% paid by borrowers. This excess interest spread represents ongoing profit to the issuer that can be monetized into up-front profit through the sale of Class X bonds, an interest-only class that pays the excess interest between the borrowers and the bondholders to the Class X bonds,” said Sneden “I am no expert in figuring out the proceeds from the sale of the Class X bonds, but they appear to be well in excess of the 1%-3% of the total issue amount that was typical prior to the 2008 CMBS market collapse.”
“Frankly, I hope the issuers made a lot of money. This will create economic incentive for other issuers to consider originating loans for future CMBS issues,” commented Sneden.