7.26.12: CMBS Spreads Reverse Direction and Tighten

CMBS spreads reversed direction and tightened in the past two weeks after CBMS offerings from Morgan Stanley/Bank of America (BoA) and Wells Fargo/RBS priced at sequentially tighter spreads from peak levels seen in June when UBS/Barclays widened pricing of long-term super senior CMBS from its multi-borrower issue to 160 basis points (bp) over swaps.

On July 13, Morgan Stanley and BoA priced the long-term, super-senior class of a $1.4-billion conduit deal at 135 bp over swaps after originally offering it at 145-150 bp.  Demand for all of the investment-grade classes was strong as the underlying assets were viewed as high quality, and investors were compelled to put cash to work, despite lower yields.  Half of the junior AAA-rated AS class, B class and C class were carved out for one buyer; this reduced the amount available for other investors and resulted in the classes being oversubscribed.

Demand increased further when ten-year bonds from the super-senior portion of a $1.3-billion multi-borrower issue led by Wells Fargo and RBS priced at 120 bp over swaps on July 20. The dealers had been marketing those bonds with price guidance of 130-135 bp.  Most of the classes were oversubscribed.

“Demand for CMBS in the past 30 days has been very strong,” commented Michael D. Sneden, Executive Vice President of ValueXpress.  “Although CMBS yields are relatively low, they are higher than comparably rated corporate securities and they provide diversity in the underlying income-producing assets to pay bondholders and transparency in cash flow reporting to investors,” said Sneden.  “We received only 33% and 25% of our CMBS purchase orders on both the Morgan Stanley/BoA and the Wells Fargo/RBS deals, respectively, as the classes we ordered were oversubscribed.”

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This entry was posted in CMBS, CMBS Conduit Loans, CMBS Securities, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , . Bookmark the permalink.

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