While it seemed that the rally in CMBS securities would never end, the music stopped last week when dealers widened the price talk on a $1.4-billion conduit offering that was in the market. The offering, which priced on Friday, November 23, is backed by loans supplied by Jefferies LoanCore, Goldman Sachs, Citigroup and Archetype Mortgage Capital. The AAA-rated super-senior bonds priced 5 basis points (bp) wider than price guidance at 90 bp over swaps. The deal’s $111.1-million class of junior triple-A bonds, with 22% of subordination, was priced in-line with guidance at 123 bp. But the double-A-minus bonds priced at 185 bp, 15 bps wider than price guidance.
Contributing to the weakness in pricing is a seasonal drop in demand as many investors have starting closing their books for the year. In addition, the spread widening was attributed partly to uncertainty about whether Congress will avert $500 billion of tax increases and budget cuts scheduled to start kicking in January.
This week, Wells Fargo and RBS are expected to price their $1.3-billion CMBS conduit deal. The AAA-rated super-senior bonds are being offered at 95 bp over swaps, while the junior triple-A bonds are being shopped at 125 bp over swaps. The double-A-minus bonds were being marketed at 180 bp.
“For the first time since summer we received our full $8-million allocation of Class B CMBS from the Goldman/Citi deal,” said Michael D. Sneden, Executive Vice President of ValueXpress. “The spread widening helped a little, but the swap was in a bit so the overall yield of 3.45% on the Class B was not much better than our last purchase. Still, CMBS beat the yields on other fixed-income products with the same credit profile.”