In support of the strong demand for CMBS securities, it was reported that insurance companies were active buyers of AAA-rated senior CMBS with 30% subordination (generally classes A1-A3 and A-SB), and were big buyers of subordinate CMBS (classes AS, B and C), which generally provided subordination levels of 12%-22% and are generally rated AAA, AA and single-A (Fitch/S&P), respectively. Although the classes provide lower ratings and subordination, they pay higher yields to compensate for the addition risk compared with senior CMBS.
To accommodate the large buyers of subordinate CMBS, issuers created the “EC” class in many issues. The EC class essentially combined the AS, B and C classes and allowed the buyer to purchase all the securities within the classes, eliminating other potential buyers of the securities. For example, in a UBS-Barclays CMBS issue (UBSBB 2012-C2) that priced in July 2012, Class AS, Class B and Class C — a total of $207.7 million of securities — were combined into an EC class and sold to one investor.
“The EC class structure is great for the issuer, but a bummer for the little guy,” said Michael D. Sneden, Executive Vice President at ValueXpress. “We got shut out of our typical $5-million order of Class B securities from UBSBB 2012-C2 for Country Bank and on another bunch of deals in 2012 as well.”