The benchmark long-term super-senior AAA-rated bonds in an $875-million CMBS conduit offering led by Wells Fargo priced at 165 basis points (bp) over swaps, matching the level achieved in the previous multi-borrower CMBS issue from Bank of America and Morgan Stanley that priced on February 12. In addition, Morgan Stanley and UBS are currently marketing a $666-million CMBS issue that is expected to price the super-senior class in the area of 165 bp as well. Although the 165 bp level is the widest since 2011, CMBS loan originators would welcome stabilization so that loans priced today will provide adequate profit when securitized in the future. Recently, spreads have widened at a rapid pace, wiping out profits and in some instances creating losses on closed loans waiting to be securitized. Wells Fargo issued the summary chart shown below that highlights movement in CMBS spreads.
Spread Summary, as of February 17, 2016
|Current Vintage Conduit (bp to swaps)|
|New Issue AAA 3-Year||77||0||-3||-3||4|
|New Issue AAA 5-Year||97||0||0||4||11|
|New Issue AAA 7-Year||162||0||3||15||27|
|New Issue AAA 30% 10-Year (Super Senior)||164||0||3||15||28|
|New Issue AAA 20% 10-Year||205||0||5||30||47|
Some market pros, feeling better about the tone in the equities market, are predicting that a spread of 165 bp on the long-term super-senior AAA-rated bonds may prove to be the high water mark for 2016. Originators are reporting weak pipelines as borrowers have shied away from the higher CMBS loan rates so there is going to be reduced supply of CMBS in the next few months, which should help pricing.