3.16.16: CMBS Conduit Loan Spreads Rally

After an extended period of widening spreads on CMBS bonds, spreads tightened significantly this past week. The tightening provided relief to market participants that have seen CMBS conduit lenders pull back from originating new CMBS conduit loans until the market for CMBS securities improved.

The decline in spreads was widespread across both the senior and junior classes of CMBS securities. The benchmark AAA-rated super senior CMBS bonds tightened approximately 30 basis points (bp) based on the pricing level for the most recent CMBS issue in the market, a $712.2-million offering led by Wells Fargo that was expected to price at 10-year swaps plus 143 bp or better. This level compares with 173 bp on the equivalent CMBS bonds from an issue led by Deutsche Bank that priced two weeks ago.

CMBS dealers attributed the improvement in spreads to a handful of positive events. First, a slowdown in CMBS issuance created pent-up demand for new CMBS securities. This was evident as most of the classes of the Wells Fargo were heavily oversubscribed. In addition, the general improvement in debt markets overall positively impacted the outlook for CMBS. Finally, the Federal Reserve’s decision this week to hold interest rates steady was bullish for CMBS.

“With a loose relationship of a 1 bp decline in the benchmark AAA-rated super senior CMBS bonds equating to a 1 bp reduction in the interest rate spread to borrowers, the spread tightening means a roughly 30 bp decline in interest rates to borrowers,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “Hopefully spreads will tighten further to bring the all-in borrower interest rate back down to the 5% area, which becomes appealing for borrowers requiring the non-recourse and/or cash-out features provided by CMBS conduit loans.”

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

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s