5.24.16: CMBS Spreads Decline Due to Lack of Supply

CMBS spreads continue to decline as the pace of new CMBS issuance falls well behind last year. U.S. CMBS volume as of late May was $28.5 billion versus $44.1 billion at the same time last year. Volume has fallen due to significant CMBS spread widening that reversed course in the beginning of March and b-buyers kicking out a larger percentage of lower quality loans, making lenders reluctant to close these loans and battle with b-buyers to get them included in CMBS pools.

As a result, not enough CMBS bonds are available to satisfy demand, allowing dealers to tighten spreads. After peaking at 173 basis points (bp) over swaps on March 3rd, AAA-rated super senior CMBS bond spreads have steadily fallen, reaching a recent low of 110 bp on a deal led by Goldman Sachs that priced on May 17. Since then, three deals have priced, with AAA-rated super senior CMBS bonds pricing in a range of 113-125 bp, depending on deal leverage. Lower leverage deals are getting better spreads. The most recent deal, an $876-million CMBS offering led by UBS, priced its AAA-rated super senior CMBS bonds on May 20th at swaps plus 114 bp, so dealers are calling the market roughly swaps plus 115.

Subordinate bond pricing has also improved, just not as much as super senior CMBS bonds. Furthermore, prices have varied widely: The class D triple-B-minus spread was 660 bp in the UBS issue. That was up from dealer price guidance of 640 bp area. The equivalent spread was 565 bp for the Goldman deal. But both of these results are dramatic improvements from the 825 spread at which the class D triple-B-minus bonds priced on March 3rd.

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

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