11.11.16: Recent CMBS Deals Show Signs of Price Tiering

Last week, the Wells, Morgan Stanley and Bank of America team did it again. The group issued its second CMBS offering that followed the compliant risk-retention structure at spreads that blew away the market. The AAA-rated investment grade portion of the deal attracted particularly strong demand once again and priced at 107 basis points (bp) over swaps. That price beat prevailing levels for the “plain vanilla” AAA-rated investment grade bonds from a deal that priced at the same time, at 120 bp over swaps.

As we mentioned in August, Wells Fargo, Morgan Stanley and Bank of America designed a CMBS offering to comply with risk-retention rules. The deal was a big hit with bond buyers as the banks filled the deal with high-quality properties. The AAA-rated investment grade portion of the deal was heavily oversubscribed and priced at 94 bp over swaps. That price handily beat prevailing levels for plain vanilla AAA-rated investment grade bonds from deals that priced at the same time, at roughly 108 bp over swaps. Subordinate CMBS bonds from the Wells deal also priced much tighter than the plain vanilla CMBS offerings.

The two deals priced 14 bp and 13 bp, respectively, better than the market. The better execution translates into at least one point of additional profit, or alternatively, the group could offer lower loan spreads to borrowers of 15 bp or more to increase volume while maintaining the same profit level as the competition.

If the trio continues to issue CMBS on high quality properties compliant with risk retention, the superior pricing could provide a competitive advantage. The issuers would be able to offer lower interest rates than plain vanilla issuers and borrowers would seek the trio to get the best rates, potentially significantly boosting their loan volume.

 

Advertisements
This entry was posted in CMBS, CMBS Securities, Commercial Mortgage-Backed Securities, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, 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 )

Twitter picture

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

Facebook photo

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

Google+ photo

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

Connecting to %s