The first of six scheduled CMBS conduit transactions priced late last week at levels that were substantially tighter than the last conduit, which priced three weeks earlier.
The benchmark AAA class of the latest deal, WFRBS Commercial Mortgage Trust, 2014-C22, priced at 84 basis points more than swaps, 6 bp tighter than the 90-bp spread for the last conduit, COMM, 2014-CCRE19, which priced on Aug. 13. And the BBB- class of the WFRBS 2014-C22 deal priced at 345 bp more than swaps, in 25 bp from the COMM deal.
The benchmark AAA class of the latest deal, WFRBS Commercial Mortgage Trust, 2014-C22, priced at 84 basis points more than swaps, 6 bp tighter than the 90-bp spread for the last conduit, COMM, 2014-CCRE19, which priced on Aug. 13. And the BBB- class of the WFRBS 2014-C22 deal priced at 345 bp more than swaps, in 25 bp from the COMM deal.
What’s more, the latest conduit deal’s A-S class, which typically carries the highest ratings, was rated Aa1 by Moody’s Investors Service. That is the equivalent of a rating of AA+ from Fitch Ratings and Kroll Bond Ratings, the other two agencies that rated the WFRBS deal. It marks the first time that a conduit deal’s junior class has received split ratings. But the class still priced tighter than the previous conduit, at 115 bp more than swaps versus 118 bp. Said one investor: “There’s money out there that needs to be put to work.”
The A-S class of the WFRBS deal has 23 percent of credit support, meaning that 23 percent of the transaction would have to be wiped out before it would be impacted. For it to have won Moody’s Aaa rating, the thinking is that the bond class would need to have 25 percent of subordination.
WFRBS deal were somewhat of a surprise to some investors, given that five other conduit deals are in the wings and expected to price before the month is out. That volume ought to give investors the ability to be extremely selective, so they would demand greater yields from certain deals.
Indeed, the benchmark AAA class of COMM, 2014-UBS5, priced on Tuesday at a spread of 88 bp more than swaps. Its A-S class, which has a balance of $100.9 million and carries an Aa1 rating from Moody’s, but AAA ratings from Kroll and Morningstar, priced at 123 bp more than swaps and its BBBclass priced at 370 bp more than swaps.
The deal’s underwritten leverage level is 66.8 percent and it lacks the multifamily concentration of the WFRBS deal. Only 6.7 percent of its $1.4 billion collateral pool is backed by loans against apartment properties, which are considered less volatile than other property types. But the benchmark class of GS Mortgage Securities Trust, 2014-GC24, was being shopped at a level of roughly 87 bp more than swaps. The deal’s A-S class was being shopped in the area of 110 bp more than swaps.
Meanwhile, some investors still require a Moody’s rating, so the split rating could have excluded them, or forced them to price the class wide of where it printed.
The WFRBS deal benefited from its 16.8 percent concentration of loans against apartment properties, which included $65.5 million of residential cooperative properties, which have relatively low leverage. While the transaction’s underwritten loan-to-value ratio was 64.6 percent, Moody’s stressed LTV was 110.1 percent. That increases to 114.3 percent if the co-op loans are excluded.
Also helping was the fact that Moody’s rated bond classes down to the deal’s class C, which it rated A3. It hasn’t been asked to give its ratings for classes below the most senior in a number of previous deals. The rating agency often requires greater levels of credit support than other agencies for certain bond classes before it gives comparable ratings.
Meanwhile, the CMBS market was bound to see an improvement in spreads.Other fixed-income securities had tightened, so the expectation was that CMBS would as well. Spreads on the secondary market had tightened by a couple of basis points last week.
Investors expect at least two other conduits to price when all is said and done. Those would be led by Deutsche Bank and JPMorgan Securities, respectively.
The A-S class of the WFRBS deal has 23 percent of credit support, meaning that 23 percent of the transaction would have to be wiped out before it would be impacted. For it to have won Moody’s Aaa rating, the thinking is that the bond class would need to have 25 percent of subordination.
WFRBS deal were somewhat of a surprise to some investors, given that five other conduit deals are in the wings and expected to price before the month is out. That volume ought to give investors the ability to be extremely selective, so they would demand greater yields from certain deals.
Indeed, the benchmark AAA class of COMM, 2014-UBS5, priced on Tuesday at a spread of 88 bp more than swaps. Its A-S class, which has a balance of $100.9 million and carries an Aa1 rating from Moody’s, but AAA ratings from Kroll and Morningstar, priced at 123 bp more than swaps and its BBBclass priced at 370 bp more than swaps.
The deal’s underwritten leverage level is 66.8 percent and it lacks the multifamily concentration of the WFRBS deal. Only 6.7 percent of its $1.4 billion collateral pool is backed by loans against apartment properties, which are considered less volatile than other property types. But the benchmark class of GS Mortgage Securities Trust, 2014-GC24, was being shopped at a level of roughly 87 bp more than swaps. The deal’s A-S class was being shopped in the area of 110 bp more than swaps.
Meanwhile, some investors still require a Moody’s rating, so the split rating could have excluded them, or forced them to price the class wide of where it printed.
The WFRBS deal benefited from its 16.8 percent concentration of loans against apartment properties, which included $65.5 million of residential cooperative properties, which have relatively low leverage. While the transaction’s underwritten loan-to-value ratio was 64.6 percent, Moody’s stressed LTV was 110.1 percent. That increases to 114.3 percent if the co-op loans are excluded.
Also helping was the fact that Moody’s rated bond classes down to the deal’s class C, which it rated A3. It hasn’t been asked to give its ratings for classes below the most senior in a number of previous deals. The rating agency often requires greater levels of credit support than other agencies for certain bond classes before it gives comparable ratings.
Meanwhile, the CMBS market was bound to see an improvement in spreads.Other fixed-income securities had tightened, so the expectation was that CMBS would as well. Spreads on the secondary market had tightened by a couple of basis points last week.
Investors expect at least two other conduits to price when all is said and done. Those would be led by Deutsche Bank and JPMorgan Securities, respectively.
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