Price guidance emerges for JPMorgan CMBS conduit sale

NEW YORK, June 9 (Reuters) - JPMorgan Securities' $716.3 million commercial mortgage-backed securities conduit sale was meeting with good interest on Wednesday as price guidance emerged for the largest conduit sale in nearly two years.

The deal, dubbed "JPMCC 2010-C1," is backed by 36 fixed-rate commercial mortgage loans secured by 96 properties. JP Morgan Chase Bank loans comprise 76.4 percent of the offering, while 21.6 percent of loans come from Ladder Capital Finance, market sources said.

The deal would be just the second so-called conduit issue to hit the recovering market that provides credit for office, retail and apartment buildings since 2008. The conduit offering is seen as a key gauge of risk appetite for securities tied to the troubled commercial real estate market.

The sale's largest AAA-rated tranche, a $416.1 million 4.53-year issue, is expected to price at a spread of 140 basis points over swaps, a second AAA-rated $131.3 million 6.76-year issue is seen pricing at a spread of 160 basis points over swaps, while its $61.5 million AAA-rated 9.53-year securities are expected to come at spread of 160 basis points over swaps, market sources said.

Dwight Asset Management is looking to purchase the shortest 4.53-year tranche, rated AAA by all three major rating agencies.

"Given the current environment, we are looking for spread in the shortest possible duration. We like the five-year A1 tranche, it offers a spread of 140 basis points over swaps. We are not going to go out beyond that and take on extension risks for an additional 20 basis points," said Paul Norris, portfolio manager at Dwight Asset Management.

A HOPEFUL SIGN

The deal's AAA-rated issues carry 15 percent credit enhancement, though some investors had expected higher levels.

"We were expecting between 15 to 20 percent of credit enhancement for the AAA-rated tranches, but 15 percent is fine because all three rating agencies agreed on it, and that gives us confidence," Norris said.

Recently, banks have more actively been able to bundle together loans from several borrowers for multi-loan CMBS issues. The lending is a hopeful sign for a market whose absence led to soaring defaults and the risk of hundreds more with maturing loans finding few outlets for refinancing.

During the real estate boom, CMBS conduits were among the most important engines for growth of the CMBS market. By 2007, competition for assets grew at a feverish pace, contributing to economic growth. But the weaker underwriting standards were also responsible for some of the worst loans today.

In April, RBS priced a $309.7 million CMBS backed by multiple loans, in the first sale of its kind this year. That followed three single-borrower deals that were sold in the CMBS market in December 2009 as the market began to recover.

JPMorgan's upcoming conduit sale includes three lower-rated tranches. A $16.1 million AA-rated 9.98-year note issue that is expected to price at a spread of 225 to 240 basis points over swaps, a $26.9 million A-minus rated 9.98-year note issue that is expected to price at a spread of 325 to 340 basis points over swaps, and $14.3 million of BBB-rated 9.98-year notes that is seen pricing at a spread of 425 to 440 basis points over swaps, market sources said.

Credit enhancement levels for the AA-rated tranche is 12.75 percent, 9 percent for its A-minus tranche and 7 percent for its BBB-minus rated issue, sources said. (Reporting by Nancy Leinfuss; Additional reporting by Al Yoon; Editing by Jan Paschal)