UPDATE 1-JPMorgan sells large $716.3 mln CMBS conduit sale

Fri Jun 11, 2010 1:25pm EDT

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By Nancy Leinfuss

NEW YORK, June 11 (Reuters) - JPMorgan Securities sold the largest conduit deal in the CMBS market in nearly two years on Friday into solid demand but investors required extra spread to buy securities further out the curve and for lower-rated securities.

The commercial mortgage-backed securitization, dubbed "JPMCC 2010-C1," is backed by 36 fixed-rate commercial mortgage loans secured by 96 properties. JPMorgan 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 sale's largest AAA-rated tranche, a $416.1 million 4.53-year issue, priced at initial spread guidance of 140 basis points over swaps. Its AAA-rated $131.3 million 6.76-year issue also priced at initial guidance of 160 basis points over swaps, market sources said.

Both tranches met with the strong interest, with many buyers particularly focused on the shortest tranche, market sources said.

"We participated in the deal's $416.1 million five-year 'AAA' tranche and would have like to have played in the 10-year 'AAA' issue, but the size was too small at $61.5 million," said William Bemis, portfolio manager at Aviva Investors. "There's a big difference in liquidity with a larger-sized tranche," said Bemis.

The deal also included $61.5 million of AAA-rated 9.53-year securities that priced five basis points wider than guidance at 165 basis points over swaps, as investors required additional spread premium for the longer maturity, market sources said.

The conduit sale's three lower-rated tranches included a $16.1 million AA-rated 9.98-year note issue that priced at a wider spread of 250 basis points over swaps, versus spread guidance of 225 to 240 basis points over swaps, market sources said.

"All classes of the deal got done but the issuer struggled with the 'AA' class, which underwriters were still taking orders for this morning," said Bemis.

Its other tranches included, a $26.9 million A-minus rated 9.98-year notes also priced at a wider spread of 345 basis points over swaps, compared to earlier guidance of 325 to 340 basis points over swaps, and its lowest BBB-rated $14.3 million 9.98-year note issue that also came on the wider end of initial guidance of 425 to 440 basis points over swaps, at a 440 basis points, market sources said.

The deal was 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.

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.

In April, RBS priced $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. (Editing by Diane Craft)

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