By Adam Tempkin
Sept 28 (IFR) - JP Morgan this week priced the public
portions of a US$1bn CMBS conduit at some of the tightest
spreads in five years.
Although a 9.75-year benchmark Triple A piece of JPMCC
2012-C8 widened out three basis points from price guidance, the
pricing level on Thursday - swaps plus 88bp - still represents
keen investor demand for the paper.
The CMBS market has been heating up ever since the Fed
started a third round of quantitative easing earlier this month,
saying that it would keep rates low through at least 2015.
The "risk-on" environment promoted by this move has
increased interest in CMBS, which has seen more than US$7bn
price so far in September - the highest monthly rate since 2007.
A separate conduit from Wells Fargo and RBS the week before
priced a similar Triple A tranche even tighter than last week's
JPMCC deal, at swaps plus 85bp.
A 2.69-year piece of the JPMCC C8 deal priced at swaps plus
25bp, while a 4.88-year slice priced at swaps plus 50bp and a
7.36-year priced at swaps plus 75bp.
The conduit was the first that S&P was mandated to rate in
more than a year, after in effect being shut out of the market
because of a ratings gaffe in July 2011. Three other agencies,
Fitch, DBRS, and Kroll, also rated the transaction - a rare
Investors complained that S&P came up with an overly
optimistic 82% expected-case loan-to-value (LTV) for the
transaction, while the other three agencies calculated stressed
LTVs anywhere from 96 to 100.
RETURN OF RATINGS SHOPPING
Additionally, the Class G of the transaction was
split-rated: S&P rated it in the Double B category, while the
other agencies considered it a Single B. Several market
participants said that the split ratings showing up in recent
deals points to the return of ratings shopping.
A Triple B minus rated tranche priced at swaps plus 535bp,
compared with plus 500bp for a similar tranche of the Wells
Fargo/RBS conduit from the week before.
While demand for Triple A slices has been strong, riskier,
lower-rated investment grade tranches have garnered less
interest in recent offerings.
A US$405.7m large-loan transaction from Morgan Stanley and
Bank of America that priced on Wednesday, titled MSBAM
2012-CKSV, had a split-rated Triple B tranche.
Morningstar assigned a BBB- rating to it, while S&P assigned
it a BBB. Kroll, the third rating agency on the deal, would not
assign it a rating at all.
Market sources say that the pricing spreads gapped out so
much on this tranche that one of the lead underwriters, Bank of
America, would not divulge pricing levels to the broader market.
Investors passed on the tranche - known as a rake bond -
because they did not believe it was truly an investment grade
credit. Rake bonds are subordinate and are typically tied to the
performance of a single loan.
A Double A slice also widened out: it was originally
supposed to price at a maximum of swaps plus 195bp, but ended up
printing at swaps plus 205bp. The Single A was supposed to price
at a maximum of swaps plus 235bp, but ended up widening to plus
On Thursday, Deutsche Bank and Cantor Fitzgerald announced
the US$875.989m COMM 2012-CCRE3 CMBS transaction. Moody's and
Fitch were selected to rate it.
Retail properties, considered among the riskiest in recent
transactions, comprise nearly 40% of the deal.
Morgan Stanley and Bank of America teamed up for another
transaction, the US$1.123bn conduit titled MBSAM 2012-C6. The
offering was announced on Thursday, and is also rated by Moody's
The transaction is collateralized by 61 loans representing
76 commercial properties.