The primary market for commercial bonds is off to a busy start for the month with three conduit deals totaling more than $3 billion making the rounds.
Morgan Stanley and Bank of America are marketing a $933 million of securities via Morgan Stanley Bank of America Merrill Lynch Trust (MSBAM) 2015-C23. Early talk indicates that the deal, which is being rated by Moody’s Investors Service, Fitch Ratings and DBRS, will price in line with prior deals.
The triple A rated super senior, 10-year notes are being talked at a spread of swaps plus 87 basis points. That’s the same level that Wells Fargo pays on the benchmark, 10-year, senior notes of Wells Fargo Commercial Mortgage Trust (WFCMT) 2015-C28, which priced May 14.
The senior notes of MSBAM 2015-C23 are being talked at swaps plus 120 basis points. This tranche is split-rated; DBRS and Fitch have it at triple-A while Moody’s rates it one notch lower, at Aa2’. Moody’s has required more subordination for an Aaa’ rating on the senior notes in most 2015 conduits.
MSBAMt 2015-C23 is collateralized by 75 fixed-rate loans that are secured by 151 commercial properties. The deal is heavily exposed to hotels. Around 16.5% of the pool, including three of the top 10 loans, are hotel properties. This is higher than the year-to-date average of 16.2% and the 2014 average of 14.2%.
Hotel properties have higher cash flow volatility than traditional property types, as their income is derived from daily contracts rather than multi-year leases. Also, hotel expenses are quite high as a percentage of revenue and are generally fixed. These two factors cause revenue to fall swiftly during a downturn and cash flow to fall even faster because of the high operating leverage.
The loans have a combined loan-to-value ratio, as “stressed” by Fitch, of 113.1%. That is higher than both the year to date average of 110.4% and the 2014 average of 106.2%.
Wells Fargo also returns this month with a $1.17 billion conduit, WFCMT 2015-C29. Among the 10 loans backing the deal are several office and retail properties and a self-storage property portfolio, according to a preliminary deal prospectus filed with the Securities and Exchange Commission.
Finally, Deutsche Bank is marketing $1 billion of securities rated AAA’ by Kroll Bond Ratings via COMM 2015-LC21.
The transaction is collateralized by 101 loans worth around $1.31 billion that are secured by 198 properties. The loans have a weighted average life of 10-years and combined LTV of 65%; however Kroll’s “stressed” LTV is 109.1%.
The largest loan in the pool, sized at $97.1 million, is backed 65 Courtyard by Marriott hotels.
The pool’s single tenant exposure (14.5%) is above the average for the CMBS conduits rated by Kroll over the past six months (10%). “Properties with multiple tenants that rely on a diversified tenant roster for their income stream can present less credit risk than properties that derive all of their cash flow from a single lessee,” Kroll stated in its presale report.