With the success of the recent Credit Suisse First Boston transaction (CSFB 2004-C4) and Merrill Lynch's MLMT 04-BPC1 that priced on Oct. 27 and Nov. 3, respectively, issuers are reworking their structures for upcoming deals to reflect the 20% credit enhancement that attracted strong investor demand for those deals. And, if the CSFB pricing is any indication, it is a successful move that is likely to be maintained going forward.
Two deals currently pre-marketing are the JPMorgan/CIBC JPMCC 2004-CB10 and the Bank of America BACM 2004-C5 conduits for pricing for the 11/8 week. Both have 20% subordination for the triple-A classes,a carve-out tranche to be sold to Freddie Mac, and a junior triple-A class that supports the senior ones. CSFB priced the 10-year triple-As two basis points through the prior deal and three basis points through the five deals before that. Spreads were 29 basis points over swaps.
There is also a Lehman Brothers/UBS conduit expected this month, bringing the total number of expected fixed conduits for the month to four deals and over $6 billion. This would be inline with the $6.03 billion per month average seen already this year. With the added subordination, spreads should remain firm. CMBS paper is also cheap to corporates and Agencies right now, opening the door for some crossover buying by investors.
October saw $8.7 billion in supply brought to the market, bringing the year-to-date volume of conduit transactions to $60.3 billion. At the current pace, 2004 should see over $72 billion versus $53 billion last year
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