While spreads are holding firm, there is a reported $19.8 billion still in the CMBS pipeline for 2001. Furthermore, Credit Suisse First Boston notes that 72% is for November, which would make it the greatest month of issuance ever, beating out November 1998's $11.6 billion by $2.5 billion or so.
This total is comprised of 16 deals, which would be the second highest deal count after the 21 seen in December 1996. The stuffed queue comes as little surprise based on the events of September 11, which juiced the pre-attack September-to-December pipeline of $22.4 billion to $26.8 billion post-attack. This, however, is not a likely scenario. As Roger Lehman at Merrill Lynch points out, there are only 38 trading days left in the year, and if you factor in the window-dressing into year-end and "holiday-itus", placing all of that supply will be difficult.
Of the new issuance, 56% are conduits, according to CSFB, which would put total conduit transactions at 51% of 2001's volume, down from 58% in 2000. That's also 11% lower than 1999's activity and 17% less than 1998. Declines in this type of structure may in the long-term facilitate tighter spreads, especially if the new issuance is pushed out into the first quarter of next year.
In the near-term, there are some notable issues to mention. Nearing completion, the BoA/FUNB $1.136 billion conduit, comprised of a hefty multifamily component, is being shopped at +61 basis points over swaps for the triple-A 10-year class. This falls in line with last week's CSFB issue and Bear/MSDW's TOP-4 transaction. The smaller hotel and larger multifamily percentages in the BA/FU issue will likely put a print at the tight end of talk, which is expected to launch by the end of the 11/5 week. See table below for recent deal comparisons.
Additionally, joint leads Lehman and Goldman Sachs restructured the $2.6 billion General Growth Properties deal to include large fixed-rate tranches. The issue, backed by a portfolio of regional malls and originally all floating, was re-tooled because a floater of that magnitude was not well received by investors. Timing is still TBA, but now that the issue has passed muster, it could come at any time.
Beyond that, there is a GE Capital $830 million conduit making the rounds via Bear Stearns and Deutsche Bank. The issue has 34% multifamily exposure and a 4% hotel component. Classes include a $480 million 9.8-year WAL and a $270 million 5.7-year WAL tranche. The deal is expected to launch and price at the end of next week.
Property insurance update
As recently as Wednesday November 7th, the House of Representatives received a bill - dubbed HR 3210 - from House Financial Services Committee Chairman Michael Oxley (R-Ohio) and Richard Baker (R-La.) on the issue of insurance for terrorist attacks. The bill would allow companies to file for government assistance after $100 million in losses, so long as the losses exceed 10% of capital surplus and net premiums. The quickly negotiated bill was criticized by Democrats, who were not consulted on the facets of the proposed legislation and tried to hold up the process during questioning of how the plan would work.
A Democratic plan was proposed by John LaFalce (N.Y.) and Paul Kanjorski (Pa.) that would put more of the losses on insurance companies and limit punitive damage caps on action taken by affected parties to the tragedy. A compromise was reached that would have insurance companies cover the first $5 billion of losses in year one and $10 billion in year two and three. Beyond that liability, the government would step in to cover 90% of the losses.
The Senate Banking Committee proposed its version in a bill last week, with White House backing, and is closely related to the aspects of the LaFalce House bill. Whether or not the Senate will proceed with its own bill or work with the House proposal remains to be seen. At this point, there is a belief that so long as something goes through as a stopgap, improvements can be made down the line. Before any rash action, however, political wrangling promises to delay any final vote for weeks.
