The quietude provided during the Thanksgiving week allowed for the introduction of some CMBS deals that will furnish early December with some business. Most notably, a $1 billion JPMorgan conduit and a $1.2 billion Lehman/UBS conduit of similar structure both began premarketing efforts that should get full market attention. Each deal has a heavy retail contingent (40% and 37%, respectively), but the JPMC issue is 32% weighted in multifamily, while LB/UBS is 40% office. Aside from better agency interest in the JPMC offering, both are expected to garner solid investor demand. See the expected December calendar listed below.
Otherwise, the Kings Plaza mall transaction remains on the calendar from JPMC. The nature of its concentrated geographic and collateral exposure is making for some tough marketing, and the triple-A floating rate tranche widened out 10 bps to +95/Libor in pre-talk levels for the N.Y.-based transaction. Not listed is another healthcare facility issue for Ventas Trust via Merrill Lynch and a Credit Tenant Lease transaction led by Banc of America for Charlotte Gateway.
Some spread widening may be in store because of the stuffed pipeline, but an expected calendar slowdown in 2002 mitigates some of those effects, notes Greenwich Capital. They recommend a shift away from corporate paper into the better diversity of CMBS and view any spread widening as a buying opportunity. Too, the recent back-up in rates has trimmed the prices of premium bonds, and has made the sector more attractive to yield-hunters.
Mezzanine classes
still offer value
The triple-B sector has rescinded from the overall CMBS tightening of late, allowing investors to find some attractive spreads. A bid list in the shortened week consisting of $40 million in seasoned issues came at wider levels than the market, and CDO interest has begun to taper off, both suggesting that for the week, near-term investment needs had been met.
That is likely a short-term affair, however, since investor interest has yet to be totally satisfied. Merrill's Roger Lehman notes that life insurers, one of the big buyers of the product, continue to show strong demand as evidenced by their lending pace in the whole loan market, up 27% from last year's rate according to a recent American Council of Life Insurers report. In addition, CBO demand remains steady despite the recent cooling, bolstered by interest in paper specifically rated by Moody's.
Greenwich Capital is also on the mezz-class bandwagon, recommending triple- Bs over triple-B-. The pick-up for the BBBs to BBB- swap is currently 40 bps versus 44 bps that has been seen for all of 2001, and therefore warrants a reversed trade.
Delinquencies up
in November
Feeling the effects of September 11th, conduits saw a 28 basis point increase in delinquencies for November over the prior month versus a seasonal four to five basis point increase, according to Banc of America. Adjusting for the delinquency bucket (30-, 60-, 90-day), delinquencies were up 10 bps versus a typical 3-4 basis point increase. The growth comes from a 14 basis point increase in 30-day and a jump of seven basis points for 60-day delinquencies. According to the firm, because these categories tend to hold early-stage problem loans, they tend to be more sensitive to market changes. Of the 102 issues analyzed by the firm, 59 had an increase in adjusted delinquency, 10 had a decrease, and 33 were unchanged.
