With a preponderance of primary CMBS issuance in the pipeline for the end of the first quarter, investors are predicting a backlog on the non-investment grade level as the market has been seeing a lack of interest from subordinate buyers. More transactions are taking more time to get to the finish line, sources said, because as an array of deals flood the market, it takes longer to get the kinks out of deals as investors tweak them, one by one.
"It's very time-intensive to evaluate securities at the current level," said Michael Hoeh, senior portfolio manager at Dreyfus Corporation. "So it's not surprising that it is going to take additional time to get deals through the pipeline."
There's also the fact that dealers have reduced the amount of liquidity they are offering in the secondary market, making it harder for issuers rushing to print their deals before quarter-end.
Pricing on triple-A products continues to widen as there hasn't been a lot of diverse demand, said Hoeh, for this type of security. Secondary inventory has also been very heavy on the Street, so people are more reluctant to enter into swaps, causing the market to widen out a bit.
However, since other fixed-income sectors such as RMBS and ABS have also widened, CMBS deals are looking relatively tight.
Deutsche and JPMChase priced their $782 million jumbo issue last week. Because of limiting collateral for some investors, the duo did a swap for the A- and B tranches in a bid to attract overseas buyers. The A1 tranche printed at Swaps plus 55 and the B tranche priced at Swaps plus 78.
Deutsche and Goldman Sachs launched the GMAC Commercial Mortgage Securities 2001-FL1 floating rate CMBS last Monday.
Other deals in the market were a First Union and Bank America Securities-led $1.2 billion deal, a $1 billion transaction JPMC 2001 led by a trio composed of CIBC, JP Morgan and Deustche, an issue by PNC Bank, Morgan Stanley and La Salle Bank and Sutro's Grand Pacific Holding deal.