Spreads followed a common pattern in the lower investment grade stack as double-As and lower-rated securities widened out two to 18 basis points in triple-B minus classes in the week ending April 27. Triple-As were firmer on the week, as intermediate and longer senior classes were one basis point tighter after the previous week's price guidance. Colored by mostly negative sentiment, three deals priced while one deal was announced, kicking off activity for May. New supply for this month is expected to be almost $30 billion.
The end of April saw the secondary market with less bid-list supply and mainly triple-A paper getting sold off by money managers. In the agency markets, issuance was quiet and secondary bid lists were manageable. In the CMBX space, CMBX.3 rolled into market on April 25 and levels are wider than in the previous index (CMBX.2). The most recent index has appeared to gain notoriety as the barometer of all things that are good and bad on the surface of CMBS spreads. While each index has 25 benchmark deals in mind for a given stated issuance period, the most recent roll soaks up all the latest "tape-bombs," market players say.
Three deals priced in the last week of April, with levels generally wider than guidance and triple-B minus spreads out past 200 basis points over swaps. One deal, GECMC 07-C1, had a loan pulled out from the original conduit, and the other two experienced delays and spread adjustments. The Lehman Brothers/UBS deal Series 2007-C2 ($3 billion) seemed to offer the least resistance, as spreads were the best on the AAA'/BBB'/BBB' tranches. The underwriting for this deal was perceived as fairly consistent and thus garnered more faith than the other two deals. The $3.3 billion CMSC 2007-C2 saw pricing levels gap one basis point wider in triple-A super seniors while BBB' and BBB-' spreads came out 35 basis points wider than guidance. The $3.95 billion GECMC 2007-C1 deal priced at similar levels. Its AAA'/BBB'/BBB-' classes gapped out from guidance and the deal experienced a delay of over two weeks before it launched as a result of some collateral revisions. The super senior triple-A levels on the GE deal represented the widest spreads on that 10-year class since 4Q05 (GECMC 05-C4).
The Wachovia Securities $5.8 billion deal that was supposed to price in April was recently announced, kicking off issuance for May. The deal is slightly smaller than initially expected ($6 billion), although it might benefit from getting out of the gate in the first wave of May deals, and might price under a better spread environment than what was prevalent at the end of April. The launch and pricing
for this transaction is expected
this week.
After that, six more deals are expected to come to market this month, amounting to an additional $23 billion. This will put May's fixed rate pipeline at almost $30 billion. And it will leave the 2007 total at over $100 billion in domestic issuance thus far, with an average deal size of almost $4 billion.
Another transaction was announced in the floating-rate sector last Tuesday - the $845 million CGCMT 2007-FL3 offering from Citigroup Global Markets. No guidance has been released as of press time, but the deal is supposed to launch and price this week. Finally, the $2.52 billion COMM 2007-FL14 floater from April finally priced last week with the A1 class at nine basis points over Libor.
The agency CMBS sector was basically in a "pick" mode in late April as competing markets either relatively tightened or their benchmark curves outperformed the swaps curve. The FNMA D.U.S was an example of the latter, as the Treasury curve was two to three basis points tighter than swaps, even as debentures widened out. Spreads were unchanged on project loans and slightly tighter in intermediate private-label cash markets. GNPLS held firm as the longer conduit maturities tightened one basis point. New issuance and secondary supply was quiet overall, with only a smattering of secondary paper going "bid wanted."
Credit default protection rolled into the newer CMBX.3 contract, and spreads were opening and staying wider last week even as the older indices are narrowing back. The new index, made up of 25 newer deals from 4Q06 and 1Q07, is feeling the heat from ongoing underwriting concerns, while making the two "older" indices much more appealing. The equilibrium line was drawn at single-As as the spread to cash on these was flat. Lower investment-grade bonds were all much wider against the cash markets and even worse against prior credit protection indices.
The older indices now seem to enjoy some sort of immediate headline protection as any fallout that may affect the support segment of the capital structure is perceived as felt in CMBX.3 first, with deal-specific trauma suffered by applicable credit protection indexes.
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