Commercial mortgage-backed securities spreads weakened up a decent amount over the last two weeks, sources say, widening the pricing guidance on the Morgan Stanley Dean Witter Life deal (see scorecard with pricing, p. 8).
However, sources indicate that spreads were weaker across the board in all sectors, and the widening was not deal-specific by any means.
"The pricing on the MSDW Life deal was initially 37 and it widened out to 40," said a CMBS trader. "But the level of 40 for the Life deal indicates to me that it will go pretty darn well. Lots of investors will line up for it, for sure. Those deals usually trade tight to where standard conduit stuff trades."
Standard conduits would usually be around the 40 to 41 basis points to Swaps range, the source said. "So with this deal you're getting lower subordinate level portfolio-type loans, which seems like a bonus for them, so I'd expect that deal to go well."
"Yes, there has been a weakening in spreads for CMBS, but it is far worse in other credit markets," added another CMBS expert.
Meanwhile, a $500 million Hilton Hotel CMBS hit the market last week (see p. 8), also via Morgan Stanley, along with co-managers Deutsche Bank and First Union.
Comprised solely of hotels, the collateral is a bit ruddy versus other more investor-friendly paper, sources say. But given the credit enhancement and overall subordination profile, there seems to be plenty of cushion on this one.
Interestingly, sources noted that this is a Regulation S/Rule 144A transaction, so many market players are curious about the component of international interest on the deal.
The triple-A classes, rated by Moody's Investors Service, are also floaters, while the subordinate pieces are fixed.
Pricing will likely commence the middle the this week, latest. - AT
