There are now four deals currently on the March calendar, suggesting that the nearly $15 billion or so slated for the month might get done. Of that, $4 billion in fixed issuance is circulating around the market. Prudential has a $950 million offering with joint leads Bear Stearns, CIBC World Markets and Wells Fargo expected by last Friday. The triple-A 5s and 10s are being talked at 39 to 40 basis points and 43 to 44 basis points over swaps, respectively, in line with the Feb. 27 Credit Suisse First Boston pricing.
Goldman Sachs has a $1.5 billion offering, co-managed with Banc of America Securities, Bear Stearns, Morgan Stanley and Washington Mutual. The deal is noteworthy for two reasons: there is a record low subordination level of 13.125%, below the prior record of 13.75% on the TOP-9 conduit brought on Jan. 24; and there is some discussion as to how this deal is classified. The conduit-type issue has some characteristics of a fusion deal, namely that there are some large loans in the offering.
However, with over 60% of the collateral concentrated in the top 10 loans, some view this as a large-loan offering. The impact on spreads will lie with the final interpretation by investors, but in the past large-loan offerings tended to trade with at least a 10 basis point concession, according to one investor. This deal is expected to price the week of March 10.
Lastly, there is a joint Lehman Brothers-UBS Warburg offering for $1.4 billion in the works. Guidance for the issue has the five- and 10-year tranches at 36 basis points and 43 basis points over swaps, respectively. This deal is also expected during the week of March 10.
Spreads appear to be holding in despite the large calendar for March. The well-advertised issuance pipeline, cheaper relative value of CMBS and lack of new conduits early in the year are all contributing factors. Investors are interested in quality paper, and now that agency debentures have had a good run tighter, may reallocate funds from agencies to new CMBS paper as it comes out.
Demand is expected to remain high over the month, and issuers are said to have an eye on the Iraq situation in order to address investor sentiment. The thinking is that deals will line up as quickly as possible in an attempt to price before any military action takes place. This might put a bit of pressure on spreads in the near-term as a result, but at the same time 10-year triple-A levels at 45 basis points over swapsseems to be an agreed-upon resistance level for spread concession, limiting any significant widening in the sector.
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