The number of deals premarketing continues to grow with the addition of two top-tier names. Joint leads Bear Stearns and Morgan Stanley are making the rounds with their $900 million TOP-4 issue and Credit Suisse First Boston posted structure for its $944 million conduit as well. Both issues are expected to launch and price this week and should wrap up quickly once the Bank of America conduit comes to market. That issue has been shopped around for over a week, and has restructured the triple-A classes. What was four fixed and one floating-rate tranche are now two fixed and one floating. The issue at the time of this writing was expected to price last Friday.
Other deals that were in the works included the JPMorgan $114 million displaced loan transaction, Greenwich Capital's floater, and a $1.8 billion mall property issue for General Growth Properties via joint leads Lehman Brothers and Goldman Sachs. The Greenwich issue has launched and was expected to price last Thursday.
The one recent pricing of note, Morgan Stanley's 2001-IQ, may have some hidden value, according to Salomon Smith Barney's Darrell Wheeler. There was good interest in subordinate tranches because of the low-leverage many of the insurance company-originated loans had, although the long-dated triple-A class priced at 64 basis points over, two wide versus initial levels because of the relatively small class size -only $261 million - and the wide principal payment window.
Still, when compared to other recent low-leverage deals, BSCMS 2001-TOP2 and MSDWC 2001-TOP3 for example, the issue has many advantages that investors might want to exploit, namely that there is no hotel exposure, a higher percentage (16.7%) of investment-grade loans, and lower stressed LTV levels. All of this suggests fewer loan defaults and the benefits of credit tiering in a slowing economic environment.
A check on the health of the CMBS sector reveals the physique of perhaps a marathon runner rather than a sprinter. Recent events have obviously made any projections and expectations for the sector more of a long-term view, but at the same time investor apathy for CMBS has cheapened the sector over that time as well. Salomon likes the market versus agencies at levels four to eight basis points cheap, triple-B corporates and ABS for subordinate classes. Merrill's Roger Lehman, after lifting a bias for agencies last week, is now recommending CMBS over residential mortgages, switching a view held since Aug. 21. All it is going to take to get things going is a change in investors' currently jaded perception of the sector, which will in turn prompt dealers to stock up their thin inventory coffers.
Delinquencies tick higher
The third quarter saw delinquency rates for pooled CMBS transactions increase 12% over Q2, bringing the overall rate to 1.21%, according to a recent Standard & Poor's report.
The rate is now higher than the average for the past four quarters, and was largely driven by lodging and nursing home loans, which accounted for a combined 50% of delinquencies for loans outstanding longer than 60 days. On the other hand, office property rates declined to 0.17% and retail was flat.