Credit Suisse First Boston's sale of about $1.1 billion of commercial mortgage-backed securities was very warmly received by the market last week, as it was the first instance in recent times when investors saw the five-year to 10-year spread break the dime barrier relative to swaps.
The five-year triple-A tranche priced at Swaps plus 30, and the 10-year at Swaps plus 39.
"The deal went very well, especially with the par and par-and-a-half pricing," noted Robert Calhoun, co-director of fixed-income research at Tatersall Advisory Group. "Lots of deals have been pricing with the sub-par dollar prices on the triple-A."
Initial guidance on the long triple-A was between 38 and 40 basis points to Swaps, and the deal priced at the middle of price talk.
"These are very good levels," said a CMBS trader. "The last Tier-2 that priced was at 41, so the fact that this priced at 39 is pretty bullish on CMBS. People liked the deal and lots of accounts participated in the buying of triple-A securities off that deal. This bodes well for supply."
Others sources mentioned that the deal priced in line with recent trades, and the lower-rated tranches were particularly appetizing to the buyside.
"Most of the triple-B classes were well oversubscribed," noted a money manager who took part in the deal. "It was a fairly clean deal, and they got the 10-year done first, but were a little bit slower on the triple-A five-year."
"I like discount paper a little better, so I didn't take part in it," added Calhoun. "I consider myself a seller of CMBS relative to collateral as it's outperformed."
CSFB, Morgan Stanley Dean Witter and National Consumer Cooperative Bank contributed commercial real estate loans to the collateral pool.
"Spreads on the investment-grade classes were unched on the week," said Michael Youngblood, MD of real estate at Banc of America Securities. From the five-year triple-A down to single-A, the spreads were "unched", while triple-B's were three basis points wider, triple-B-minuses 10 wider, double-B's and double-B-minuses three wider. By comparison, swap spreads were unched and 10-year FNMA debentures were two tighter.
Several bid lists surfaced last week which traded rich to the CSFB deal, Youngblood said.
The bid lists, $25 million CMFUN 99-1 A2, $50 million FUNBC 99-C4 A2 tranche, $25 million of 99C-1 B2, all traded at 35 to Swaps. "The manager probably sold rich one-year-old bonds and brought cheaper new issues," Youngblood noted. "But the First Boston deal had better sub levels."
In the CMBS pipeline: B of A is pre-talking the Westin St. Francis deal, followed by a billion-dollar conduit; the 2 Grand Central Tower CMBS deal is still working in the market, as is the MSDW floater; and finally, a DLJ floater for approximately $400 million is rumored as well.