Deutsche Bank and Cantor Fitzgerald priced $1.13 billion of commercial mortgage bonds Thursday, after boosting the premium over benchmark interest rates - twice.
The 7.2-year, super-senior A-SB tranche of COMM 2015-CCRE25 pays swaps plus 105 basis points, seven basis points wide of initial guidance in teh 98-basis point area.
The 10-year super-senior tranche pays swaps plus 115 basis points, one basis points wider than revised guidance.
Both tranches benefit from credit enhancement of 30% and are rated triple-A by Fitch Ratings, Kroll Bond Rating Agency and Moody's Investors Service.
The biggest gap in pricing happened at the subordinate level on the triple-B rated, class D notes, which .pay swaps plus 440 basis points. Thats 30 basis points wider than initial price guidance and 15 basis points wider than revised guidance. Only Fitch and Kroll rated this tranche.
Pricing on all three tranches looks even wider relative to where Deutsche Bank and Cantor priced the previous bonds issued from the COMM-CCRE conduit last month. The 7.2-year, A-SB notes issued from COMM 2015-CCRE 24 payswaps plus 90 basis points; 15 basis points inside the latest deal.
And the 10-year, triple-B rated class D notes of COMM 2015-CCRE 24 pay swaps plus 385 basis point, 55 basis points less than the current deal.
Both deals are backed by pools of collateral that include a few large investment-grade, credit opinion loans. These loans are commonly securitized on a stand-alone basis and can improve the overall credit profile of a conduit, since they are less leveraged than the rest of the pool.
COMM 2015-CCRE25 is backed by 84 fixed-rate commercial mortgages with a weighted average in-trust loan-to-value, as measured by Kroll Bond Rating Agency (KLTV), of 104.7%. That is above the average of 103.1% for the 24 CMBS conduits rated by Kroll over the last six months, which ranged from 97.5% to 107.5%.
However leverage would have been even higher if not for two loans accounting for 6.7% of the total pool balance. One of these loans, Pearlridge Center, is secured by 1.1 million square feet of a 1.3 million square foot, super-regional mall located in Aiea, Hawaii, approximately nine miles northwest of the Honolulu central business district; Kroll considers it to be of AA+’ quality.
The other, Scottsdale Quarter, is a Class-A, 541,971 square foot, mixed-use, open-air lifestyle center and office complex located in Scottsdale, Arizona; Kroll considers it A- material.
Although pricing Deutsche Bank/Cantor deal looks wide relative to the issuer’s previous transaction, spreads are in line or better than JP Morgan and Barclays, JPMBB 2015-C31, which was also priced on Thursday.
JP Morgan and Barclays priced the 7.4-year, triple-A rated, class A-SB note at swaps plus 105 basis points.
On the A-3, 10-year notes, the issuer paid swaps plus 120 basis points, five basis points wider than the equivalent notes issued under COMM 2015-CCRE25.
At the subordinate level, the issuer paid swaps plus 475 basis points for the triple-B, 10-year, class D notes. Moody's, DBRS and Kroll rated the senior notes; Moody's did not rate the subordindate classes.
Why the wider spreads?
JP Morgan analysts blame a lack of investor demand, an active issuance calendar and ongoing macro economic challenges. The combination of these factor has, “kept uncertainty elevated and investors’ risk appetite suppressed,” stated analysts in a report on Friday.
“Across the new issue capital structure, benchmark spreads are now at their widest levels in more than two years, and are at or near the wides seen during the mid-2013 taper tantrum’”.
