The New York Federal Reserve rejected three bonds for the December legacy CMBS Term ABS Loan Facility (TALF) subscription period, while accepting 55.
The three tranches rejected this month were: LBUBS 2005-C2 A5, WBCMT 2007-C30 A3, and WBCMT 2007-C33 APB.
According to Bank of America Merrill Lynch analysts, it was not the number of rejections that surprised them, but which bonds were rejected and accepted.
Considering the last two months, they said that it has become clear that previous acceptance by the Fed is no guarantee of future acceptance for the remaining legacy CMBS subscription dates.
One of the three bonds rejected this month — WBCMT 2007-C30 A3 — had been accepted in three prior rounds in July, August and September. But, even if it's easy to cite Peter Cooper & Stuyvesant Town (PCV & ST) loan as the reason for the rejection, analysts said it is still not clear that it played into the Fed's decisions.
Analysts pointed out that although the Fed rejected WBCMT 2007-C30 A3, it accepted MLCFC 2007-5 ASB, which has a longer average life bond from a deal with 18.1% exposure to the same PCV & ST loan.
A possible explanation behind these decisions, analysts said, is that the Fed rejects certain bonds because it already has too much exposure to a particular deal or tranches within a deal.
BofA Merrill analysts' theory is that the Fed is using a combination of concentration and credit-risk metrics to decide what collateral is acceptable. They also think that the Fed is biased toward accepting shorter average life bonds and those with simpler structures.
Given what seem to be inconsistent standards, at least based on available data, the TALF subscription rate will stall near current monthly levels, according to analysts.