The new issue market is humming along, with premarketing efforts underway by a number of issuers, which have no less than five deals in the works. Aside from the recently added GMAC floater (2003-FL1), fixed issuance is all the rage, totaling over $3 billion.
The amount of deal activity can be traced, somewhat, to borrowers getting the word out before the military action in Iraq commenced. With that situation in full swing as of late last week, the CMBS market has yet to feel any major effects. One dealer called Thursday's new-issue activity "business as usual," and expects it to stay this way until perhaps more reports about the conflict roll in. At that point, the risk of investor inaction will affect all markets.
A case can be made that during this tumultuous time, a flight-to-quality bid will send investors seeking CMBS paper. Spread activity over recent weeks suggests there is plenty of demand for paper, and as long as a systemic credit breakdown does not develop in the real estate market, the sector offers an alternative to other credit offerings. To boot, the sector has been cheap versus other areas, such as RMBS and Agency debentures.
Looking at the calendar, one of the next deals scheduled for pricing is the $930 million MSDW 2003-HQ2. The issue, like the recent Goldman Sachs-led fusion offering, is top heavy with loans. The top ten loans in MSDW 2003-HQ2 account for 68% of the collateral in the pool, versus 62% in the top 10 for Goldman's trade. While Goldman printed the 10-year triple-As at 50 basis points over swaps, MSDW is being currently talked at in the 46 basis point area to swaps. It has been suggested that the aggressive, 13.125%, subordination levels on the Goldman offering led to wider levels, as MSDW is covered at 17.25%.
The rest of the slate includes the $950 million JPMCC 2003-C1 deal, which has its 10-year triple-As targeted at 43 to 44 basis points. The collateral mix is as follows: 44% retail, 27% office, and 19% multifamily. Behind that, $988 million of CSFB 2003-CK2 is premarketing, with a collateral mix of, 40% office, 36% retail, and 9% multifamily.
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