Larger, less risky commercial mortgages paid off for Deutsche Bank and Cantor Fitzgerald.
The senior tranches of the jointly led $1.3 billion CCRE2015-CCRE24 priced inside of comparable tranches of a more highly leveraged deal from Morgan Stanley and Bank of America.
The benchmark 9.93-year, triple-A rated, class A4 notes pay swaps plus 100 basis points and the 9.93-year, triple-A rated class A5 notes pay swaps plus 102 basis points. Both tranches benefit from credit enhancement of 30%.
Moving down the capital stack, the triple-A rated class AM notes, which have credit enhancement of 23.8% and a weighted average life of 9.93-years, pay swaps plus 135 basis points.
The 10-year, BBB-’ rated class D note with from 7.3% credit enhancement pay swaps plus 385 basis points. Moody's Investor Service, Fitch and Morningstar rated the senior notes; Moody's did not rate the subordindate classes.
By comparison the $1 billion MSBAM 2015-C24, sold its super senior tranches five basis points wider. The the 9.90-year, triple-A rated class A3 and A4 notes pay swaps plus 105 basis. Both tranches benefit from credit support of 30%.
The class A-S notes priced at the same level as the comparable tranche of the Deutsche/Cantor deal, despite having higher subordination at 30%. Further, the tranche was split-rated; Kroll Bond Rating Agency and Morningstar have it a triple-A, Moody’s two notchs lower at Aa2’.
MSBAM isn’t selling the B-notes publicly. The most subordinate note offered were the A-’ rated, class C notes which pay swaps plus 275 basis points.
The better pricing of CCRE2015-CCRE24 likely reflects the inclusion of three investment-grade, credit opinion loans that make up 15% of the transaction's pool. Among the 81 loans backing the deal are three loans with larger balance loans, greater than $20 million, with lower leverage than typical conduit loans, good structure, experienced sponsorship, and are secured by good quality properties in primary markets.
The three loans are: the $119.4 million Lakewood Center Mall loan, which makes up 8.6% of the pool and has an investment-grade opinion of A+’; the $60 million, 40 Wall Street, which makes up 4.3% of the pool and has an investment-grade opinion of BBB−’; and the $30 million Avco Center loan, which makes up 2.2% of the pool and has an investment-grade opinion of 'BBB-’.
Credit opinion loans are commonly securitized on a stand-alone basis and have typically made up less than 5% of conduit pools in 2014 and year to date 2015 transaction rated by Fitch. These loans can improve the overall credit profile of a conduit, since they have lower leverage than the rest of the pool.
For example, in CCRE24, the junior 'AAA' subordination would have been approximately 27.0% without the credit opinion loans, compared to 23.875% when the credit opinion loans are included. Likewise the 'BBB-' subordination would have been approximately 8.6% without the credit opinion loans compared to 7.375% when the credit opinion loans are included.
MSBAM 2015-C24, on the other hand, pool loans with average loan to value ratios, as calculated by Kroll (KLTV) of 106%. That’s higher than the average KLTV of 103.1% for the last 21 CMBS transactions rated by Kroll over the past six months. Additionally, 68.9% of the loans have KLTVs higher than 100%, which is also higher than the average of conduits rated by Kroll over the past six months (67.3%).
Another risk of the deal lies in its high exposure to secondary (38.1%) and tertiary (22.1%) markets. Primary markets, which only account for 39.8% of the transaction, are known to better withstand fluctuations and downturns in the national economy.