The private label new issuance sector moved onward and upward in the past two weeks, as the two largest deals in CMBS conduit space priced on the same day amid the overall credit concerns in all markets.
Demand was solid and only the lower tranches - which were needed to support and enhance the larger triple-A classes - showed any give to spreads in order to clear the deals. Spreads were fairly resilient and widened only marginally as the IG markets were more calm, while equities paused from their recent worldwide meltdown, subtracting "flight to quality" bids from treasuries and keeping volatility lower.
The secondary market saw moderate supply. Bid list and dealer offering sheets were slightly tighter on benchmark triple-As against comparable stable issuance clearing levels. Focus usually shifts to primary markets when there is a heavy deal pipeline, unless outside market factors arise, which has been subprime woes in the past few weeks.
Agency markets are finishing up a decent month as three deals have priced in the GNMA REMIC (GNR) structured project loans space amid strong demand for Ginnie Mae project loan labels and stable spreads. DUS was quiet, though not wider, and both markets were a relative pick to competing non-CMBS agency sectors.
In the CMBX space, protection spreads backed out again across most lower IG classes and there was even some sympathetic widening in lower single-A and triple-Bs as well. The constant pull wider of ABX as well as persistent subprime headlines and rumors have definitely had a reciprocal effect on the CMBX space. Although the credit picture and upgrade/downgrade snapshot have remained sound in commercial real estate so far, the residential subprime "contagion" has been at the root of triple-B and double-B gapping of late.
The new issue market had the two largest deals price recently amid all the turmoil and roiling of the markets in light of ABX and subprime headlines. The $6.6 billion CD 2007-CD4 (Citigroup Global Markets/Deutsche Bank Securities) and Wachovia Securities' $7.9 billion WBCMT 07-30 deal both priced on March 14. The 10-year super senior triple-As both priced at 26 basis points over swaps, about in line with guidance. The lower IGs did, however, reflect the growing concerns on lower grade paper in general, with spreads on triple-Bs creeping to over 100 basis points over swaps for the first time since March 2006. Although the CDO bid is still there, these buyers are growing more selective in this new buyer marketplace. Overall, the market's appetite and tolerance for such a huge amount of paper on the same day is admirable, to say the least and does underscore the otherwise stable footing that CMBS is under.
In the market last week were the $1.6 billion MSC IQ13 deal and the $5.3 billion JPMCC-LDP10 deal, which were expected to price last Friday after press time. Spreads were seen at around the same levels as the deals priced last week (Super Seniors 25/26 context), with the triple-Bs in the mid-90s and triple-B minus 25 basis point back from there. The smaller deal size, and subsequently smaller senior structure, allows for better BBB pricing - from an issuer perspective. The $2.5 billion CWC 07-C2 deal from Countrywide Securities and Wachovia was also announced last week and was expected to price this week.
and agency CMBS
The floating-rate sector has finally priced a deal, when the $1.3 billion CMSC 2007-TFL1 priced on Tuesday to decent demand. Most classes went out at or near initial guidance, with only the A2s and the triple-B minus K class widening out. The rest of the pricing was in step with general market overtones as lower IG stayed wider.
Agencies have had a decent run this past few weeks, with three deals pricing to solid demand and spreads holding steady amid the other sectors' widening bouts. While other markets gapped out, both DUS and GNPL held steady and tightened a couple of basis points overall. FNMA DUS bested debenture by virtue of a better-performing swaps curve, and GNPL REMICs were ahead of CMBS conduits on spread stability alone. One GNR deal priced yesterday for settlement in April ($336 million GNR 07-15 via GCM) and three have been printed this month, leaving the 2007 tally at approximately $1.2 billion (behind last year's first-quarter total of $2.027 billion).
The credit default protection market widened out again in the past week, as news from New Century Corp. and Freemont Investment & Loan has adversely affected spreads, even as the equity market has rebounded somewhat on lesser news. Most affected in CMBX space have been the single-A, triple-Bs and double-Bs, which gapped out six to 45 basis points while the CMBS credit story yielded no toxic news.
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