Morgan Stanley Dean Witter, along with Goldman, Sachs & Co. and Norwest launched the $689,003,372 Morgan Stanley DW Capital Trust 2000-Life 1 commercial-backed securities conduit last week, which was slated to price last Friday (see deal data below).
The price guidance indicated that Morgan Stanley started out at Libor plus 30 for the five-year and Libor + 40 for the 10-year; however, new price guidance was sent out later in the day indicating Libor plus 26-28 on the five-year and Libor +40 on the 10-year.
"Even at those tighter levels, the five-years are doing extremely well," said one CMBS trader. "The 10-year is not doing as well. However, the five-years are all spoken for. Those things will all sell immediately."
The life company collateral involved in this deal "is just different," the trader said, in that it is older and gets much better subordination levels because of the leverage. Therefore, it trades differently, mainly because the deal is less than $700 million.
"You have to spend some time with the loans and take a look at it, but it is different than your standard conduit deal," he said.
The triple-A tranches are being pegged to swaps, though it wasn't yet clear by press time whether the mezzanine bonds were also being priced to swaps.
"The market has evolved to where - I believe every deal this year - and I don't know how long going back last year - are all being pegged to swaps," said another analyst at a CMBS desk. "That is because of the volatility in the market and because the CMBS market has moved towards using swaps as the end-all of benchmarks. We really do not look at Treasurys too much anymore."
Last week, swaps were tighter by three basis points, and were generally volatile. With 10-year swaps almost 20bps cheaper than levels seen as recently as last Monday (when the Morgan Stanley deal emerged), launch spreads on this deal would be through the fixed expectations seen Tuesday, sources said. The five-year piece is four basis points narrower on a swap basis and almost a dime through fixed levels.
As for the future calendar, CMBS players are awaiting the First Union/Merrill Lynch deal, as well as the Salomon Smith Barney/Greenwich Capital deal, which should be launched at the very beginning of May. JP Morgan's floating-rate deal is also slated to appear soon, and the Lehman Brothers/Warburg Dillon Read deal that was shelved several weeks ago is expected to resurface soon.
"Now, as we get some supply, hopefully the market will calm down some," said the CMBS trader. "Spreads have performed exceptionally well in a very volatile environment, for the most part. But with new supply, we'll be able to digest it pretty easily."
Additionally, the vacuum in supply has made it easier to find B-piece buyers for deals despite the fact that the B-piece market is quite thin.
"If there was a lot of supply it would be difficult to get one of those guys focused to your deal, which could really screw your timing up," the trader added. "But fortunately there has not been many deals this year, so you're able to line up B-piece buyers without too much trouble."