A huge commercial mortgage-backed securities bid list for $250 million was the highlight of the CMBS market last week, while dealers prepared for a smattering of late July/early August conduits to be rearing their heads in the next few weeks.
Last week's bid list was made up of five issues, sources said, "mostly kind of Tier-2 types of bonds that traded very well."
The bonds were said to have traded in the lower 30's to swaps. Later in the week, a smaller bid list comprised of mezzanine triple-B-minus bonds also was traded, and fared very well.
"In primary issuance, very little was going on, but in the secondary this big list was taken down without a hitch, at very strong levels," said a CMBS trader. "Sellers are very happy, and actually, so are buyers, because people are bullish on CMBS product going forward."
Though the first half of 2000 was generally not perceived to be a good one for CMBS, the sector, while lagging Treasurys, did outperform many corporate sectors, according to Howard Esaki of Morgan Stanley Dean Witter.
"Fixed-rate conduit issuance nose-dived, but much of the slack was taken up by floating-rate, large loan and non-U.S. deals," Esaki said in his latest research report. "For the remainder of the year, we see a continuation of many of the trends of the past two years: correlation with other markets, consolidation, and a gradual weakening of real estate credit."
Among Esaki's predictions, he mentioned that delinquencies on commercial mortgages will start to edge up, but remain well below long-term historical averages for the rest of the year. Additionally, the merger of Duff and Fitch will start to slow the downward drift of AAA subordination levels, as rating agency competition decreases.
As far as new primary issuance for the upcoming weeks, expect to see a GMAC floating-rate deal price shortly and a Credit Suisse First Boston conduit, possibly already launched by press time.
"The First Boston deal is coming directly...right now...and the term sheets are coming out either today or tomorrow," said a CMBS insider last Thursday.
Also in the pipeline: a GMAC deal done by Deutsche Bank, another transaction from Deutsche Bank/JP Morgan/ABN Amro. For August, expect to see another Salomon Smith Barney conduit off the SBM7 shelf called 2000C2, which will be co-led by PaineWebber along with a smattering of loans from Artesia Mortgage and Orix. Another "wild card" deal that has been rumored is from Banc of America Securities that supposedly has lots of collateral lined up.
"Any of these deals is ready to go at any time and can price suddenly," said the CMBS trader. "Most people take the last two weeks of August off, and then there should be a slew of deals in September, including a Chase/General Electric conduit."
The source was reasonably bullish on CMBS, noting that its spreads are tight compared to its historical relationship with other spread products.
"CMBS has always been cheap,'" he said. "Now, maybe it is less cheap. Floating-rate credit cards traded at Libor plus 7, while a recent CMBS floating-rate deal traded at Libor plus 22 or something. Even though we're in from 30 in this small segment - the short triple-A floating-rate - we're still 15 cheap to credit cards.
"Maybe we're tightening to other products, but the question is, can we continue to do that?"
