Derivative contracts that reference commercial mortgage loans held by third parties could be the next evolution within the growing synthetic CMBS market, according to a report issued last week by Nomura Securities. A deal using such contracts would reference a synthetic portfolio of loans from various lenders and vintages using information garnered from commercial data providers - effectively creating a mix of geographies, vintages, property types and originators impossible to garner through the cash market.
The development is likely not far off in the market, as interest in credit default swaps and CMBS continue to flourish amid relatively tight spread conditions. The most likely reason such a deal has yet to reach the market, according to the firm, is due to back office complications. "You can find the information on the loans, but I think it would be a little harder to put together the documentation," said James Manzi, vice president and CMBS analyst at Nomura and an author of the report.