Deutsche Bank priced most tranches issued from its $1 billion commercial mortgage securitization wider than the last conduit issued, according to a regulatory filing.
The deal, COMM 2015-LC21, offers $57.9 million of class A-1 notes that priced at swaps plus 38 basis points with a weighted average life (WAL) of 2.65 years and 1.6% yield, followed by the $181 million of class A-2 notes that priced at swaps plus 50 basis points with a WAL of 4.83 years, and a 2.31% yield.
The $90.2 million class A-SB notes yielding 2.97% priced at swaps plus 75 basis points with a WAL of 7.38 years, the $225 million class A-3 notes yielding 3.34% priced at swaps plus 90 basis points with a WAL of 9.8 years, and the $371.2 million class A-4 notes yielding 3.36% priced at swaps plus 92 basis points with a WAL of 9.89 years.
These senior tranches benefit from 30% credit enhancement, and are rated Aaa’/ AAA’/ AAA’ by Moody’s Investors Service, DBRS, and Kroll Bond Rating Agency, respectively.
By comparison, the jointly led Morgan Stanley and Barclay conduit, MSBAM 2015-C23 priced the super senior tranches up to five basis points tighter on June 5. The issuer paid swaps plus 48 basis points on the 5-year, class A2 notes; swaps plus 70 basis points on the 7.31-year, class A-SB notes; swaps plus 87 basis points on the 9.7- year, class A3 notes; and swaps plus 89 basis points on the 10-year, class A4 notes. The notes are rated Aaa’/ AAA’/ AAA’ by Moody’s, Fitch Ratings and DBRS.
Pricing was tighter on MSBAM 2015-C23 despite the pool's higher leverage relative to COMM 2015-LC21. The loans have a combined loan-to-value ratio, as “stressed” by Fitch, of 113.1%. That is higher than both the year to date average of 110.4% and the 2014 average of 106.2%.
The deal is also heavily exposed to hotels. Around 16.5% of the pool, including three of the top 10 loans, are hotel properties. This is higher than the year-to-date average of 16.2% and the 2014 average of 14.2%. Hotel properties have higher cash flow volatility than traditional property types, as their income is derived from daily contracts rather than multi-year leases. Also, hotel expenses are quite high as a percentage of revenue and are generally fixed. These two factors cause revenue to fall swiftly during a downturn and cash flow to fall even faster because of the high operating leverage.
COMM 2015-LC21 on the other hand features a lower “stressed” LTV as calculated by Kroll of 109.1%.
However, COMM 2015-C21, has a high single tenant exposure of 14.5%, which is above the average for the CMBS conduits rated by Kroll over the past six months (10%). “Properties with multiple tenants that rely on a diversified tenant roster for their income stream can present less credit risk than properties that derive all of their cash flow from a single lessee,” Kroll stated in its presale report.
Lodging properties also feature heavy and represent 22.4% of the pool; and the largest loan, sized at $97.1 million, is backed 65 Courtyard by Marriott hotels.