The pricing of CREST 2004-1 by Wachovia Securities last week was just the third CDO comprised of CMBS collateral - subordinate CMBS collateral that is - to ever hit the market. This innovative revolving structure, which debuted in late June, marks a true milestone as CDO technology converges with the asset-backed market in a structure that has investors buying in large portions.
While structured finance CDOs are nothing new, harnessing the power of a mix of B-level commercial mortgage securities had not been tried before this year. The first CDO of this kind was Capital Trust RE CDO 2004-1, a cash flow CDO underwritten by Morgan Stanley and GMAC Commercial Holding Capital Markets, with Bear Stearns and Goldman Sachs on board. That $324 million arbitrage deal issued floating rate notes in a revolving structure. Its two triple-A rated tranches bore a weighted average life of 4.27 years and 4.80 years and priced at Libor plus 33 and Libor plus 45, respectively.