JPMorgan Chase plans to sell a $1.5 billion B-piece offering to Torchlight Investors, according to a Bloomberg report.

According to the report, Torchlight investors will buy the B-piece of the transaction, which is the first loss piece that is typically sold ahead of the investment grade tranches. The B-piece in the JPMorgan transaction is expected to yield investors over 15%, according to Bloomberg.

Shopping the B-piece is an integral part of structuring a CMBS transaction. Traditional B-piece buyers underwrite lower tranches in CMBS transactions. They are capable of working out loans that go into special servicing for the best recovery value.

Barclays Capital analysts said that most B-pieces from 2010 conduit deals have been absorbed by a few buyers - BlackRock, Elliott Management, and H/2 Capital Partners. The analysts said that there was only one known instance so far where special servicer Rialto Capital Management - a newcomer in the special servicing industry - acquired the B-piece.

In January, BlackRock reportedly acquired the non-investment-grade tranche of the $2.9 billion commercial mortgage-backed securities deal from Deutsche Bank Securities, UBS and Ladder Capital. The B-piece made up 6% of the deal, or about $174 million.

Barclays analysts said it is critical that more of these traditional B-piece buyers associated with special servicers re-enter the market. At the moment, however, these special servicers are handling, according to analysts' estimates, about 50%, or $60 billion, of the loans transferred for special servicing.

They estimated that this is the case for the six largest special servicers in the conduit universe - this includes LNR, CWCapital, C-III Asset Management, Berkadia Commercial Mortgage, Midland Loan Services and JER Partners.


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