Two commercial mortgage bonds that priced last week demonstrate that investors are increasingly differentiating between deals backed by loans from a single borrower, according to analysts at BofA Merrill Lynch.
Both deals were backed exclusively by super regional malls, but one, a $760 million deal backed by five Starwood Capital Group malls, priced wide of initial talk, while the other, backed exclusively by the Aventura Mall in Aventura, Florida, priced inside initial guidance.
Starwood Capital Group’s deal, SCGT 2013-SRP1, was jointly underwritten by Barclays, the Royal Bank of Scotland and JPMorgan Chase Bank. The three-year, triple-A, class A notes priced at 140 basis over swaps and the three-year, triple-A, AJ notes priced at 195 basis points. The double-A, 2.9-year notes priced at 250 basis point; the 2.9-year, triple-B notes priced at 466 basis points; and the double-B, 2.9-year notes priced at 475 basis points.
Even before the deal was launched, it was talked on top of a blockbuster, $2.625 billion hotel-backed deal that Hilton Worldwide priced at the end of November, according to BofAML. However, “investors were quick to note the quality difference between the two deals,” analysts stated in the report. “As a result, spreads widened significantly before it priced.”
JP Morgan and Deutsche Bank underwrote Hilton USA Trust 2013-HLT. The triple-A rated, five-year, class A notes priced at 125 basis points. The double-A minus, five-year, class B notes priced at 185 basis points; the single-A minus, five-year, class C notes priced at 220 basis; the triple-B minus, five-year, class D notes priced at 290 basis points; and the double-B rated, five-year, class E notes priced at 390 basis points.
By comparison, the other single borrower deal in the market last week, the Aventura Mall Trust 2013-AVM, priced inside of Hilton’s hotel deal and “were tighter across the capital structure than they were for the other single borrower transactions that recently priced,” according to BofA Merril Lynch.
The deal's 6.95-year, triple-A notes priced at 105 basis points, which BofA Merrill Lynch said was 5 basis points tighter than initial guidance.
The 6.95-year, double-A rated, class B notes priced at 145 basis points over swaps and the 6.95-year, single-A rated, class C notes priced at 170 basis points.
JP Morgan, Deutsche Bank, Morgan Stanley and Wells Fargo were the lead underwriters.