Spreads on CMBS widened on mezzanine bonds from recent CMBS offerings floated by J.P. Morgan/CIBC and Wells Fargo/RBS this week. The junior triple-A bonds in the J.P. Morgan/CIBC deal priced at 110 basis points (bp), and comparable notes in the Wells/RBS issue widened further to 120 bp. Equivalent paper issued in recent transactions prior to these deals had held steady at 100 bp.
The widening was attributed to weakening demand in the fixed-income market overall coupled with the flood of fixed-income offerings, including heavy CMBS issuance. Apart from the heavy flow of CMBS offerings, market pros attributed the higher new-issue spreads to investor nervousness about the economy and U.S. budget woes. “The market was pretty choppy when the J.P. Morgan deal was out there,” said one group head at a rival CMBS shop.
“Based on the results of these CMBS issues, we are seeing spreads to borrowers widen 15-20 bp,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “The new spread levels are not affecting deal flow yet, but if loans spreads continue to widen and the swap rate also moves out, we may see borrowers hesitate in moving forward with new CMBS loan applications.”