CMBS spreads fell to post-crash lows after the long-term, super-senior bonds from a $1.3-billion multi-borrower offering by Wells Fargo, Ladder Capital and RBS priced at 85 basis points (bp) over swaps on Wednesday, September 19, 2012, according to Commercial Mortgage Alert. This was down from the 95-bp spread at issuance on the equivalent class of a $1.1-billion offering led by UBS and Barclays that priced a week ago. In both cases, the bonds flew off the shelves with spreads 5 bp tighter than price guidance from their dealers.
The surge in demand followed the Federal Reserve’s commitment to boost liquidity in the fixed-income markets by launching a third round of bond buying under its “quantitative easing” program. The move accelerated a CMBS rally that began just after the benchmark spread hit this year’s peak of 160 bp in late June.
The spread-tightening trend should be a boon to CMBS lenders, which are slated to float another $7 billion of offerings by the end of next month. “This feels pretty sustainable,” one CMBS trader said. “I wouldn’t be surprised to see spreads [on long-term super-seniors] hit 80 bp before they level off.”
Until last week, the post-crash low for new-issue spreads on benchmark paper was 100 bp, achieved on just two deals: a $1-billion conduit offering by Citigroup, Goldman Sachs and Natixis that priced on September 10 (Citigroup Commercial Mortgage Trust, 2012-GC8) and a $1.3-billion multi-borrower issue led by Wells and RBS in February 2011 (WF-RBS Commercial Mortgage Trust, 2011-C2).
In this week’s Wells-Ladder-RBS deal, the investment-grade bonds went out the door with spreads that were either in line with price talk or tighter by 5-20 bp. As for the UBS-Barclays issue, the investment-grade bonds, except for the benchmark class, matched guidance down to the double-A-minus level. The single-A-minus paper from that deal was placed at 300 bp, down 15-25 bp from talk, and the triple-B-minus bonds went for 575 bp, down 25-50 bp.