CMBS investors lined up for super-senior CMBS from recent transactions, hopefully signaling the end to spread widening that began in May. On Wednesday, September 14, Morgan Stanley and Bank of America priced the bulk of a $1.5-billion multi-borrower offering at tighter-than-expected spreads. Among the transaction’s $1.04 billion of super-senior bonds with 30% subordination, all but the smallest class was placed at spreads 15-30 basis points (bp) below initial price guidance. The 9.7-year super-senior CMBS priced at 185 bp over swaps, below initial price guidance of 205-215 bp.
On Friday, September 16, JP Morgan priced a $1-billion offering at similar spreads. The 9.7-year super-senior CMBS priced at 185 bp over swaps, similar to the Morgan Stanley offering. However, the shorter classes priced tighter, with the 2.6-year class A-1 pricing at 100 bp over swaps and the 4.8-year class A-2 pricing at 175 bp over swaps, compared with 115 bp over swaps and 185 bp over swaps for the corresponding classes of the Morgan Stanley offering.
Finally, on Thursday, September 22, Goldman Sachs and Citigroup priced a commercial CMBS offering that had been delayed for two months after S&P pulled its ratings (see our 7.28.11 article “S&P Suspends Ratings on New Issue CMBS 2.0 Deals” for details). The 9.6-year super-senior CMBS priced at 170 bps over swaps, 15 bps tighter than the Morgan Stanley and JP Morgan issues. The shortest class also priced tighter than the JP Morgan offering, with the 2.3-year class A-1 placed at 90 bp over swaps, 5 bp tighter than the JP Morgan offering. And Goldman and Citi evidently placed all of the subordinate investment-grade bonds, unlike the issuers of the two previous deals.
“The stabilization and tightening of spreads is a welcome relief for CMBS origination shops,” said Michael D. Sneden, Executive Vice President of ValueXpress. “We have yet to see these results flow to new CMBS loan quotes, but if commercial CMBS pricing can grind tighter, I think borrowers will see some spread reduction in the near future, reducing loan rates from the current 6% area to more competitive levels.”