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CMA
September 28, 2018  

Giant Batch of Seasoned Conduit Bonds Sold

Western Asset Management sold roughly $1.5 billion of seasoned conduit paper in the secondary market over a 15-day stretch, culminating with an auction of almost $900 million on Wednesday.

Commercial MBS traders and investors described the disposition as the largest by a single investor over such a short period in at least a few years.

The bonds changed hands at prices that met or exceeded the Pasadena, Calif., fund giant’s expectations, according to traders. They range in grade from triple-A to single-B and were issued since 2013 by a “Who’s Who” list of conduit lenders.

Western Asset declined to comment on its motivation for the sales. Observers speculated that the investment manager was seeking to take profits, rather than pulling back from the sector.

“They might be taking a view that spread-tightening in the sector has run its course,” said one investor. “A lot of these bonds traded at tighter spreads than we’ve seen for them all year,” he added.

The size of Western Asset’s CMBS portfolio is unclear, but the sales were said to represent only a small portion of it. Overall, the company manages $426 billion of fixed-income assets.

Sellers typically submit bid lists to multiple dealers, which make offers for the bonds. A dealer might be buying on behalf of a specific customer, building up inventory for its trading account or planning to quickly flip the bonds to investors.

Western Asset divided its bonds into six bid lists. The sales started on Sept. 11, when multiple dealers snapped up roughly $100 million of paper with ratings in the single-A range. Those bonds were issued in 2016 and 2017 via eight transactions. They traded at spreads ranging from just above 100 bp over swaps to the 150-bp area. Most of the spreads were 5-15 bp below the price talk circulated by dealers.

Last week, Western Asset pitched $600 million to $700 million of triple-B-minus conduit paper directly to Barclays and Credit Suisse. That duo took down most or all of the bonds, which were issued from 2014 to 2016.

This week’s sales encompassed about $500 million of triple-A bonds and about $390 million of securities ranging in grade from double-B to single-B.

The triple-A component consisted of long-term super-seniors from 18 conduit transactions — six floated in 2015, five in 2017, four in 2016 and three in 2018. They traded at spreads ranging from roughly 55 bp to the mid-70s area. Three unidentified dealers purchased most of that paper for their trading books, while two others took down the rest. The slugs of triple-A bonds from individual deals ranged from $16.7 million to $36.7 million. The largest was from the benchmark “A-4” class of a $907 million offering led by Bank of America and Morgan Stanley (MSBAM 2016-C32).

Western Asset sold the double-B and single-B bonds to multiple buyers. Those securities were issued from 2013 to 2016.