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CMA
November 15, 2019  

Conduit Spreads Vary as Volume Runs High

The benchmark spread widened on the latest conduit deal to price amid a flood of commercial MBS transactions that’s been flowing through the market since Labor Day.

The long-term, super-senior bonds in an $807.2 million offering from LoanCore Capital, J.P. Morgan and Deutsche Bank went out the door yesterday at 100 bp over swaps, about 3 bp wider than early “whisper” talk (JPMDB 2019-COR6). It was the first deal in seven weeks with a triple-digit benchmark spread (see Initial Pricings on Pages 10-14).

Prices have been fluctuating lately, mostly in the 92-99 bp range, as bond buyers have had a wide range of deals to choose from. The most-recent previous conduit transactions priced 4 bp apart on Nov. 8. The spread was 94 bp on the benchmark class of a $1 billion deal from Morgan Stanley, Starwood Mortgage, Argentic, KeyBank and CCRE (MSC 2019-L3), while the comparable bonds from a $669.8 million offering from Argentic, Wells Fargo, Rialto Mortgage, Benefit Street Partners and UBS (WFCM 2019-C54) priced at 98 bp.

A $1.2 billion offering from Deutsche, Citigroup and Goldman Sachs that’s expected to price today was being whispered at 92-93 bp (COMM 2019-GC44). Credit Suisse, Societe Generale, UBS, Rialto Capital and CIBC also were in the market with a $689 million offering (CSAIL 2019-C18) that’s expected to price next week.

Even as the 10-year triple-A spread widened on the JPMDB deal, lower tranches were in hot demand from yield-seeking investors. For example, Class D, rated BBB/BBB+ by Fitch and Kroll, had already been spoken for by Wednesday at 270 bp, tighter than the 280 bp spread on the comparable class of the WFCM offering and the 275 bp mark on the equivalent bonds from the MSC deal.

Another two conduits are expected to price next week, before the market takes a Thanksgiving breather. That will leave a week or two in December to push out another spate of deals before the yearend holidays.

One investor likened the volume of conduit and single-borrower offerings since early September to “drinking from a fire hose,” but said pricing was remaining fairly steady. “It’s all getting out the door,” he said. “It’s pricing with fairly limited disruption.”

But a dealer noted that the heavy supply was preventing CMBS spreads from tightening the way they have been on corporate bonds for more than a month. “The corporate market has ripped and ripped and ripped,” he said, while CMBS has “stayed in the same range, pricing everything in the 90s. So we’ve completely missed out on the spread rally because of all the supply.”

In the single-borrower market this week, Citi and Deutsche priced a $490 million deal backed by the senior portion of a $600 million floating-rate debt package they originated for Starwood Property on 34 medical office buildings in 13 states. Starwood used much of the proceeds to retire debt from its 2016 acquisition of the portfolio from NorthStar Realty Finance. The senior, triple-A-rated tranche priced at 95 bp over one-month Libor. Two other deals totaling $965 million were poised to price, and three more were being teed up for next week.

In the CLO market, Rialto Capital was on its way to pricing its first deal, the $426.2 million FS Rialto 2019-FL1. Wells and Goldman ran the books on the offering, issued through a REIT managed by Rialto and FS Investments. Rialto originated the loans and will manage the CLO portfolio. Next in line is Prime Finance with its sixth CLO, the $760.1 million PFP 2019-6, that is expected to begin marketing next week. Morgan Stanley, Citi and Wells are running the books.