Quick question regarding CMBS structure
Hi forum,
I never had to deal with CMBS but came across a structure today, issued here:
http://costarfinance.com/2015/05/29/jpmorgan-laun…
It basically says:
The GBP251.1m sterling capital structure is as follows:
Class Size Exp. Rating LTV
A GBP109.3m AAA/AAA 25.7%
B GBP42.0m AA/AA(low) 35.6%
C GBP14.2m AA-/A(low) 39.0%
D GBP48.8m BBB+/BBB(low) 50.5%
E GBP29.3m BBB-/BB(low) 57.4%
F GBP7.5m BB+/B(high) 59.2%
Total: GBP251.1m
I always understood the concept of CMBS as: mortgage loans pooled and transferred into the market via bonds(!).
In this case we have a loan pool of GBP251.1m. But are tranche A, B, C etc. now bonds?? I mean I am just wondering because their size is so small. Can there be a bond with e.g. GBP14.2m (tranche C)??
I interned in IG DCM where we had benchmark bonds with €500m. If these are really bonds, who is going to buy them? I guess there will not be any institutional ever buying a GBP14.2m bond?
Could someone please shed some light on that issue?
Many thanks in advance
This is a single borrower securitization. There is going to be plenty of interest just because the sponsor is Blackstone.
The single borrower/single property securitization is becoming more and more popluar because it allows for more flexibility/preferential pricing v. creating a super large billion dollar pool. Quicker underwriting, easier special servicing if there is a problem and better pricing.
Whats the differentiation in pricing between AAA and BBB- tranches? I see its 229 bps over 3-month LIBOR but I couldn't find the tiers in pricing.
cre123
Many thanks for your quick replys.
Just clarification, that does mean that the different tranches are "bonds"!? And these "bonds" are issued by JP and will probably sell easy in the market because the underlying loans have Blackstone as their borrower?
Correct. I don't see the differentiated pricing, however. AAA tranche pays out less than BBB- tranche due to AAA having less risk. The first tranche to default (should a default happen) will be the BBB- bonds.
The entire 251.1MM is the bond being issued. All CMBS bond shares are issued as tranches, each with a different payment priority, Class A then Class B then Class C, etc. Because the different tranches have different payment priorities, they have different levels of risk and therefore different ratings and interest rates. In essence, each class acts like a mini-bond inside of the bigger CMBS bond.
Not just because Blackstone is the sponsor, but all single sponsor (or asset) deals have pretty much come to market pre-sold in the last year or so.
Can you help us identify the pricing for this offering?
Thanks
Do you guys know what ranges of pricing would these tranches be?
Not sure about European CMBS, so this is probably not helpful, but right now US CMBS is priced around 100-110 bps over swaps on AAA and range down to 375-425 bps on BBB-, although they have recently touched 440 bps.
Ok so US CMBS is priced 100-110 bps over swaps on AAA. What if its a single entity (BX) with 3 buildings under the CMBS umbrella. Might the offering be 90-100 due to the superiority of and higher demand for this BX CMBS offering?
I honestly am not playing in my own sandbox when it comes to European CMBS, so take this with a grain of salt. Typically you see wider spreads for hospitality single issue CMBS, due to the riskier nature of hotels. Lonestar just did a single borrower hospitality pool where pricing was 163bps over swaps on the AAA, 200 on the AA- and down to 325 on the BBB- and 400 on the BB-.
Final pricing here:
http://costarfinance.com/2015/06/22/jpmorgan-prices-the-dual-currency-b…
Initial tranch pricing for CMBS is a reverse auction - you tell the issuer the lowest spread you will take for the class you want. Issuers match everyone up and get to keep the remainder for themselves. The skim on this deal was pretty healthy 27bps on the sterling part and 42bps on the euro part. Part of that is going to be that it is Blackstone, part of that is going to be that it is these specific assets.
42bps euro skim>27bps sterling skim due to the eurozone problems or due to the fact that sterling>euro on the exchange?
My guess would be Eurozone issues, that low interest rates have tightened spreads, but that isn't my are of expertise. Sadly, our debt group doesn't do any international CMBS, only core loans in the UK/Germany so I can't ask anyone around here about the deal.
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