There often has been more talk than action in some cases when it comes to bringing old deal-types back to the new-issue securities market. But two notable transactions did emerge recently, and investors considering them should take note of how they and today's environment differ from what was seen in the past.
As noted previously in the online edition of this publication, the second issuer to actually produce a recent origination jumbo securitization, CSFB Mortgage Securities Corp. 2012-CIM1, has made its debut. Also the market saw the first sub/nonperforming CMBS transaction seen, perhaps, since the RTC days, Rialto Capital, Series 2012-LT1.
Notable in terms of the Rialto deal, which was rated by Fitch, was the fact that it contains bank collateral and appears to reflect a greater willingness on the part of banks to sell such assets.
The jumbo deal was rated by DBRS and also received an unsolicited rating from Fitch, which said it wanted a higher level of credit enhancement than ultimately was provided.
Of note in the unsolicited Fitch report is a comment indicating that unlike the Sequoia/Redwood deals that have represented the post-downturn jumbo market until now, the CMSC deal does not have a binding arbitration provision.
Meanwhile, DBRS notes that the senior-subordinate shifting interest structure has changed in the new generation of jumbo deals.
In addition to information about the subordination floors these deals have had, the report provides more detail on how a test previously used to direct a portion of unscheduled principal away from the senior classes has been eliminated.
“The traditional shifting interest structure…contained a two-times test which generally allows the subordinate classes to receive prepayment principal at an accelerated pace as long as the subordinate percentage had increased to twice the initial level and certain performance tests had to be met,” DBRS said, noting its absence in recent deals.
As far as the backdrop for the distressed commercial/CMBS market these days against which deals like Rialto are done, the sequence of vintages maturing into the market and their effect on performance, as well as the implications online shopping might have for the sector, are among factors that investors might want to consider.
David Tobin, a principal at loan sales advisory firm Mission Capital Advisors, told this publication in commenting on a recent CMBS loan performance report that concerns at Best Buy might be a sign of online shopping's influence.
“Best Buy, which is considered an A-plus retailer in the electronics space—where telephone sales and electronics sales and computer sales should be flying—if they are closing 50 stores, I think that has major structural implications for big box retailer,” he said. “The implication here is that e-commerce is eating very, very directly into brick-and-mortar retailers.”
Tobin shares the view some other observers also hold that CMBS performance in general will continue to deteriorate this year as loans from the period of loose underwriting seen in 2007 mature. However, starting in 2013, CMBS performance overall could improve as loans from the more conservative underwriting period that followed in 2008 enter the maturity window instead. Seasoned supply will likely be more limited though.
Right now, he said, “There's a lot of supply on the market and a lot of demand.”
