Farfromgeneva wrote: ↑Tue Apr 28, 2020 7:07 am
(You'll get a few thoughts mixed in here but the punchline is mortgage and auto are still moving forward, CRE is slowly coming back, other asset classes less functional at the moment)
Depends on the deal, there are some going on. The market is there, but it's not like it was even in 2011-2012 if that gives you a sense. Mortgage and Auto are the most liquid right now. CMBS is looking to restart (commercial mortgage backed securities). In general the equity or residual cash flows in a deal have to be sold to lock in that piece of the pricing of a pool of loans first so if you are getting offered it and have basically not been offered a similar investment before that is an indicator that their deal needs you to get it done in the market.
Sounds like you're being offered the equity tranche of a CLO (collaterlized loan obligation) secured by broadly syndicated, or leveraged, loans. I'm not a fan of CLO equity, it's very pro cyclical, and particularly right now as defaults are increasing and if the equity tranche of a deal is being shopped it tells you they don't have the capital, or the interest in investing, in that portion of the risk right now which should say something to you. That market for CLOs is more or less dead for the moment, it'll come back, corporate finance needs it to. I am currently engaged formally with a CLO manager based in Atl, but who's parent in is NYC as well as a consumer point of sale FinTech lender in LA and a NYC based owner of life insurance secured loan receivables who is looking to use securitization as a form of financing their assets so happy to make some introductions to these folks as a resource offline if you want. All good guys (the guy at the Life Insurance loan receivable guy is a bit of a spazz, the other two I'd give you the CFO whom have far better "bedside manners" than I do) who usually are happy to share their views.
If it's a private placement, I'd say congrats that you qualify as a QIB to invest in 144a transactions. Means you've done well, though I should assume so from the Co ski pad.
Typically if an individual is getting shopped a structured deal it's because the institutional buyer base has shrunk or diminished. That could be a good thing or mean you are ripe for a pickoff but understand that if the market was robust right now they'd turn away from you as a customer in five seconds and you'll never get a good price selling such an investment prior to maturity.
Here's a piece from last friday's primary institutional CRE finance journal (commercial mortgage alert) which might give you a sense:
More CMBS Shops Aiming to Revive Deals
Commercial MBS issuers are in talks to resurrect more conduit offerings that were put on hold due to the coronavirus pandemic, as the first post-shutdown deals hit the market this week.
Bank of America, Morgan Stanley and Wells Fargo are looking to float a revised version of a transaction that was originally planned to top $1 billion (BANK 2020-BNK27). Similarly, Wells is working to revive a deal initially expected to total around $900 million (WFCM 2020-C56). Barclays and several nonbank lenders were slated to join that deal, but the lineup could change. Meanwhile, Morgan Stanley is considering whether to move forward with a conduit issue it had planned for late this month or next month, backed by loans from the bank and a few nonbank CMBS shops (MSC 2020-L5).
Multiple sources said the banks were in active talks among themselves and with other loan contributors about what collateral to include, and reaching out to investors to gauge their appetite.
“All of these discussions are very preliminary,” said one conduit pro, noting that it could take a month or even longer for issuers to pull the trigger on fresh offerings. He and other industry pros said the timing, size and collateral make-up of any upcoming deals would depend heavily on the buy-side reception to another revived conduit transaction, backed by loans from Goldman Sachs and Citigroup, that began pre-marketing this week (GSMS 2020-GC47). That deal will be collateralized by a slimmed-down selection of loans from what was originally planned as a roughly $1 billion offering from those lenders and Deutsche Bank. The dealers this week released a top-10 loan list, and further information is expected by next week. Investors said they’re eagerly waiting to see what the subordination levels and price talk will be in the wake of the recent market upheavals.
Few, if any, loans on hotel and retail properties will be included in the collateral pool for the GSMS deal, because cashflows in those property sectors have plummeted or dried up entirely due to virus-related restrictions on travel and public gatherings. The dealers have hinted to investors that all of the remaining loans are tied to strong borrowers, considered unlikely to seek forbearance in the coming months.
“The chatter I’ve heard is constructive,” one CMBS investor said. “You can’t invest in this space if you think all [commercial real estate] prices are going to zero,” he added. “But if you are presented with a pool with no retail or hotel and all institutional borrowers who will not have a problem meeting their debt service — at a deep discount to what it might have traded at two months ago — over the long run, you will be rewarded.”
Still, not all investors believe enough dust has settled for them to return to the market.
“By removing the hotel and retail, you do not remove all the risk that Covid-19 has brought to bear,” said one. “That is the risk that we as investors are trying to quantify. I’m not sure there is a way to do that.” A $271.1 million issue that Cantor Fitzgerald priced yesterday raised some eyebrows because the largest mortgage in the collateral pool was a $50 million hotel loan, representing 18.4% of the dollar volume. The deal (CF 2020-P1) was backed by 14 loans on 43 properties originated by Cantor’s CCRE affiliate. Multi-family properties made up the largest portion of the pool (42.2%). The other property types were mixed-use (34.7%) and office (4.7%) (see Initial Pricings on Page 10). Cantor shopped three tranches via SEC Rule 144A. The largest class — $152.9 million of bonds rated “AAA” by Kroll, with a weighted average life of 8.9 years — priced at a spread of 300 bp over swaps. The spread on the lowest offered class, rated “A-” and with 18% subordination, was 950 bp over swaps. Cantor retained the horizontal risk-retention slice. It was unclear whether it also retained a $10.1 million B-rated class, or placed it with another investor.
Many investors said this week it was too early to estimate what the market will look like in the coming months, or even next year. Some said they expect the economy will roar to life as Americans celebrate release from the lockdown — but others are concerned that social distancing could become a way of life, possibly for years to come. The uncertainty is likely to depress lending and securitization for some time. BofA this week again revised its already-grim forecast for annual CMBS issuance downward, to $30 billion-$40 billion. First quarter output stood at $22.9 billion.
Secondary CMBS markets remained calm this week. Prices on subordinate securities that have been hammered by the crisis ticked higher by about 10%. That still left many low-rated securities trading at 50-60 cents on the dollar, but holders were relieved to see some improvement. Forced selling of securities prompted by margin calls continued to decelerate, with trading volumes elevated but steadier than in March and early April.
Meanwhile, the wave of requests from borrowers — for forbearance, for waivers of default notices and for permission to use reserves to pay debt service — continued to flood into master servicers. Fitch reported that as of April 12, servicers had received such requests for 5,420 conduit loans and 89 loans in single-borrower deals, for a total securitized balance of $118.5 billion — about 17% of the Fitch-rated universe.
That explains SO much to this amateur. I've been wondering for years why the talking heads at CNBC seem to know so little about economics.
. This is a new area so I will have to understand the acronyms. Thank you again,
