Commercial Real Estate Direct Staff Report

Banc of America Securities yesterday priced a $368 million resecuritization of super-senior AAA bonds from nine CMBS transactions.

The investment bank had launched its transaction, Banc of America Commercial Mortgage Trust, 2009-Uber1, last Monday, before Morgan Stanley had launched a similar deal that resecuritized super-senior bonds from one transaction. Because it was the first out of the blocks, BofA offered its bonds at a slightly higher yield than Morgan did in order to insure investor attention.

A $264 million A tranche was priced to yield 550 basis points above swaps, while a $104 million B tranche was priced to yield 15 percent. That tranche will presumably be kept by BofA. Because of structuring, the A tranche has a 50 percent subordination level, up from 30 percent for the collateral bonds, so the super-senior bonds become 'uber' senior.

The $368 million of collateral bonds all have 30 percent credit support, meaning they comprise 70 percent of their respective deals. In this case, the $368 million represents 70 percent of $525 million. The $264 million senior A tranche of the re-remic amounts to 50 percent of that total. The higher subordination level gives the bonds a greater cushion against potential losses.

In contrast to the 550-bp spread for the re-remic, generic CMBS conduit bonds last Friday were quoted at a median spread of 815 bp over swaps, which is 215 bp wider than a month earlier, before S&P had announced that it might change its ratings methodology. And that could result in the downgrade of the most recent-vintage AAA bonds. Spreads have tightened somewhat over the week, largely because of the positive buzz from the re-remics.

A total of 70 percent of the BofA deal's collateral is comprised of bonds from deals that were issued in 2007 and the remainder from 2006 deals.

The buzz is that other investment banks, attracted to the positive arbitrage from the re-remics, are considering similar transactions. Among them is Goldman Sachs, but details of its plans could not be learned.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.