New demand for higher-yielding bonds from CDO funds backed by traditional money managers has caused CMBS issuers to increasingly pre-place BBB- bonds with a deal’s B-piece buyer. This has squeezed already tight spreads and opened the field to allow new entrants into the historically clubby clan of B-biece buyer and special servicers.
In the past two weeks the $2.9 billion BSCMS 06-PW13 deal from Bear Stearns and the monster $4.2 billion CSMC 06-C4 deal from Credit Suisse both hit the market with their BBB- bonds not offered. Both issuers placed the bonds, along with the below-investment grade bonds, with Hyperion Brookfield, a fixed institutional income fund manager that recently spun off Crystal River Capital in an initial public offering. Hyperion will include the BBB- notes in an upcoming CRE CDO.
“You are starting to see this in other classes as well, such as the Y and Z classes,” a banker said of the increasing use of pre placement. The trend has expanded the number of B piece buyer/special servicers in the CMBS space, as more entrants can tap the CRECDO market for financing rather than having to entirely rely on amassing and managing a portfolio strictly for a fund, according to one fund manager. “In the end, we have fewer bonds we have to sell and we get more competitive pricing,” one issuer noted.
Aggressive bids by Hyperion have won them special servicing rights, market participants noted. All three previous Bear Stearns led deals used ARCap, which bills itself as a high yield fund manager, as the special servicer and B -piece buyer. CharterMac recently closed on its acquisition of ARCap, which also made forays into the synthetic re-REMIC space in the past year.
Officials at Bears Stearns, ARCap and Hyperion did not return calls, and officials at Credit Suisse declined comment.