JP Morgan Prices $716.3 CMBS 140bps over Benchmark: Report

JP Morgan (JPM) sold $716.3m of commercial mortgage-backed securities (CMBS) bonds this week, marking the second deal this year. The JPM deal marks the second CMBS issued in 2010 and one of the first since the freeze of the securitization market. The Royal Bank of Scotland issued the first in April 2010. The deal, JP Morgan Chase Commercial Mortgage Securities Trust 2010-C1, is backed by 36 loans secured by 96 commercial properties with an aggregate principal balance of approximately $716.3m, as HousingWire reported. Class A-1 bonds worth $416m sold 140 basis points (bps) over the benchmark swap rate, according to Bloomberg Businessweek. A spokesperson for JP Morgan’s investment bank could not be reached for comment before this story was published. Moody’s Investors Service noted an 80.4% loan-to-value ratio and a 6.7% probability of default in its pre-sale report on the deal. Moody’s said 85.9% of the pool is made up of “less risky” assets — 70.9% anchored retail, 11.8% industrial, 1.8% self-storage and 1.4% manufactured housing. Twelve of the loans are secured by multiple properties, which means they may benefit from lower levels of cashflow volatility. But the deal raises some concerns, Moody’s noted. The transaction is concentrated several ways including by borrower — 13 loans or 42.5% of the pool balance were made to Inland Western Retail Real Estate Trust. Such borrower concentrations can increase asset correlations, which affect pool default and loss distributions, the rating agency said. With 70.9% of the balance exposed to retail, the transaction also carries a property-type concentration, which Moody’s said increases asset correlations, which in turn affect pool default and loss distributions. Additionally, two loans or 8.9% of the pool balance are encumbered by subordinate debt of some kind, and three loans or 8.1% of the pool balance are permitted to incur future subordiaate debt. Moody’s also noted 14.1% of the pool balance is exposed to the office sector — “among the riskier property types,” according to the pre-sale report. Write to Diana Golobay. Disclosure: the author holds no relevant investments.

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