Bloomberg News

Deutsche Bank Said to Sell CMBS as Yields Fall to 10-Month Low

March 01, 2012

Deutsche Bank AG (DBK) lowered the yields on a $914.3 million sale of bonds backed by commercial mortgages amid signs of a strengthening economic recovery in the U.S.

Deutsche Bank priced the safest portion tied to shopping centers, offices and hotels to yield 110 basis points more than the benchmark swap rate, according to a person familiar with the offering who declined to be identified because the terms haven’t been publicly announced. The securities had been marketed to pay a spread of 115 basis points over the benchmark. The spread on AAA securities that are less insulated from losses was reduced 40 basis points to 185 basis points over the benchmark.

Demand for securities tied to everything from strip malls to suburban office parks is surging, with spreads on the debt at the lowest since May. Investors are wagering that with unemployment falling to lowest since February 2009, commercial- property owners will be able to cover their mortgage payments.

Bank forecasts for commercial-mortgage bond sales in 2012 range from Wells Fargo & Co.’s prediction of $25 billion to UBS AG’s and Credit Suisse Group AG’s estimates of as much as $45 billion.

Relative yields on top-ranked commercial-mortgage bonds have plunged to 190 basis points more than Treasuries, the lowest since May, according to the Barclays Capital CMBS AAA Super Duper Index. That’s down from a 20-month high of 323 basis points, or 3.23 percentage points, on Oct. 4 at the height of the European debt crisis.

Tightest Since May

The spread on the safest class of debt from the Deutsche Bank deal is the tightest on any deal sold since May, according to data compiled by Bloomberg. Similar securities sold by Goldman Sachs Group Inc. and Citigroup Inc. priced to yield 120 basis points in January.

The bonds rated BBB- from today’s sale, the lowest investment grade ranking, yield 600 basis points more than swaps. That compares with 750 basis points over the benchmark on the Goldman Sachs and Citigroup deal.

Bankers retooled offerings by boosting investor protection on the safest classes and registering the debt with the Securities and Exchange Commission after buyers pushed back on deal terms in July and demand shriveled. Deutsche Bank expanded the pool of publicly offered securities to include debt rated below AAA on today’s sale, potentially broadening the buyer base.

Wall Street is arranging $6 billion in commercial-mortgage bond sales through March, according to a Bank of America Merrill Lynch report last week. Issuance is accelerating after dropping to $2.87 billion in the fourth quarter last year from $8.26 billion in the previous three months, Bloomberg data show.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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