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CS CMBS Market Watch Weekly 2010.9.10

CS CMBS Market Watch Weekly 2010.9.10

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Published by: mopgcw on Sep 17, 2010
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09/29/2010

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ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHERIMPORTANT DISCLOSURES, PLEASE REFER TOhttps://firesearchdisclosure.credit-suisse.com.
CMBS Market Watch Weekly
 
Structured Products
Americas
Market Monitor 
The shortened holiday week proved to be a slow week for CMBS, with lighter bidlist activity. Despite that, the ten-year last cash flow AAAs still ended the week15bp tighter at S+300bp. Most of the price action, though, continued to beconcentrated on the AM and AJ bonds, which were estimated to richen by $1-$2.
CMBS August Credit Update
60+day delinquencies continued to flatten in August, with the bucket increasingby just 6bp to 7.58%. This is attributed to increased loan resolutions. We alsolooked at notable appraisal reductions, loan modifications, liquidation as well asmaturities in this credit update.
CMBS and CMBX Spreads and Prices
Δ
bps
Δ
bps
Δ
bps
Δ
bps
Δ
$
Δ
$
Δ
$
CMBS Spreads
09/09/10 09/02/10 08/12/10 09/09/10 09/02/10 08/12/10 09/09/10 09/02/10
CMBX.4
09/09/10 09/02/10 08/12/10 AAA 10y
(Super SR)* 298-17 -52300 -15-50
CMBX.NA.AAA
91.200.36 2.35
 AA 10yr 
3498-2 -23500 00$23 ---
CMBX.NA.AM
80.66-0.02 3.85
 A 10yr 
4498-2 -24500 00$17 ---
CMBX.NA.AJ
56.820.75 1.82
BBB 10yr 
na na na na na na $5 ---
CMBX.NA.AA
36.770.54 1.02
BBB- 10y
na na na na na na $4 ---
CMBX.NA.A
30.300.42 0.63
 AAA 5yr 
269-8 -7250 -5-5
CMBX.NA.BBB
19.140.26 -0.26
 AAA 10y
(Generic) 288-12 -42290 -10-40
CMBX.NA.BBB-
18.400.24 -0.17
 AAA 10y
(AM) 632-60 -8634 -58-6$86 +$2
CMBX.NA.BB
5.000.00 0.00
 AAA 10y
(Junior)1405-35 -1301407 -33-12859 + 1
Source: Markit
BB 10yr 
na na na$2 ---
B 10yr 
na na na$1 ---CMBS
Δ
bps
Δ
bpsPAC IO
3450 0Credit Curve
09/09/10 09/02/10 08/12/10Support IO
8500 0
AAA 5yr/10yr 
40-5 -35
Strip IO
8500 0
AAA/AA
3210+10 +40
 AA/A
10000 0
5yr Swap
19-3-2
10yr Swap
-2-2-2
SWAP
Interest-Rate Swap Spreads to UST
SWAPUST PRICEPRICE
*AAA 10yr (Super Senior) spreads for Vintage 2007 bonds.Source: Credit Suisse
10 September 2010
Fixed Income Research
http://www.credit-suisse.com/researchandanalytics
Contributors
Serif Ustun, CFA+1 212 538 4582serif.ustun@credit-suisse.comSylvain Jousseaume+1 212 325 1356sylvain.jousseaume@credit-suisse.comTee Chew+1 212 325 8703tee.chew@credit-suisse.com
 
10 September 2010CMBS Market Watch Weekly
 
2
 
Market Watch
The shortened holiday week proved to be a slow week for CMBS, with lighter bid listactivity. Despite that, the ten-year last cash flow AAAs still ended the week 15bp tighter atS+300bp. Most of the price action, though, continued to be concentrated on thesubordinate AAA tranches, namely the AM and AJ bonds. In particular, risk appetite for weaker AMs seemed to have returned. After all, some of the stronger name AMs wereseeing bids at close to par. On the other hand, investors were still very selective, and justifiably so, when it comes to AJs. On the week, AMs were estimated to have richenedby $2 to $86 and AJs by $1 to $59.CMBX also rallied across most series and tranches. The magnitude of the change on theweek was mostly sub-$1 with a few exceptions, CMBX.1 AM and AA and CMBX.2 A. Alook at the price changes from six months ago is also telling, though not surprising. Thereis a growing confidence in the more seasoned vintage CMBS as reflected in the positiveprice changes lower down the capital structure between AJ to A for CMBX.1, while for CMBX.4 it is mostly up the capital structure in the AM and AJ tranche. Another point tonote, AAA.4 rallied much more than AAA.1, as investors dialed back their more stressedexpectations since the beginning of the year (Exhibit 1). Consequently, the AAA cash-synthetic basis, as measured by the difference between the ten-year AAA senior cashspreads and CMBX.4 AAA spreads, had also narrowed from 560bp in early February toapproximately 120bp currently. Over the past few weeks, we had seen the AAA cash-synthetic basis narrow by 10bp.
Exhibit 1: CMBX.1 Rally Over the Past Six Months Versus CMBX.4 Credit Steepening
CMBX.1
020406080100120AAA AM AJ AA A BBB BBB-05101520Chg (RHS)9/9/102/9/10$ $
CMBX.4
020406080100120AAA AM AJ AA A BBB BBB- BB05101520Chg (RHS)9/9/102/9/10$ $
Source: Credit Suisse
 
10 September 2010CMBS Market Watch Weekly
 
3
 
CMBS August Credit Update
60+day delinquencies continued to flatten in August with the bucket increasing by just 6bpto 7.58%.
1
This is a record low monthly ”increase” since the beginning of credit crisis;however, it is not without a precedent: a similar drop was observed last summer with only9bp of increase in August 2009 (Exhibit 2). Increased loan resolutions (via liquidationsand modifications) are helping to subdue the headline delinquency rate.While this comes as good news, we remain cautious on calling for a peak in the number of loans with credit impairments. Indeed the pipeline of potential 60+ day delinquenciesmeasured by 30-day delinquent and performing specially serviced loans (PSS) increasedfrom 4.29% to 4.42%. This increase comes after three months of decreases andsubstantially mitigates the improvements in the 60+ bucket. 
Exhibit 2: 60+Day Rate Flattens but Trouble Loans Continue to Increase
   2   5   b  p  s   7   1   b  p  s   *   5   1   b  p  s   4   0   b  p  s   2   3   b  p  s   6   b  p  s
12.00%7.58%
0%2%4%6%8%10%12%14%
    A   u   g    0    8    S   e   p    0    8    O   c    t    0    8    N   o   v    0    8    D   e   c    0    8    J   a   n    0    9    F   e    b    0    9    M   a   r    0    9    A   p   r    0    9    M   a   y    0    9    J   u   n    0    9    J   u    l    0    9    A   u   g    0    9    S   e   p    0    9    O   c    t    0    9    N   o   v    0    9    D   e   c    0    9    J   a   n    1    0    F   e    b    1    0    M   a   r    1    0    A   p   r    1    0    M   a   y    1    0    J   u   n    1    0    J   u    l    1    0    A   u   g    1    0
   D   l  q   R  a   t  e   (   %   )
020406080100
 C  an g ei  n 6  0 Dl   qR a t   e (   b  p s  )  
30+Days Dlq or Performing Specially Serviced (PSS) %60+Days Dlq%
Source: Credit Suisse, Trepp.*46bps of the 71bps increase in March 2010 was due to the Peter Cooper/Stuyvesant Town loan.
Exhibit 3 is one of our favorite charts in which to examine 60+ delinquency rate changes:the chart shows the monthly inflow/outflow of loans used in the 60+day delinquency ratecalculation. The green bars show loan resolutions for worked out/cured loans and the redbars show liquidations; both categories would reduce the numerator used in the monthlydelinquency rate calculation. The blue bars show inflows of fresh new delinquencies.This month, $2.8 billion of 60+ loans became less than 60+ days delinquent. In addition,$1.3 billion of the 60+ loans either paid off or were liquidated (Exhibit 3). Those are recordto date; however, sampling through the data it appears that a large fraction of the loansimproving this month have either been oscillating in and out of 60+ in the past or aredisplaying temporarily higher cash flows
2
. It is also interesting to note that we had a similar pickup in 60+ improvements last August, with a reversion to lower levels during thefollowing months.
1
The August remittance reports reflect July performance.
2
See CMBX delinquencies below for two examples of loans that improved without waving credit loss risk.
60+ daydelinquencies roseby 6bp to 7.58%

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