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CRE Finance World, Summer 2012

CMBS Opportunities Still Exist, Despite the Rally Intra-Vintage Tiering Opportunities Persist Despite Low-Vol Backdrop Late last year we noted that intra-vintage tiering could present the most attractive opportunities this year, especially if higher volatility were to persist.2 But the concession on bonds backed by lower-credit-quality collateral remains at attractive levels, despite the sharp pullback in market volatility this year. Figure 6 shows end of first quarter and prior year spreads on 2005-, 2006-, and 2007-vintage dupers and 2005-vintage AMs versus our modeled deal cumulative loss under the Base scenario.3 Comparing the end of first quarter trades versus the year-ago trades shows that the slopes of the trend lines became significantly steeper by the end of Q1 2012. The concession for each percentage point increase in projected deal loss was roughly two to three times higher than it was at the same point in 2011, in the case of the 2006- and 2007-vintage dupers and 2005 AMs. Pickups on bonds backed by weaker collateral are as high as 100bp–150bp within the 2006- and 2007-vintage dupers and 2005-vintage AMs. The pickup on weaker-name 2005-vintage dupers is more modest, but has risen to the 20–30bp area. Last year, 2005 dupers were trading with virtually no concession on the weaker collateral bonds. Figure 6 End of Q1 2012 and Prior Year Spreads on 2005–2007 Dupers and 2005 AMs Versus Projected Deal Cumulative Loss (Base Scenario) Source: Citi Investment Research and Analysis A publication of Summer issue 2012 sponsored by CRE Finance World Summer 2012 47


CRE Finance World, Summer 2012
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