Beruflich Dokumente
Kultur Dokumente
Brian Lancaster, Head of Structured Products Research, Wachovia Securities (moderator) Charles Spetka, President, CWCapital Investments Bruce Cohen, CEO, Wrightwood Capital Reginald S. Leese, Managing Director, Blackrock Inc. Mary Davenport, Partner, Vertical Capital LLC Mark Wuest, Director of Risk Finance, Barclays Capital
100 80 60 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Overall CDO market growth in 2005 was dramatic: 103.9% growth by volume 69.8% growth by deal count
2 Source: Wachovia Securities and Asset Securitization Report 2005 data through December.
Number of Deals
120
300
20
35
15
30 25 20 15
Number of Deals
10
10 5
2005 CRE CDO Growth was more than double that of the CDO market 223.9% growth by volume 141.2% growth by deal count 2005 production was equivalent to 86.7% of all previous existing deals!
20 Number of Deals
15
Static Managed
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Both managed and static deals saw dramatic growth in 2005 CRE CDOs emerged in 1999 in response to the market disruption in the fall of 1998. Significant growth in 2004-2005 due to increased structural flexibility (e.g. managed deals with revolvers) and viability of new collateral types (B-notes, mezz., etc.).
4 Source: Wachovia Securities, Commercial Mortgage Alert.
Includes REIT Trusts, Pass-Throughs, and Re-REMICs.
Understanding Commercial Real Estate CDOs: What do CRE CDOs consist of?
Exhibit 7: Deconstructing the Real Estate Finance Tower
A-Note 1 $100 Million A-Note 2 $100 Million
InvestmentGrade CMBS
A-Note 3 $100 Million Subordinate CMBS or B-Pieces B-Note $50 Million C-Note $50 Million
B-Note
Match funding No mark to market Cheaper source of financing Increase assets under management
REITS 66%
CMBS 49%
CTLs 74%
Whole Loans 23% B Notes 20% CTL 7%
CRE CDOs 2%
CMBS 21%
Whole Loans 17% Structured Whole Loans 17% B Notes 2% Preferred Equity 2%
Wrightwood Capital RE Crystal River CRE CDO CDO (Nov 2005) 2005-1 (Nov 2005)
Mezzanine 67%
RMBS 53%
CMBS 53%
B Notes 30%
Mezzanine Debt 10% CMBS 6% Preferred Equity 1%
CMBS 35%
B Notes 33%
Rating Transitions: CDOs with any tranche rating lowered since origination*
Deal Type / Vintage Arbitrage CLO Arbitrage Corporate High-Yield CBO Arbitrage Corporate Investment-Grade CBO Balance Sheet Corporate CDO CDO of ABS/RMBS CDO of CDO CDO of CMBS/REIT CDO of Trust Preferred CDO Other CDO Retranching Cominbation Trust Emerging Market CDO Market Value CDO Total 1996 100.0% 66.7% 0.0% 1997 10.0% 81.8% 15.4% 1998 17.4% 61.8% 0.0% 100.0% 1999 7.1% 67.6% 50.0% 2.9% 0.0% 2000 3.1% 53.0% 27.3% 0.0% 38.7% 100.0% 0.0% 45.5% 0.0% 0.0% 3.2% 23.5% 2001 0.0% 13.7% 45.0% 0.0% 29.2% 0.0% 0.0% 0.0% 4.4% 50.0% 0.0% 0.0% 2.1% 9.6% 2002 0.0% 4.8% 26.9% 0.0% 10.2% 0.0% 0.0% 0.0% 0.0% 33.3% 0.0% 0.0% 0.0% 5.6% 2003 0.0% 0.0% 0.0% 4.8% 1.1% 0.0% 0.0% 0.0% 2.7% 0.0% 0.0% 0.0% 0.8% 2004 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 1.0% 41.4% 31.9% 2.7% 5.9% 4.7% 0.0% 0.0% 9.3% 12.7% 0.0% 0.0% 4.7% 8.6%
0.0%
10.0%
0.0% 13.0%
*Figures represent the percentage of all tranches within each cohort vintage downgraded at least one notch by S&P from origination through 2004. For example, S&P reports that 38.7% of all tranches of all ABS CDOs that were originated in year 2000 have experienced at least one downgrade between 2000 and the end of 2004.
(1)
Source: S&P
Appendix
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The liabilities and equity issued in CRE CDO transactions have been purchased by more than over 100 institutional investors, including several repeat buyers, both in the U.S. and overseas. The geographic distribution of CRE CDO is approximately 55% domestic investors and 45% international investors. CRE CDO Overseas Investors (By Country)
Belgium 2% Austria 2% Germany 15% Ireland 1% Denmark 1% Asia 2%
Domestic 55%
UK 22%
Source: Wachovia Securities. Source: Wachovia Securities.
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Based on historical CMBS loan performance Define preferences, same for CMBS deals
Accuracy versus real world performance? Limited insight into cash flow quality
Define number of asset downgrades to liability class downgrades Insight into structural quality
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Ramp-up period (how much, how long, types of assets) Reinvestment period Optional redemption (provide for yield make-whole, especially for fixed rate CDO bonds) Auction call (may help maintain liability maturities) Clean-up call generally 10% Robustness of IC/OC cushions Turbo amortization of mezz classes Reverse turbo Collateral quality tests Definition and treatment of defaulted assets Events of default for issued liabilities Eligible assets Static: defaulted asset, credit watch, credit impaired, downgraded Managed: same as above, as well as credit improved, discretionary (limit 10%20%) Pay attention to the definitions of these terms Discount purchase limitations
Structure
Definitions:
Trading ability/limits
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Given the flexibility to reinvest in assets, pay down debt as well as buy/sell assets, the new CRE CDO manager is for all practical purposes engaged in balance-sheet management. As a result it is critical to have a seasoned manager that can or has access to other capital sources.
Experience in asset classes: Core competency? CMBS vs. Whole Loans, B-Notes, Mezzanine Loans
Key personnel? Motivation for doing deal (e.g., financing? AUM? Arb?) Investment process:
Underwriting process Surveillance Loss mitigation Trading history Infrastructure and systems adequacy
Skin-in-the-Game
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Relative credit performance vs. similarly rated CMBS Spread versus similarly rated CMBS Granularity, diversity considerations Benefit of collateral manager
Able to act sooner than CMBS special servicers Frequently reliant on CDOs for term financing on a non-MTM basis Significant equity retention Increasing transparency via periodic collateral manager reports to investors
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Class P Interest
First Loss
Reimbursement to Class B Notes for any realized loss borne by such class Class Class C Principal C Principal Reimbursement to Class C Notes for any realized loss borne by such class
Class P Principal Reimbursement to Class P Notes for any realized loss borne by such class
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Principal Proceeds
Taxes, Trustee, Administration and Advancing Agent Senior Management Fees Hedge Payments First, Class A, then Class B Current Interest
Pass
Class A/B Coverage Tests Class C Current Interest, then, Class C Deferred Interest Class D Current Interest, then, Class D Deferred Interest
Fail
Pass
Class A/B Coverage Tests Class C Current Interest, then, Class C Deferred Interest Class D Current Interest, then, Class D Deferred Interest
Fail
Pass
Class C/D Coverage Tests Class E Current Interest, then, Class E Deferred Interest Unpaid Taxes, Trustee, Administrative, Advancing Agent Fees, then Hedge Payments, then Subordinate Management Fees Preferred Shares
Fail
Pass
Principal Paydown: First, Class A, then Class B, then Class C, then Class D
Class C/D Coverage Tests Class E Current Interest, then, Class E Deferred Interest
Fail
Principal Paydown: First, Class A, then Class B, then Class C, then Class D
Reinvestment Period? No
Sequential Principal Paydown: First, Class A, then Class B, then Class C, then Class D, then Class E
Yes
Reinvest based upon Reinvestment Criteria or Pro Rata Principal Paydown
Unpaid Taxes, Trustee, Administrative, Hedge Payment Fees, then, Advancing Agent
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Virtually always Cash Flow based deals (opposed to Market Value) Motivation typically either:
Assets Under Management (AUM) - fee driven motivation, lower credit leverage collateral assets, sell portion of the preferred shares. Typically done by Money Managers. Financing seek match term funding, non-market to market (alternative to repo), retain preferred shares. Typically done by RE Funds, Mortgage REITs, and B-piece buyers.
OC measured on the basis of par value All collateral assets are rated or shadow rated Generally limited to current pay assets Capital structure determined by rating agencyexpected default and recovery values on collateral Typical leverage of 20-25x for AUM deals, 3-10x for Financings Other issues: on or off balance sheet, QSPE or SPE; may impact ability to manage
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WARF
Rating
A CDO is a securitization that is used to finance a pool of commercial real estate assets by issuing collateralized liabilities Like a regular company, a CDO has a balance sheet:
Liabilities
Assets
Equity
Source: Wachovia Securities.
Motivations/Benefits Longer Financing Tenor: Provides match-term financing for up to 10 years vs. typical Repo term of 1-3 years No Mark-to-Market risk for the Collateral Manager: Significant advantage during volatile credit markets (e.g., Fall of 1998) Cheaper cost of funds vs. traditional Repo lines Comparable advance rates vs. traditional Repo lines. However, CDO financing is non-recourse Collateral Manager Flexibility: Ability to reinvest repayments for up to 5 years (subject to maintaining or improving the Collateral Quality Tests) Provides efficient financing for short dated collateral such as floating rate CMBS, whole loans, B-notes, Mezz loans, etc. Financing performance is based primarily upon underlying asset credit performance (e.g., removes markto-market and hedging risk)
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11 Madison Ave.
11 Madison Ave.
11 Madison Ave. Pooled Component A-3 Pari Passu Note (S&P / Moodys) AAA/Aa3 Holder: WBCMT 2004-C12
11 Madison Ave. Pooled Component A-4 Pari Passu Note (S&P / Moodys) AAA/Aa3 Holder: WBCMT 2004-C14 $82,000,000
$82,000,000
11 Madison Ave. Nonpooled Component $13,555,556 Holder: Fairfield St. Solar 2004-1
$143,333,333
$95,555,556
11 Madison Ave. B Note/Holder: Newcastle CDO IV $10,000,000 11 Madison Ave. C-Note Senior Participation/Holder: Crest Exeter St. Solar 2004-1 $10,000,000 11 Madison Ave. C-Note Junior Participation/Holder: Life Insurance Company $27,500,000 11 Madison Ave. D-Note/Holder: Seasoned Real Estate Operator $37,500,000 Mezzanine Debt Preferred Equity Equity
Source: Wachovia Securities.
.
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