Talf will end and then?

The Fed said its TALF expiration remains set at June 30, 2010 for loans backed by new-issue CMBS and March 31 for loans backed by all other types of collateral.

This means that we can expect some deflation of the bubble in certain securities, but certainly in CMBS. I'm not suggesting trying to set up a short and time it just right. Rather, I am suggesting that with a fall in cheap,tax-payer financed, low risk (yours not mine) buying power, we will see spreads widen, providing some good buying opportunities. Well researched CMBS buys will provide better yields than almost any other fixed income play. The window for this will be relatively small-9 months max, as the world is chasing yield and won't miss this moment.

CMBS BONDHOLDERS, GET NERVOUS:

CMBS BONDHOLDERS, GET NERVOUS:

November 13, 2009

On Thursday November 12^th, a bankruptcy court judgment in the Extended Stay Hotels case in NY signalled a possible change in how borrowers negotiate with first mortgage CMBS bondholders, and CMBS bondholders should worry.

The bankruptcy judge in the case gave the borrower, Extended Stay Hotels (ESH), the right to access a list of names of bondholders of a CMBS trust with $4.1 billion of mortgages on 680 ESH hotels in order to allow the borrower to negotiate a plan of reorganisation that meets the objectives of the various bondholders (read as in “give me my money now”, or, “don’t wipe me out yet”).

This ruling sets a precedent for possible direct involvement of individual bondholders in various tranches in the restructuring process in other situations where the borrower defaults on a mortgage that is part of a CMBS. This would clearly be in direct conflict with the rules stipulated in the CMBS securitisation documents which vest the Special Servicer with bondholder representation. The potential for chaos in a scenario where all the different tranches were individually represented is enormous and would seem to be contrary to the essential structure of the CMBS.

Charles Cecil

Opin Partners, LLC