The lenders are issuing top-ranked debt maturing in about 10 years to pay a spread of 135 basis points more than the benchmark swap rate, according to a person familiar with the offering who asked not to be identified because terms aren’t set. The banks initially marketed the securities to yield as much as 150 basis points more than the benchmark. UBS AG and Barclays Plc sold such debt paying a spread of 160 basis points on June 28, according to data compiled by Bloomberg.
The transaction may signal a turnaround in investor appetite as Wall Street dealers had been struggling to find enough buyers for securities linked to shopping malls, hotels and skyscrapers with longer durations. Lower spreads allow lenders to offer borrowers better terms, potentially boosting issuance. Wells Fargo & Co. raised its 2012 forecast to $35 billion from $25 billion yesterday.
“We anticipate issuance to be robust” in the third quarter, Wells Fargo analysts led by Marielle Jan de Beur in New York said in a report yesterday. “Pipelines appear to be active.”
Relative yields on commercial-mortgage bonds have been whipsawed by the European debt crisis. The spread on newly issued 10-year bonds carrying top grades was as narrow as 105 basis points more than swaps in March. A basis point is 0.01 percentage point.
The deal from Morgan Stanley and Bank of America is linked to 72 loans on 98 properties across the U.S., said the person. The largest loan in the pool is a $180 million mortgage on an office tower in Baltimore.
Dealers have arranged about $15.8 billion of the debt this year, compared with $28 billion in all of 2011, Bloomberg data show. Forecasts for 2012 issuance range from Wells Fargo’s $35 billion to Credit Suisse Group AG’s projection of as much as $45 billion. Sales are down from a record $232 billion in 2007.